In summary these rules , which came into effect 6th April are:

• At least 70% of the UK tax relieved funds transferred to a QROPS must be used provide an “income for life” at retirement date, which can be  no  earlier than age 55.
• NZ QROPS must report any withdrawals to the HMRC for up to 10 years after the transfer is made.
• The “5 year non UK tax payer” rule will run alongside the new 10 year reporting rule.
• All new members of QROPS must complete an HMRC form APSS263 declaration which includes a sign off that they recognise that any future payment  ”may be treated as an unauthorised payment giving rise to a UK tax liability”

Please call us to discuss how these rules affect your UK pensions. If you have previously transferred a UK pension to NZ and are unsure of what these rules mean to you contact us today.

The decision comes after those affected by IRD’s interpretation of a 2006 law had been ringing tax advisers in tears at the prospect of tens of thousands of their retirement savings dollars being gobbled up in tax.

Tax adviser Terry Baucher said IRD’s plans involved taxing the growth in pension funds transferred to this country. “The IRD was saying for people who transferred their pensions to New Zealand, in some circumstances the entire growth over the time they were contributing was taxable.”

IRD has now put the plans on hold, reviewing it’s interpretation of the law. Baucher expects to hear a result early n the new year.

And IRD spokesperson said “Ministers have agreed to review the current law with respect to foreign pensions and foreign pension schemes. This review creates an uncertainty as to what the law will be. At this stage, and on that basis, the Commissioner of Inland Revenue has determined that the current compliance activity in respect of foreign pensions/pension schemes should be put on hold until the outcome of the policy review becomes clearer.”

UK pension schemes were not exempt from the Foreign Investment Fund (FIF) regime in New Zealand as of 6 April 2006, because from that date the UK made it easier to transfer UK pensions to a New Zealand scheme such as KiwiSaver. Once in a New Zealand scheme, the fund would be taxed like that of a New Zealand citizens. But under current interpretations, British savers would have been hit with a bill for the entire time they had been saving.

Baucher said it was alarming that the IRD took five years to identify the potential tax issues. “When we have a self-assessment system and the IRD is not providing guidance on areas like this, it’s not good practice to put up red flags five years down the track. It’s difficult to say how many people will be affected but there are significant numbers of pension transfers.”

Baucher had one client who had GBP300,000 in growth in his account, which would have to be taxed at the rate that was relevant at the time, in this case 39 percent.

“We’ve got people facing £50,000, £60,000 or £70,000 in tax charges and interest, plus, potentially penalties. I have had people talk to me and they are horrified. Imagine if you make a transfer you think is capital and are told that New Zealand is going to tax all growth, even what you put in before even contemplating moving to New Zealand.”

Baucher said other countries had a capital-gains tax system where people who migrated were deemed to have acquired the funds at the current market value at the time they became resident, and paid tax on growth from that point on.

The other change the IRD has announced is that people living in this country have to pay a fair dividend rate of 5 percent on their foreign pension funds until they transfer their investment to a New Zealand fund, because overseas pension schemes are no longer exempt from the FIF.

The 5 percent fair dividend rate is calculated on the opening value of the fund and then taxed at 33 or 39 percent is paid on that amount.

The situation is different from a New Zealander’s KiwiSaver account, because the KiwiSaver fund pays the tax on accounts out of the fund – the saver does not have to delve into their own pocket to cover it.

But UK pension holders would have to finance the tax themselves, while being unable to access the account.

Martin Riley, of Sterling Tax Services, said the IRD needed to realise it was a big decision to transfer a pension from the UK. He said in some cases it would be unwise for people to move their pensions – if they were in a final salary scheme guaranteed by the government with annual increases to match inflation, or if they were not sure their future was in New Zealand. “It seems unfair that the taxpayers would be taxed on the growth in the fund when they realistically had no access to it.”

Baucher said most of the 20,000 British migrants who arrived in New Zealand every year would be affected in some way. “If someone has come here and has been contributing for 40 years, they might have £1 million in a scheme locked up and have to pay 5 percent on tax per annum, even if they are not drawing from it.”

The state pension in New Zealand is known as New Zealand Superannuation or more colloquially as National Super. You will be eligible if you:

• are 65 years of age or over and
• are a New Zealand citizen or permanent resident and
• have lived in New Zealand for a certain amount of time and
• normally live here when you apply

You need to have lived in New Zealand for:

• a total of 10 years since you turned 20 and
• five of those years to be since you turned 50, unless you spent some of that time overseas

 What happens to my UK State Pension?

The UK state retirement pension is normally payable in New Zealand, but you will not get annual increases in the benefit once you have ceased to be ordinarily resident in the UK. This means that your pension will stay at the same rate as when you left the UK, or when you first qualified for the pension if you were already living in New Zealand at the time.

If you are eligible for New Zealand Superannuation, your UK state pension will be paid directly to the NZ Government. If you are not eligible for New Zealand Superannuation, you will receive your UK state pension directly. You need to declare this income on your tax return in New Zealand.

You are generally not eligible for special allowances, such as the Winter Fuel Allowance, when you are living in New Zealand.

To find out how much UK state pension you are eligible for, you can apply for a State Pension Forecast from the Department for Works and pensions. This will include information on your Basic State Pension, Additional State Pension (or SERPS), and Graduated Retirement Benefit. You need to complete form BR19, which is available at the following addresses:

http://www.thepensionservice.gov.uk/resourcecenter/br19/home.asp

The DSS website for pensions is:

http://www.thepensionservice.gov.uk/home.asp

Receiving UK Pensions Payments in New Zealand

If you are receiving UK pension income in New Zealand (whether from a personal, occupational or state pension), there are a couple of points to note:

1. If you are eligible for New Zealand Superannuation, your UK state pension will be paid directly to the NZ Government
2. If you are not eligible for New Zealand Superannuation, you will receive your UK state pension directly. You need to declare this income on your tax return in New Zealand
3. You will be taxed on your income from personal and occupational pensions, unless you are a transitional resident

Currency exchange charges and exchange rate fluctuations can affect your income. Our foreign exchange partner NZ Forex has a good service for setting up regular pension payments from the UK to New Zealand. You’ll save money on the charges that a UK high street bank would make every month for setting up these payments. You’ll also get a competitive exchange rate on the funds you transfer, and you can even get an exchange rate locked in for up to two years, providing you with stability of income.

It might not be too late to transfer your personal and occupational pensions – most pensions can still be transferred once they are in draw-down, but not once an annuity has been purchased.

As well as better weather and a higher standard of living, Brits are being further tempted to move to New Zealand because of the number of jobs on offer. New Zealand is actively crying out for skilled workers and its Government currently cites a need – and vacancies – for professions as diverse as engineers and midwives to tandem skydiving instructors and jockeys.

New Zealand’s level of unemployment is currently 4.7%, compared to 6.7% in the UK. What’s more, The Land of the Long White Cloud entered into a recession earlier than the UK and is therefore expected to return to positive growth earlier than most developed countries, including the UK.

Interest rates are also higher meaning a better return on investment for New Zealanders. The Official Cash Rate is 2.5%, which is equivalent to the Bank of England’s base rate of 0.5%. The Auckland Savings Bank is currently offering 5.25% on a two-year deposit account and many other banks are offering similar deals. The New Zealand government itself has further announced a scheme whereby it guarantees existing and new deposits of up to $1million per person in approved institutions.

The number of Brits moving permanently to New Zealand has rocketed by 20% over the last year. A total of 8,300 people migrated from the UK in the last 12 months, compared to 6,900 in the previous year.

Many more Brits enter New Zealand under the country’s Working Holiday Scheme, which was recently extended to 23 months – considerably longer than Australia’s 12 month scheme.

Auckland on New Zealand’s North Island recently came fourth in the Mercer 2009 Quality of Living Survey, whilst the country’s capital Wellington came 12th. London came 38th in the survery. The research covered 215 cities and was based on criteria including political, social, economic and environmental factors.

QROPS came as a result of pension simplification in the UK, and were introduced in 2006. New Zealand QROPS are approved by the UK’s HMRC and regulated by New Zealands Financial Markets Authority. New HMRC reporting rules came into force in April 2012.

Our experienced, UK qualified team will liaise directly with your UK pension provider to facilitate the transfer on your behalf. Being completely impartial we have access to all the leading QROPS providers in New Zealand and will recommend the most appropriate scheme to suit your needs.

Why you should consider transferring your UK pensions to New Zealand

1. Potential for a greater Tax Free Cash Lump Sum than in the UK – in the UK you will be limited to 25% of your fund. The earlier you transfer your UK pension to a NZ QROPS the greater potential for tax free cash!
2. Minimise Exchange Rate risks in the future. We can hold your funds in sterling in a NZ QROPS on receipt and you decide when to exchange to NZ$.
3. Amalgamate your legacy UK pensions into one NZ Superannuation scheme.
4. Reduce exposure to underfunded UK final salary schemes – many are struggling to meet their commitments due to poor investment returns.
5. Convert your UK Final Salary scheme to an asset which you control both now and in the event of your death – maximise your legacy for your beneficiaries.
6. Transfer Values of UK final salary schemes have risen substantially in the last few years – unless you have previously asked for a valuation you should ask us to obtain one now. You are under no obligation to transfer out of your UK scheme but you should be aware of your deferred benefits.
7. No Inheritance Tax Liability to pay in New Zealand in the event of your death
8. Have local investment advice from a UK and NZ qualified Authorised Financial Advisor.
9. Income taken from a UK pension will be taxed when paid in New Zealand – investing in a QROPS can be a more tax efficient solution under the PIE regime in New Zealand.
10. 10 years after transferring your UK funds to a QROPS any payments out before age 55 are not reportable to the UK HMRC so you could potentially have 100% of your fund paid to you.