By Simon Swallow*
Following nine years in limbo with restricted access to KiwiSaver, people who transferred their UK pensions into KiwiSaver schemes may finally be seeing some light at the end of the tunnel.
In 2015 the HMRC (UK tax department) stopped all KiwiSaver schemes being able to accept UK pension transfers, or any funds that derived from UK pension transfers. This was because they didn’t like that KiwiSaver schemes allowed people to access their funds before age 55, as first home buyers or for material hardship.
This trapped transferred funds for two reasons:
- If you had transferred your UK pension to a KiwiSaver scheme you were stuck in that scheme, because you can only have one KiwiSaver scheme, and you could not transfer out because no other KiwiSaver schemes could accept the UK portion of your funds
- The UK government deemed that any funds paid out to a member were UK transferred funds first and if the payment was made before age 55 you would get a large tax bill from the HMRC – so no first home buyers or hardship withdrawals allowed, and no payment out of the funds if you permanently left New Zealand until you were 55
Thankfully, the IRD is now righting the UK wrong by allowing, from April 2025, members of KiwiSaver schemes with UK transfer funds to move the transferred amount, including growth, out to non-KiwiSaver schemes. The details are outlined in the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Bill
This development will allow affected members:
- Greater flexibility, as a Qualified Recognised Overseas Pension Scheme (QROPS) allows access to retirement funds at age 55, compared to age 65 in KiwiSaver.
- The ability to make hardship or first-home buyers' withdrawals from the remaining KiwiSaver funds.
As the legislative process unfolds, KiwiSaver members and industry stakeholders will be watching closely for final details and guidance. If implemented effectively, this policy has the potential to empower many with greater control over their retirement planning. As with any legislative change the devil will be in the detail and how it applies to each individual stuck in these circumstances.
Getting proper financial advice will be crucial as you seek to determine:
- How your KiwiSaver schemes will determine the growth and total value of their UK transferred funds
- What your current and future tax obligations look like, and
- KiwiSaver schemes process for transferring out and where you can transfer to
Navigating these rule changes will be complex, and the right guidance and support is essential.
Simon Swallow is a director of Charter Square and runs QROPSNZ. You can contact him here.
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