Update 15th September 2016 – Changes to NZ Superannuation rules affecting NZ QROPS Schemes

From 1st December 2016 the ability to access 30% of the funds at 55 will be significantly reduced. Currently when someone transfers their UK pension to New Zealand, the amount that they can withdraw is determined by Her Majesty’s Revenue and Customs (HMRC). This means that the earliest you can withdraw transferred UK pension funds is age 55 and the amount that you can withdraw is essentially 30%.

However, on 1 December 2016 new legislation being introduced under the Financial Markets Conduct Act (FMCA) will come into effect that will restrict the amount of funds that can be withdrawn from a New Zealand superannuation scheme for members age 55 years old to only 10% of the fund balance.

After 1 December 2016 you will not be able to join a new scheme and still have the ability to withdraw 30% (or more) at age 55. So please get in touch with me if you want to beat the deadline.

Some additional points to consider:

  • When you transfer a UK pension the funds will usually be GBPs, and some schemes will change the funds in NZ$ on arrival, but the scheme that we use allows you to keep your funds in GBPs as long as you wish and you can even invest in GBP denominated investments. All investment advice is provided by stockbrokers and investment advisers Hamilton Hindin Greene
  • I can help take the hassle away for you by explaining the process and what needs to be done step by step, sorting out all the necessary paperwork and co-ordinating all parties involved so nothing gets missed. I will also introduce you to David Hayes at Hamilton Hindin Greene who provides you with personalised investment advice. It is vital that you are happy and comfortable with each step of the process, especially the initial and ongoing investment of your funds.
  • The scheme that we use enables David Hayes at Hamilton Hindin Greene to put an investment portfolio based upon your requirements and goals. The choice of investments includes stock markets in NZ, Australia, UK and US as well as a huge range of Unit Trusts, Funds and Exchange Traded Funds. This is quite similar to the Self Invested Personal Pensions (SIPPs) that are available in the UK, but with the added benefit of expert investment advice.
  • My fee for transferring UK pensions is a maximum of 2.5% for small pensions reducing in steps to 0.75% for large pension transfers . This a one off fee and is deducted from the UK pension once it arrives in the your ROPS scheme. If UK advice is required (normally for Final Salary Scheme transfers over 30,000 GBPs) we use a UK Firm for this and the report costs 995 GBPs per pension. The ongoing cost of the ROPS scheme is competitive and includes the ongoing advice from HHG. Brokerage would be incurred on buying and selling stocks and shares.
  • UK State pensions can’t be transferred, neither can unfunded government schemes such as the Teachers Pension scheme and the NHS scheme. However, if the scheme is funded such as the University Superannuation Scheme and some Local Authority schemes then it is possible to transfer their pensions.
  • You will only be taxed if you transfer after 4 years of becoming a NZ tax resident, click here for the link to the IRD tax booklet on overseas superannuation which has more information. If you transfer to a QROPS there are usually no UK tax implications. I work with experts in UK and NZ tax who can provide detailed personal assessments if required.

Transferring UK Pensions is a complicated subject so feel free to contact me  for a free no obligation discussion on your UK pension transfer options. There is no harm is seeing what the options are and even if you decide not to transfer your UK pensions, you will have at least done so from a position of knowledge – not ignorance.

Update 2nd August 2016 – Myth busting UK Pension Transfers

The Internet is a wonderful source of information but it also allows for a lot of misinformation and half truths to flourish! This includes what is said about transferring UK pensions to New Zealand. So I thought it time to try and dispel some of the more common myths about UK pension Transfers.

Myth 1: Since Kiwi Saver Schemes have lost their QROPS status I can’t transfer my UK Pensions to New Zealand?
Wrong, there are a number of schemes in New Zealand that have the ROPS (Recognised Overseas Pension Scheme) status from the HMRC that you can transfer to, click here to see the HMRC List
Myth 2: There’s no point in transferring my UK pension to New Zealand when the exchange rate is so poor?
Wrong, when you transfer a UK pension the funds will usually be GBPs, and some schemes will change the funds in NZ$ on arrival but the scheme that HHG works with allows you to keep your funds in GBPs as long as you wish and can even invest in GBP denominated investments. All investment advice is provided by stockbrokers and investment advisers Hamilton Hindin Greene
Myth 3: I have lost touch with my pension providers in the UK and it all seems too hard
This is my area of expertise, I can help take the hassle away for you. I will explain the process and what needs to be done step by step. I will sort out all the necessary paperwork so that nothing is missed. I will introduce you to David Hayes at Hamilton Hindin Greene to provide the personalised investment advice. It is vital that you are happy and comfortable with each step of the process.
Myth 4: The investments options are limited
Wrong, the scheme that we use enables David Hayes at Hamilton Hindin Greene to put an investment portfolio based upon your requirements and goals. The choice of investments includes stock markets in NZ, Australia, UK and US as well as a huge range of Unit Trusts, Funds and Exchange Traded Funds. This is quite similar to the Self Invested Personal Pensions that are available in the UK, but with the added benefit of expert investment advice.
Myth 5: What about the fees and costs, I hear that they are expensive
My fee for transferring UK pensions range from 0.75% to 2.5% depending upon the amount transferred. This a one off fee and is deducted from the UK pension once it arrives in the your QROPS scheme. The ongoing cost of the QROPS scheme is competitive and include the ongoing advice from HHG. Brokerage would be incurred on buying and selling stocks and shares.
Myth 6:I thought that my government pension scheme could no longer be transferred
Yes and No – UK State pensions can’t be transferred, neither can unfunded government schemes such as the Teachers Pension scheme and the NHS. However, if the scheme is funded such as the University Superannuation Scheme and some Local Authority schemes then it is possible to transfer their pensions.
Myth 7: I will get taxed on my transfer
Yes and no, you will only be taxed if you transfer after 4 years of becoming a NZ tax resident, click here for the link to the IRD tax booklet on overseas superannuation which has more information. If you transfer to a QROPS there are usually no UK tax implications. I work with experts in UK and NZ tax who can provide detailed personal assessments if required.
Myth 8: It is all too hard and complicated, I will wait till later to consider transferring my UK pensions
It can seem that way, but it is better to assess your options with the rules as they are now. The rules are constantly changing. For example the amount you will be able to withdraw from a NZ Superannuation scheme will be restricted come 1st December 2016 to a sliding scale starting at 9% at age 55, this is a reduction in the 30% lump sum withdrawal and 10%p.a.at age 55 currently. There is no harm is seeing what the options are and even if you decide not to transfer your UK pensions you will have done so from a position of knowledge not ignorance.

This is a complicated subject so feel free to contact me if you want to discuss your UK pension transfer options in more detail and help bust those myths!

Update 14th July 2016 – Brexit and QROPS

Following on from my previous post, the firm that I work with who provides UK Financial advice, when required for pension transfer to New Zealand, has published a more detailed assessment of the Brexit effects on UK pension transfers.

Please contact me if you want to discuss your UK pension transfer options.

Update 28th June 2016 – how the Brexit may affect UK pension transfers

I work with a firm who provides the UK Financial advice when required for transferring UK pensions to New Zealand ROPS (Recognised Overseas Pension Schemes) and their initial take on how the Brexit may affect transfers out of UK pensions is as follows:

So far as the business of transfers from UK pension schemes is concerned our thoughts (IPTS) at this stage are:

1. We do not know if the concept of a QROPS will continue once “Brexit” proceeds. There is, though, no particular reason to think that it will not.
2. The only EU jurisdiction for QROPS that is currently a popular option is of course Malta. It is possible that flexi access may not continue to apply if there is a “hard exit” of the UK from the EU. But if the UK becomes a member of the EEA then this may be unaffected (like other financial services). In any event it has supposedly been HMRC’s intention to extend flexi access to all QROPS jurisdictions.
3. “Brexit” will lead to UK interest rates and gilt yields being lower for longer. This could mean that DB scheme transfer values will remain high and may even tend to increase.
4. On the other hand lower economic growth during the period of uncertainty that we are now in (and which can be expected to continue for an extended period) may well tend to reduce equity returns. This when combined with low and possible lower (even negative) gilt yields will put the funding levels of DB schemes under even greater pressure.
5. Thus, all told, the arguments favouring a transfer out of DB schemes are perhaps greater now than they were before.

Thus so far as the business of pension transfers is concerned, we would have seen a “remain” vote as neutral, and we currently see the “leave” outcome as increasing the pace at which transfers out of UK pension schemes, and out of DB schemes in particular, will take place.

As time progresses and the mists of uncertainty begin to clear we will aim to contact you again with a further update.

Contact me if you want to discuss your UK pension transfer options,

Update 11th May 2016 – Tracing UK Pensions

The UK’s Department for Work and Pensions (DWP) has launched a new pension tracing website to help savers track down lost or forgotten retirement pots. The DWP estimates that around £400m of unclaimed pension savings are waiting to be claimed.

Users will need the name of an employer or provider to access the service, which will then search a database of 320,000 pension scheme administrators and come up with contact details for people to use.

The department believes that recent reforms in the UK, allowing people unrestricted to access to their pension savings, will drive demand for the pension tracing service.

Pensions minister Ros Altmann said: “People have had on average 11 jobs during their working life which can mean they have as many workplace pensions to keep track of. The new DWP online service helps reunite people with their lost pensions, giving details of providers to help people track them down.”

I always recommend that clients fully understand the pension transfer process, how their funds will be invested and the tax implications before committing to transferring their UK pensions to NZ. This is why I refer to Chris Heffernan at Leech and Partners  for tax advice and David Hayes at stockbrokers Hamilton Hindin Greene for investment advice.

If you are considering transferring your UK pensions to New Zealand please do get in touch and I can discuss the various options with you – jeremy@hendersoninternational.co.nz You can also order our latest, comprehensive New Zealand Pension Guide from our website

Update 3rd May 2016 – Taking Expert Advice

I read the following article in the Sunday Star times (Stuff) on Sunday It is a timely reminder that when considering a UK pension transfer to New Zealand, taking expert advice is essential. Fully understanding the consequences of transferring UK pensions to schemes in New Zealand before you make decision, could save a lot of time, hassle and money.

I always recommend that clients fully understand the pension transfer process, how their funds will be invested and the tax implications before committing to transferring their UK pensions to NZ. This is why I refer to Chris Heffernan at Leech and Partners  for tax advice and David Hayes at stockbrokers Hamilton Hindin Greene for investment advice.

If you are considering transferring your UK pensions to New Zealand please do get in touch and I can discuss the various options with you – jeremy@hendersoninternational.co.nz You can also order our latest, comprehensive New Zealand Pension Guide from our website

Update 21st March 2016 – Follow us on Facebook

We are now on Facebook, and will be posting useful financial information news and views, as well as our Newsletters and regular updates on transferring UK pensions to New Zealand, Tax issues, Foreign Exchange, Investment, Mortgages and Insurance and anything else we think maybe of interest.  Also let us know if there is anything that you would like to see.

Update 17th March 2016 – UK Budget 2016

Here are some brief highlights following from George Osborne’s Budget yesterday:

  • An extra £3.5bn in extra public spending cuts by 2020
  • A UK-wide tax on the makers of sugary drinks to raise £530m
  • Fuel and alcohol duties frozen
  • Cigarette duties up 2% and rolling tobacco up 3% from 18:00 GMT
  • Income tax personal allowance up to £11,500 from 2017/18
  • Higher 40% rate of income tax to start at £45,000 in 2017/18
  • ISA limit raised from £15,000 to £20,000 a year for all savers
  • 0.5% increase in tax on insurance premiums to raise an extra £700m
  • Corporation tax to be cut from 20% to 17% by April 2020
  • The Welsh Government budget to rise by £380m between now and 2020

For the full detail have a look at the UK Government website

For some interesting commentary in the Uk pension and Savings space have a look at Towers Watson’s comments

If you want to discuss your pension options regarding transferring UK pensions to NZ please contact me to discuss your situation in more detail.

Don’t forget to have a look at the web links for the experts that I work with and can thoroughly recommend:

All of these are experts in their field and I work with them to help my clients get professional, friendly, expert advice and assistance. The feedback that I have received from clients using the above companies has been overwhelmingly positive.

Update 3rd March 2016

The ability to access 30% of the funds at 55 is about to be significantly reduced. Currently when someone transfers their UK pension to a New Zealand Recognised Overseas Pension Scheme (ROPS) the amount that they can withdraw is determined by Her Majestiy’s Revenue and Customs (HMRC). This means that the earliest you can withdraw transferred UK pension funds is age 55 and the amount that you can withdraw is 30%.

Many clients have accessed this option to withdraw this 30% at age 55. Those withdrawn funds are unaffected by any future changes to the scheme or HMRC rules. Some have used it to pay any tax liability that has accrued when they transferred their pension from the UK to New Zealand.

However, on 1 December 2016 new legislation will come into effect that will restrict the amount of funds that can be withdrawn from a New Zealand superannuation scheme for members from age 55 to only 10% of the fund balance. These rules are being introduced under the Financial Markets Conduct Act (FMCA) and schemes cannot opt out of the rules. After 1 December 2016 you will not be able to join a new scheme and still have the ability to withdraw 30% at age 55.

My current understanding is that existing members of the scheme that we use will be unaffected by these changes. It is also my understanding that those who wish to transfer their UK pensions that have opened their scheme prior to 1st December 2016 will be able to lock-in the old rules and be able to access 30% at age 55, even if this occurs after 1st December 2016.

Update 1st July 2015

There have been some further developments from the HMRC regarding Recognised Overseas Pension Schemes (ROPS). Following budget changes in the UK last year, the HMRC has wanted all ROPS to reaffirm that they still fulfil all the requirements to be a ROPS. The Qualifying has been removed so schemes are now referred to as ROPS.

The HMRC sent forms to all schemes in April 2015 asking them to reaffirm that their schemes rules allowed them to continue to be ROPS. These forms needed to be returned to the HMRC by June 2015. However, during this period the New Zealand Kiwi Saver schemes that were ROPS, were stripped of this status and removed the HMRC list of ROPS schemes. What made the situation worse was that unusually, this was a retrospective change, dating back to 6th April 2015 and they were removed from the HMRC ROPS list. This meant that any transfers from UK pension schemes to these schemes after 6th April would be regarded by the HMRC as unauthorised and potentially subject to a penalty tax charge of 55%, catching a number of people who in good faith had transferred their UK pensions.

However, after submissions by NZ IRD, Workplace Savings NZ and the Financial Markets Authority the HMRC will waive the penalty charges on UK pension transfers made between 6th April and 17th June into Kiwi Saver Schemes, which have lost their ROPS status. Which brings me on to a couple of outstanding issues:

Issue 1

For those who have transferred their UK pension funds to a Kiwi Saver scheme are now unable to transfer out of that scheme as they face a potential UK tax liability of 55%. In addition, they are unable to transfer to a scheme that is ROPS as this is currently not permitted by the Kiwi Saver rules – so what to do? click here to email me

Issue 2

For those who have not yet transferred their UK pension funds but want to do so – what are the options? click here to email me HMRC temporarily suspended the ROPS list which UK pension schemes usually refer to when checking the status of schemes that they  transfer to. This has been updated and published on 1st July 2015. A significant number of schemes have been removed including most Australian schemes but the scheme that we use the Portfolio Superannuation Fund remains on the list – Click here to access the HMRC ROPS list.

Update – 25th May 2015 – New Zealand Kiwi Saver QROPS Schemes

A letter was sent out by Her Majesty’s Revenue Customs (HMRC) in the UK to all QROPS schemes in April 2015 asking them to confirm that they still fulfill the requirements to be a Recognised Overseas Pension Scheme (ROPS), the Qualifying word is now dropped.  On the forms is a section asking for confirmation that the schemes do not allow any withdrawals prior to age 55 apart from ill health. Kiwi Saver schemes do allow for financial hardship and first home buyers withdrawals before that age.

This means that Kiwi Saver QROPS schemes are no longer able to fulfill the requirements of being a ROPS from 6th April 2015. Any transfers in from UK pension schemes into a scheme that is not a ROPS would be regarded as Unauthorised and subject to a possible tax charge of 55% on the transfer amount. Also any withdrawals prior to age 55 in a ROPS would be reported back to the HMRC and again could be subject to a 55% tax charge. However, if you have been out of the UK for 5 complete tax years I understand that this tax charge would not be applicable. However, as with all things tax, I recommend that you take expert advice. If you don’t have an accountant already, please email me if you would like me to recommend one. If you are considering a UK pension transfer to a Kiwi saver that is a QROPS or already have, I recommend that you contact your provider in the first instance to find out your situation and the rules as they see them. However, please email me to find out more about your UK Pension transfer options if you want to use a non-Kiwi saver ROPS to receive your UK pension transfer.

Update – 13th March 2015 – UK Pensions

Tax and Pensions The IRD have issued a Fact sheet recently, so it is an opportune time to revisit this issue.

The Taxation (Annual Rates, Foreign Superannuation and Remedial Matters) Act 2014 may have tax implications for those who have transferred their UK pension benefits to a New Zealand superannuation scheme or taken a lump sum payment from their UK pension. Click here for the link to the Fact Sheet produced by the IRD (IR1024). This provides an overview of the rules.  It is important that you review this to see if you will be affected by these changes. Generally speaking, if you transferred your pension within the first 4 years of becoming a New Zealand tax resident, you will not have to pay tax on the transferred pension.  This is considered a tax exemption period. However, if your pension was transferred after your 4 year tax exemption period and you did not comply with the existing tax rules, you have 2 options to consider.

As always, I recommend seeking advice from a specialist accountant for any questions regarding how these tax rules affect your situation.  If you don’t already have an accountant please let me know and I can pass on details of my recommended Tax specialist in this area.

Access Rules are changing on QROPS schemes in April 2015 The UK Government intends to enact legislation relaxing the rules for accessing pension fund monies in line with UK schemes. Statutory Instrument 2006/206 sets out the conditions to be an “overseas pension scheme” which a scheme must meet in order to be a QOPS. The proposed Statutory Instrument amends those conditions so that funds that have received UK tax relief are not required to use 70% of those funds to provide an income for the individual now that funds of registered pension schemes can be flexibly accessed. Click here for the Explanatory Memorandum. (see relevant sections 4.3 and 7.2) Please let me know if you would like to receive more information on this as it comes available including any changes made that have implications for your pension.

Update – 22nd September 2014 – UK Pensions

Here’s the latest update from Chris Heffernan at accountants Leech and Partners based in Christchurch, New Zealand – www.leech.co.nz – on the forthcoming changes to UK pensions. If you wish to know more please email me at jeremy@hendersoninternational.co.nz or contact Chris direct at chris@leech.co.nz Background Every year in March the UK finance minister, the Chancellor of the Exchequer, announces the Budget for the forthcoming year. There have been few surprises in recent years because of the trend of making announcements of significant policy changes in the previous Autumn Statement. However, the 2014 Budget proposed some profound changes related to the taking of benefits from UK pension schemes. Changes that apply from 6 April 2015 The most important changes are those that take effect from 6 April 2015 and include:

  • Unlimited withdrawal from defined contribution (aka money purchase) schemes from age 55;
  • Banning transfers out of UK State unfunded defined benefit (aka final salary) schemes.

The stated reason for allowing unlimited withdrawals from defined contribution schemes is that individuals should be trusted to make their own decisions with pension savings. The reason for banning transfers from UK State unfunded defined benefit schemes is to protect the UK tax coffers from requests to transfer that will require funding to an estimated £200 million per year. There will be provision for bringing forward the banning of transfers out of UK State unfunded defined benefit schemes, and an earlier ban likely to be implemented if the demand for transfers is high and the cost considered too great. Changes that apply immediately Other smaller changes that took effect from 27 March 2014 included:

  • The amount of total pension savings that are considered ‘trivial’ so that they can be commuted (turned into a lump sum) and paid out were increased from £18,000 to £30,000. The age at which this can be done is still 60, but will effectively be reduced to 55 from 6 April 2015;
  • The amount considered to be a “small pot” for commutation purposes (irrespective of the level of pension saving) was increased from £2,000 per scheme to £10,000 per scheme and the number of small pots that could be paid out was increased from two to three;
  • The amount that could be paid out as income benefits under UK draw-down rules was increased from 120% to 150%;
  • A decrease in the regular pension income limit for flexible drawdown from £20,000 to £12,000. Flexible drawdown is similar to the flexibility that is being introduced without limit from 6 April 2015, but under current flexible drawdown rules a certain amount of guaranteed regular pension income is required before this option is available.

The impact in New Zealand in 2015 The consultation documents are almost silent on the impact this will have on QROPS schemes outside of New Zealand (it says: “The government will consider these implications further to ensure that the rules relating to QROPS are appropriate when the new system comes into force”), so inference has to be drawn. It is possible that the following will apply from 6 April 2015:

  • Defined contributions QROPS schemes will be permitted to allow unlimited withdrawals from the age of 55;
  • The risk of unauthorised payments arising (resulting in a 55% penal rate of UK tax) will mostly disappear;
  • It is possible that the reporting that is currently required within 10 years of a fund being transferred to New Zealand will disappear.

Given the future flexibility of benefits from New Zealand superannuation schemes related to UK pension funds, it is possible that such schemes will introduce a minimum lock-in period for transfers received after 6 April 2015 to avoid being a ‘clearing house’ for transferred funds. The impact on advice Transfers In terms of UK pension transfers, transfers from the NHS, Civil Service, Teachers, Police, Armed Forces, and Fire Service pension schemes will not be permitted, from 6 April 2015 (or sooner if the UK Government decide) as they are unfunded. Individuals who are in such schemes now have only a small window of opportunity to transfer. Although some very restricted transfers between defined benefit schemes will be permitted, in the main individuals with such pension schemes will have no choice after 6 April 2015. Transfers from UK State funded schemes, such as Local Government schemes, all private defined benefit schemes, and all defined contribution schemes will still be permitted. Under-funded private defined benefit schemes will remain protected if it is perceived that a transfer will disadvantage remaining pensioners. This protection will come in the form of a continued ability to delay a transfer, or to offer less than the full transfer amount. Taking benefits before 6 April 2015 Where an individual is aged over 60 (55 after 6 April 2015) and they have total UK pension savings of less than £30,000, it may be better to apply for trivial commutation.  Similarly, where an individual is aged over 60 (55 after 6 April 2015) and they have a number of small pension funds in addition to a large one, it may be better to apply for small pot payments for the smaller schemes. Both of these are subject to the IRD’s view of the tax treatment of such payments. Taking benefits after 6 April 2015 Those aged 55 or those approaching 55 may wish to consider taking benefits directly from a UK defined contribution scheme rather than transferring to a New Zealand scheme. On the one hand this could save transfer fees, joining fees, administration fees and exit fees, but on the other hand there may be adverse taxation as the taxation position is not yet clear. At present, transfers from UK schemes to New Zealand schemes are treated as lump sum withdrawals from foreign superannuation schemes and are taxed under the Schedule Method or the Formula Method, whereby usually only a proportion of the transfer value is taxable. Under proposed UK rules, any withdrawals in excess of a 25% tax-free lump sum will be taxable in the UK, but under the UK/NZ Double Taxation Agreement, New Zealand will continue to have sole taxing rights on UK pension payments. It is not yet clear whether the IRD will treat the excess over 25% as a lump sum or taxable income. It is therefore strongly recommended that individuals wait until it is known how the IRD are going to treat such withdrawals before they opt for a withdrawal over a transfer. IRD are aware of the proposed changes and are considering this. Compulsory advice Pension savers in the UK will be given compulsory but free access to independent advice from authorised advisors when considering the transfer from defined benefit to defined contribution schemes. There is no indication of how this would translate into a transfer to a QROPS. At present the onerous Transfer Value Analysis that currently has to be given in association with such advice does not create any obligation on New Zealand advisers, and it is likely that the status quo will prevail even after the introduction of the new rules. Summary There continues to be a leapfrogging of rule changes between the UK and New Zealand with regard to UK pensions to ensure that the rules remain complex. Hopefully IRD will determine the tax treatment related to the new UK rules before the most fundamental of them come into force on 6 April 2015 so that there can be some certainty of advice. The most immediate issue for both advisers and clients is whether to apply to transfer their UK State unfunded defined contribution pension funds. Time is short, but could be shorter than the stated 6 April 2015 deadline. For older clients there is a number of new options related to small amounts of pension savings that are probably more cost-effective than transferring funds to superannuation schemes. Chris Heffernan Director of Leech & Partners Ltd Chartered Accountants, Christchurch and Ashburton Chartered Tax Advisor (UK) Member of the Personal Finance Society (UK) Member of the Institute of Financial Advisors (NZ)

21st February 2014 –  IRD Introduces proposed amendment on taxation on Foreign Superannuation from 1st April 2014

18 February 2014

Bill to provide flexibility over foreign super

Revenue Minister Todd McClay has introduced changes to the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill to provide greater choice to individuals who decide to transfer their foreign superannuation before 1 April 2014. “This amendment is about providing foreign superannuation holders with extra flexibility when it comes to complying with their tax obligations,” Mr McClay says. The Bill introduced the ‘15 per cent option’ for those who withdrew a lump sum or made a transfer from their foreign superannuation scheme and did not comply with the rules at the time. The changes extend the availability of the 15 per cent option to those whose funds haven’t actually been transferred to New Zealand before 1 April 2014, but who can show they have lodged an application before that date. “Funds transfers can be a lengthy process, so this extension is good news for those wishing to take up the 15 per cent option.” “For transfers or withdrawals before 1 April 2014, a person can either calculate the actual amount of tax payable under the rules at the time or simply apply the 15 per cent option. People who choose the 15 per cent option can include 15 per cent of their transferred or withdrawn foreign superannuation in their 2013–14 or 2014–15 income tax return and have their tax rate applied to that amount.” “If an individual’s marginal tax rate is 33 per cent, they would effectively pay just under 5 per cent tax on the amount they transferred or withdrew.” “I have also asked IRD to clear up a few common myths relating to the tax treatment of foreign superannuation. One such misconception is that foreign superannuation holders could be facing tax of 100% on their pension, which is entirely untrue,” Mr McClay says. Further clarification of the new rules are available at http://taxpolicy.ird.govt.nz/foreign-superannuation. This means that there is an extended window of opportunity to transfer UK pensions as the 1st April 2014 is only when you start the pension transfer process so as long as you lodge your application before the 1st April.

If you thought that you didn’t have sufficient time to transfer do please contact me and we can discuss your situation and requirements in more detail or answer any questions that you may have – Jeremy@hendersoninternational.co.nz

IRD Introduces proposed amendment on taxation on Foreign Superannuation from 1st April 2014

Following on from the IRD’s proposed changes to taxation on foreign Superannuation back in August last year, they have produced a Bill to parliament. Here is the Press Release from Carmel Peters, Policy Manager IRD on 21st May 2013

“Good afternoon,

The Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill has been introduced by the Minister of Revenue.

The bill includes proposals to reform the taxation of foreign superannuation. More specifically, the proposals are targeted at lump-sums received from foreign superannuation schemes. Aside from limited grandparenting provisions, interests in foreign superannuation schemes will no longer be taxed on accrual under the foreign investment fund rules. Instead, they will be taxed on receipt.

These proposals are based on those contained in the officials’ issues paper on the taxation of foreign superannuation, which was released in July 2012. The inclusion rate method has been retained, but a number of changes have been made to the framework as a result of the submission process. Note that the inclusion rate method is now known as the schedule method.

The bill is expected to be referred to the Finance and Expenditure Committee for consideration after its introduction and first reading. The Finance and Expenditure Committee ordinarily invites public submissions on bills.

For further information on the bill and the proposals relating to the taxation of foreign superannuation, please see our tax policy website: http://taxpolicy.ird.govt.nz/news/2013-05-20-foreign-super-tax-bill-introduced

I work closely with Chris Heffernan at accountants Leech & Partners Ltd www.leech.co.nz regarding all things tax – both UK and NZ. Set out below is Chris’s preliminary review of the Bill, and in particular comments as follows in relation to UK pension funds and pension transfers:

·         The new rules do not start until 01/04/14;

·         Between now and 01/04/14, individuals who transfers or take lump sum benefits have a choice of using:

o   Option 1: If the FIF rules have been adopted, then the FIF rules can continue to be used; or

o   Option 2: A straight 15% of the amount transferred or lump sum taken as taxable; or

o   Option 3: They can use the ‘existing’ rules to calculate the taxable income.

·         For transfers or lump sum benefits that have already been taken (between 2000 and now), the above rules will apply also – no general amnesty. Option 2 above involves adding income to a future tax return with no interest or penalties applying. Option 3 involves interest being charged and possibly late payment penalties.

·         Where Option 3 above is considered, the trust rules will generally be unattractive because contributions that received tax relief (e.g. UK pension contributions to a UK scheme) must be treated as accumulated income rather than trust corpus and chargeable as beneficiary income. If the trust was a non-complying trust, the same would apply, but the distribution would probably be a taxable distribution chargeable at 45%. In most trust cases, Option 2 will be the most beneficial.

·         Where Option 3 is considered and the company rules apply, the ability to use the ordering rule to calculate the amount of any dividends may result in none of the transferred amount being taxable.

·         From 01/04/14, there will be an exemption period of four years that applies to all new immigrants.

·         Those that are transitional resident do not get four years + four years – they only get their period of transitional residence.

·         Those that have used the FIF rules to calculate income previously, can continue to use it, but there are strict grandfathering rules. It is too late to adopt it now for the first time.

·         The default method of calculation after 31/03/14 is the Schedule method.

·         The Schedule method involves a percentage of the transferred amount or lump sum benefit being taxable. There is a percentage for each year, rather than banding of years. Year 1 starts 4 years after NZ residence starts.

·         The second method is the Formula Method. This only applies to defined contribution schemes where the value is easily calculated both when it first became taxable, and at later dates also. There are strict rules on its application.

·         The Formula Method has an inbuilt interest charge that the rate of which is essentially equal to the growth rate of the fund

·         Transfers to KiwiSaver have an ability to ask the Trustee for an amount equal to the tax payable. However, this may give rise to an unauthorised payment charge from HMRC.

·         There is no ability to extract funds from superannuation schemes to pay the tax, so cash has to be found from other sources to pay this tax.

Where to from here? If you have any queries or questions please let me know at jeremy@hendersoninternational.co.nz  and I will be happy to help,alternatively if you want to discuss your individual situation and how these proposals may affect you, feel free to contact Chris at chris@leech.co.nz or +64 3 307 6688 www.leech.co.nz .