NZ’s new pension rules: an opinion
From the tail end of this year, new rules will limit to 10% the total cash investors over the age of 55 in New Zealand may initially take from their transferred UK pensions – as International Investment reported here on Tuesday.
Below, Mark Hattersley, business development manager for New Zealand-based Endeavour Fund Administration Ltd, which markets QROPS to financial advisers, addresses some of the issues raised by the new rules.
The first thing to stress, when discussing the changes to New Zealand’s pensions legislation that are expected to come into force later this year, is that New Zealand’s investor protection provisions do not permit schemes to impose retrospective and detrimental terms on their members without 100% written acceptance by them.
What this means in practice is that all members who signed up under previously- existing rules can continue to abide by them, just as they were originally written, if their superannuation scheme de-registers and becomes a “legacy scheme.”
The rules set out under the most recent New Zealand Financial Markets Conduct Act became public in 2013, well before HM Revenue & Customs published its final “flexi access” rules in 2015. These New Zealand rules were aimed at ensuring that local superannuation schemes followed ‘income for life regulations’ that are now contained within the Pension Tax Manual.
It remains a major focus of Endeavour Fund Administration and its associated companies to continue lobbying the NZ government to change the rules contained in the FMCA document before they come into effect – currently scheduled for 1 December 2016.
Nevertheless, the fact remains that schemes can elect to become “legacy schemes” as defined under New Zealand legislation – thus protecting the expectations of all members admitted into a superannuation scheme prior to the first of December 2016, as regards the format of their retirement benefits.
The backdrop to this situation is a global pension transfer industry that has shown itself to be extraordinarily adaptable to the ever-changing QROPS landscape.
An example of this was the way international advisers responded, in 2015, to new UK requirement that persons contemplating transferring defined benefit schemes and other plans worth in excess of £30,000 needed to obtain Financial Conduct Authority-regulated advice first.
Almost overnight, offshore advisers across the globe established links with suitably-qualified advisers who are now providing their clients with that advice.
So it stands to reason that if New Zealand QROPS providers cannot persuade the government to change rules like those that are due to take effect in December, we can be fairly certain that links will be formed with QROPS providers in more liberal jurisdictions, to allow full access to retirement funds at age 55.
That’s because the new rules, somewhat curiously, don’t prohibit the transfer of retirement funds from New Zealand to overseas retirement schemes in other countries, even though they may allow a more liberal retirement draw-down facility.
Here at Endeavour, in fact, we just agreed terms with Malta-based Elmo Pensions to enable us to transfer pension assets to that jurisdiction, should clients wish to take advantage of that option.
One point that risks getting lost in the rush to pension encashment is that there are, in fact, some fundamental disadvantages in accessing money too early.
Indeed, given the latest mortality statistics and UK Government coverage of the whole issue of retirement provision, there’s a strong case to be made for the argument that accessing benefits at age 55 should become the exception rather than the rule.
Certainly we at Endeavour believe that most of the world’s people are generally ill-prepared financially for retirement, and that this under-provision will come into stark reality, as it dawns on people that what used to be a 15-year average retirement period has now become something closer to 25 or 30 years and sometimes more for the average couple.
What is also missed is that some countries in which UK ex pats settle don’t actually recognise the concept of a tax free lump sum payment on retirement, meaning all benefits received are subject to local taxation.
Where it is recognised, the ability to receive each pension instalment as partly a tax-free cash sum and partly taxable income has much to commend it as a hugely sensible and responsible approach to retirement income provision.
As for New Zealand QROPS, meanwhile, we as a business remain hugely optimistic that we will continue to be able offer a highly attractive and relevant QROPS offering, even after the first of December.