By Simon Swallow*
On Monday this week the HMRC removed all KiwiSaver schemes from the list of recognised overseas pension schemes.
This is a move with massive and potentially dire implications for those in the process of transferring to, or already transferred to, a KiwiSaver scheme.
The reason KiwiSaver schemes have been removed from the list is because they offer benefits to people before the age of 55 through withdrawals like financial hardship, first home buyers and permanent migration, and no scheme that receives UK pension transfers is allowed to do that from 6 April 2015.
Firstly, if you are in the middle of transferring to a KiwiSaver scheme then you should stop the transfer immediately. If you do not and the transfer goes ahead under current rules you could be liable for a 55% tax charge from the HMRC because the transfer will be deemed an unauthorised payment.
This is a complete body blow for all those that were hoping to transfer their UK public sector pensions, like NHS, Teachers, Armed Forces, Police and Civil Service pensions to New Zealand because your transfers may now be rejected. And due to the rule changes on 6th April 2015 if you have one of these pensions you do not have the ability to go back and resubmit a new transfer request so your pension will now be stuck with the UK scheme.
If your UK pension transfer arrived with a KiwiSaver between 6th April and 18th May 2015 (when the HMRC list was updated) you may find yourself with a 55% tax liability. The HMRC indicated well in advance of the 6th April 2015 that it was changing the rules to mean that schemes that allowed access prior to 55 would no longer qualify as schemes that could receive UK pensions. Therefore, KiwiSaver schemes should have been warning people in the middle of transferring that if the transfer was not complete by 6 April then they should stop.
For those that transferred their pensions into a KiwiSaver prior to 6 April 2015 the implications are equally as disastrous.
Under the previous rules KiwiSaver schemes got a special exemption but they still needed to agree to follow QROPS rules, one of the most onerous of which is that they should only allow a member to transfer back to another UK scheme or another qualifying recognised overseas pension scheme (QROPS).
However, under KiwiSaver rules you can only transfer to another KiwiSaver and if no KiwiSavers are now QROPS you are effectively stuck in your existing KiwiSaver scheme under current New Zealand rules until you turn 65.
It would appear that the only solution to this issue is if the Government allows for a temporary exemption to allow everyone that has transferred his or her UK pensions into a KiwiSaver scheme the option to transfer out to a non-KiwiSaver QROPS scheme in New Zealand.
The only way this will happen is if the magnitude of the issue is exposed to the New Zealand government.
So if you or anyone you know is affected we are starting a petition to take to New Zealand law makers to ensure that you do not end up trapped by a previous well intentioned decision decision now being affected by some cross border rule changes you have no control over. A petition for an urget rule change is here: http://qropsnz.com/kiwisaver-qrops-petition/
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Simon Swallow is a director of Charter Square. You can contact him here.
16 Comments
This is an entirely sensible and predictable rule change. The UK government, for all its faults, does hold a very dim view of the kind of shady dealings conjured up by the idiots in the National government.
Our fledgling retirement savings are exactly that, for retirement. Not to be misappropriated as a house price inflating vendor subsidy to be transferred into the pockets of the greedy boomer generation.
Hopefully there are some decent QROPS options still available if I ever move back to New Zealand.
3% on a pension fund is fairly conservative, its usually quite a bit more...
And there are incentives, for example;
When I was a salaried employee, my employer would triple whatever I contributed up to 4% of my gross salary. So in effect, an extra 8% of my salary worth of free money if I sacrificed in 4%.
Also tax;
Pension contributions are pre-tax. An quirk in the UK tax system means that you are paying a nominal tax rate of 62.5% on your income between 100k-125k p.a. So to avoid basically throwing that money away, you need to reduce your taxable income to below 100k p.a. The best way to do this is to look at your income at the end of the tax year and put lump sum into a pension to get your taxable income down.
There are also tax benefits now being self-employed. Pension contributions are classed as business expense so you can bypass corporation tax, and also bypass your personal income tax. You are allowed 40k a year in tax free pension contributions. It is one route for getting money out of your limited company and avoiding a cumulative 50%-60% worth of tax on the money.
As for "investing" everything you have in housing instead of spreading some out on a pension. Looks like an awful lot of transaction cost, risk and responsibility these days with limited upside for "growth" and negative returns. I'm not much of a gambler.
In Kiwislaver/NZ you pay tax on your contribution, and the ESCT is the name given to the amount deducted from the employers contribution.
Your employer contribution is "off the scale" for modern NZ, the norm was no extra contribution until Kiwisaver, as most Kiwi's needed it in their paypacket, and then it was their choice what to do with it - as there are no incentives in NZ for employers to help with retirement funding.
All the funds are tax compliant, so they pay tax on their earnings as a normal investment business.
3% seems about right based on the numbers I'm reading on Interest.co.nz.
Remember that the numbers _compound_, and that there are annual contributions which make up a sizeable portion of the fund for the first 10 years.
even the default funds are closer to 10% than 3% this year, and if you picked a good growth fund you are looking at 15-20%pa over the last 3 years. Really only the cash funds that are returning 3%.
http://www.interest.co.nz/kiwisaver/performance-ranking
That's an interesting point. To be QROPS compliant the Kiwisaver scheme had to agree to withhold 55% from any withdrawals or transfers from the scheme and pay that direct to HMRC. But if Kiwisaver accounts are no longer compliant anyway then will the providers feel bound to comply with this requirement as they don't need to keep HMRC happy? Although if the provider still offers non-Kiwisaver QROPS they probably will need to comply to keep that status for their other schemes
Even before this change it may have been preferable to transfer into a non-Kiwisaver QROPS. Kiwisaver accounts will always carry the risk of political meddling. Furthermore, the funds are tied up until 65 (subject to the various exemptions) whereas in a non-Kiwisaver superannuation scheme funds can be accessed from 55. The only issue is that to be QROPS compliant, 70% of the funds still have to be used to buy an annuity, despite the fact that the UK have abolished this requirement for funds that remain in the UK. Hopefully they will eventually remove this requirement for QROPS as well.
Hi I am one of those people who are at the start of trying to decide whether to bring over a works pension or not. Having read all the posts i am still quite undecided but learning more towards bringing it. One added complication is that as i have only been here 2 years I still have a further 2 years in which to bring over my pension tax free. Also as I am able to release 25% of my pension tax free would i better to bring that over as cash and start a new pension here, avoiding administration fees. bringing the remainder over in a lump sum when i can take a further 25% tax free only paying tax in the UK on the remainder. Providing its all completed within my 4 year tax holiday in NZ i will avoid paying tax.
It just grieves me to keep paying admin fees to move my money.
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