Unravelling UK Pension Schemes

We meet with many health professionals who have immigrated from the UK and Europe. The reasons for immigration are varied; unfavourable working conditions under NHS compounded by the uncertainties of Brexit, love of NZ from holiday or prior work experience and a decision to make this beautiful country home. 

Once you have decided to call NZ home permanently, queries abound in regard to whether you should bring your UK pensions to NZ.  The rationale for bringing your funds to NZ may include tax and administration efficiencies (including limiting potential exposure to UK inheritance taxes), ensuring funds are invested in-line with your financial strategy as well as future flexibility and preservation of funds for your estate. 

Every UK pension scheme, combined with the individual’s situation, is unique. So while understanding the issues in general terms is useful, when it comes to transfer decisions personalised advice from an authorised financial adviser is essential, and will add a lot of value to you.

This is not a quick process!   Rules and conditions as well as benefits, calculation rates, guarantees (if any) vary widely from scheme to scheme.  It is extremely important that you consider all of your options before making any decision, as once you transfer out of a pension you cannot transfer back in.

While there “is no one size that fits all”, we can provide initial answers to common questions:

Can I transfer my pension from the UK to New Zealand?

  • For those who work for the UK Government (final salary pension schemes) – the answer is NO.  This affects all employed by the UK central Government such as NHS workers, armed forces, police, teachers etc. Note if in an inflexible scheme, when funds are brought to NZ as a lump sum (when HMRC retirement age reached) or by annuity, these will be subject to NZ tax at your marginal prevailing rate.
  • If you have personal pension products or worked in the private sector or local Government the answer is more likely to be YES.

What do I transfer my UK pension into?

  • In NZ there are about a dozen collective schemes which are compliant with UK pension rules and are listed by HMRC as QROPS (qualifying recognised overseas pension schemes). Only QROPS can receive UK pension transfers – you cannot transfer in to KiwiSaver.

Do I pay NZ tax when I transfer my pension to New Zealand?

  • For migrants and most New Zealanders returning to New Zealand (after 10 years abroad), as long as the pension transfer is done in the first four years of New Zealand tax residency, there is NO NZ tax to pay on transfer.
  • After that there is an annually progressive rising rate of tax on the transferred sum.

Can I use my transferred UK pension funds to buy a house in NZ (like KiwiSaver)?

  • Access to your transferred UK pension funds is only allowed once you are 55years (limited withdrawals to age 60, as prescribed by HMRC) unless you suffer a serious illness. So no, it is not like KiwiSaver!

Do I pay tax in NZ when I take a lump sum or draw down on my pension (from age 55)?

  • Once you have transferred your UK pension to a New Zealand QROPS, any withdrawals from that scheme do not attract NZ tax. It is important though that the UK rules of access to your funds are observed so impost of UK tax is removed.

Do I need to exchange my GBP to NZD when I transfer even if I don’t like the GBP to NZD exchange rate?

  • Not necessarily. Some QROPS schemes in NZ have GBP investment options that provide flexibility on the timing of the foreign exchange shift from GBP to NZD.

Is the transfer process of transferring a UK pension to a NZ QROPS expensive?

  • It doesn’t have to be. We aim to minimise the advice fees, have nil entry and exit fees and provide wholesale exchange rates. However there are advisers and QROPS who charge what we believe are exorbitant advice fees, transfer fees, entry fees, and use retail rates for currency conversion.
  • It pays to get transparency on these important issues before committing to the transfer process.

If you would like to discuss your own situation then you are welcome to contact us.

Sue Stewart, MFAS
Authorised Financial Adviser, CFPCM

A good read that is doing the medical rounds at the moment is “This is Going to Hurt” by Adam Kay, and provides a glimpse as to why many UK doctors are looking to move!