New rules will limit cash for NZ QROPS transfers
In the latest of a series of developments to hit the business of transferring UK pensions to New Zealand, new rules have been approved that will reduce the amount of cash pensioners may withdraw at the age of 55 in that country to approximately 10%, beginning later this year.
However, according to London-based barrister and pension transfer expert Michael Reason, those who say the rules will limit the total cash withdrawal to 10% are wrong, and that in fact, the way the rules are written the limit is 10% a year, this being a “‘relevant period’ referred to in the applicable New Zealand regulations”.
In other words, he says, the result of the pending change “that the 25% [all that typically remains after pension transfer fees and other costs are extracted] may be taken over a two- to three-year period”.
The new rules will apply “at least to retail schemes and possibly also to small non-retail and self-invested” schemes, Reason added.
They were first enacted in 2014, and must be opted into by registered schemes by 1 December.
Currently, the amount those transferring their UK pensions to New Zealand are able to take as cash (without being hit by an ‘unauthorised payment’ charge) is determined by UK regulations, which stipulate that the earliest one is permitted to begin accessing one’s pension is at age 55, and the maximum amount of cash one may withdraw is 30%, though after fees the most people are normally able to take is somewhere between 20% and 25% of the total.
Pension industry experts say pensioners have traditionally made use of what remains of their permissible “lump sum” for such purposes as paying off a mortgage ahead of retirement, or getting rid of debt.
They mustn’t withdraw more than 30% in total, because HM Revenue & Customs is adamant that 70% of UK pensions be used to provide income in a person’s retirement.
Simon Swallow, a pension expert with Charter Square, a New Zealand-based international pension transfer specialist, says the new rules limiting cash people can take from their pensions at age 55 is part of a New Zealand government effort to “better align the accessible age for personal superannuation schemes with KiwiSaver Schemes, which is age 65”.
According to Reason – who is with London’s Field Court Chambers – a consideration for those considering transferring their pensions to New Zealand is that the transfer must take place within their first four years of becoming New Zealand resident if they are to avoid the country’s pension transfer tax.
New Zealand schemes hit in 2015
Individuals who have transferred their UK pensions to New Zealand in recent years have been caught up in a drama that began last year, when the UK government eliminated all of New Zealand’s so-called KiwiSavers pensions – as well as most of their Australian counterparts – from its list of recognised schemes, and shutting down all transfers to the remote Oceania island nation.
HMRC argued that many of the New Zealand and Australian schemes were, in fact, not proper QROPS after all, because they allowed pension benefits to be paid before age 55 in cases of “serious financial hardship”, as well as assisting with home purchase, which is not allowed under HMRC’s so-called “pensions age test”.
HM Revenue & Customs current QROPS list – updated today – shows 31 New Zealand QROP schemes.
The new rules applying to UK pensions transferring to New Zealand are included in the New Zealand Government’s Financial Markets Conduct Act, and may be viewed by clicking here.