There have been so many legislation and tax changes for those of us with UK pensions that it has been, and continues to be, quite a minefield!
To try to make things simple and a little more understandable, I’ve attempted to encapsulate what is, or is not available now, to those with UK or Australian pensions.
Australian pensions can be transferred to Kiwisaver accounts only and these do not fall under the NZ Foreign Superannuation Tax Bill, so there is no tax to pay upon transfer to an NZ Kiwisaver account. There are tax differences however, between Australian Superannuation products and New Zealand Kiwisaver accounts AND, it is worth looking at the death benefits associated with some Australian funds and any other associated benefits that may have been included, that will be lost upon transfer.
UK pensions remain complex. Anyone with a public sector unfunded defined benefit scheme can no longer transfer away from the UK – this was banned by the UK government when they introduced changes on 6th April 2015. So, for anyone who still has a ‘final salary’ pension left with the Armed Forces, Police, Fire Service, NHS, local civil service or Teachers schemes, for example, the ‘ship has sailed’!
Other types of pension scheme however, still have the ability to transfer. It is worth noting though, that although it is still possible to transfer a private defined benefit scheme, consultation is still going on in the UK as to whether there should be a ban on anyone with these schemes too, just like the ban on public sector schemes now in place.
When transferring a UK pension to NZ, access to the pension fund will be restricted along similar lines as to what would have applied had the fund remained in the UK (prior to the April 2015 UK changes). Generally, no access is allowed before at least age 55.
In April 2015, the UK changed its pension rules, now allowing individuals to withdraw ALL of their fund at their scheme retirement age, albeit a maximum of 25% is tax free and the balance is taxable at their marginal rate. We have all been watching with baited breath, to see if this rule will be passed through to those here in NZ who have already transferred their pensions to a Recognised Overseas Pensions Scheme (ROPS), allowing us to withdraw the whole fund at scheme normal retirement age too, alas, this is not yet to be!
We are therefore left with having to ensure that 70% of our ROPS funds provides ‘an income for life’, inferring that the balance can be withdrawn as a lump sum. However, for the lump sum withdrawal, the amount available may depend upon whether the individual concerned has left the UK for 5 full tax years or not. Any withdrawals are reported back to the HMRC by the NZ ROPS provider and if the HMRC deem a withdrawal to be ‘unauthorised’, they are able to tax the individual up to 55% on the amount withdrawn – this being deemed as an ‘unauthorised payment charge’.
Once the transfer is received in NZ, the Foreign Superannuation Tax Bill stipulates that if you transfer within 4 years of you arriving in NZ, there is no tax to pay. After this period, tax applies. The amount of tax increases the longer you leave it to transfer after you have left the UK, plus there are two tax methods that may apply, so tax advice is recommended.
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