Crackdown on UK-NZ pension transfers

New Zealand has been targeted in a UK crackdown on overseas pension transfers, leaving providers in a race against time to comply with the proposed new rules.

Monday, December 12th 2011, 10:16PM 12 Comments

by Niko Kloeten

The UK's tax department Her Majesty's Revenue and Customs (HMRC) has proposed big changes to the Qualifying Recognised Overseas Pension Schemes (QROPS), which are used by expatriate Britons who want to transfer their UK pensions over to their new country.

There are roughly 3000 QROPS schemes in nearly 50 jurisdictions worldwide, including about 60 in New Zealand.

As well as introducing new rules around the tax treatment of QROPS, the HMRC is looking to ensure pensions transferred to other countries are actually used for retirement.

The draft rules say that pension schemes established in New Zealand "have been used to allow individuals to take their pension savings as a lump sum."

To nip this in the bud, regulations have been introduced "so that 70% of the funds transferred to certain pension schemes in New Zealand have to be used to provide an income in retirement."

In other words, when the specified age of eligibility is reached, investors will only be able to pull out 30% of their money initially.

And New Zealand QROPS providers will have only until April to make sure they comply with the new requirements.

Britannia Financial Services director David Milner, an adviser who helps arrange pension transfers from the UK to New Zealand, said the draft legislation had "come down hard on New Zealand" as a result of the QROPS system not being used as intended.

"We've got a situation where the only major inflow of money into non-KiwiSaver schemes has been UK pension transfers, but there's been a lot of skulduggery going on in the industry," he said.

"Money that was supposed to be held for retirement purposes was to a large degree being released at an earlier date."

He said it was possible transferred UK pension money could end up in KiwiSaver, which has been exempted from the new regime.

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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Comments from our readers

On 12 December 2011 at 11:02 pm billy the broker said:

Plus with the added benefit of the broker taking 5% on the lump sum when it gets transferred on the promise the money gets released!! What skill is there in that?? Worse then the finance companies!!

On 13 December 2011 at 10:21 am Forthright said:

It would be in Her Majesty’s Revenue and Customs service best interests to do some investigations into which QROP’s Advisers created the open door policy of allowing British immigrants near instant access to their pension funds. As Milner points out, there has been a lot of skulduggery. I would go further than Milner and say, it is deliberate fraud and the Advisers and fund managers who are complicit in the process, if found guilty, should suffer a very long prison sentence. Perhaps the FMA and SFO might now realise it is time for their intervention.

On 14 December 2011 at 12:07 pm QROPS said:

While Britannia are most likely the biggest player in this market, they are also one of the biggest culprits. They were forced to close their Southern Star scheme after pressure from the UK authorities, and the Britannia scheme still allows 49% withdrawals before retirement. No wonder the draft legislation is coming down hard!

On 14 December 2011 at 7:47 pm Pommy Tom said:

QROPS - Who are the other players in this sector. Is Britannia offering this?

On 14 December 2011 at 11:07 pm Disappointing said:

Some of the advice with UK pension transfers seems to have been poor at best. I was offered a transfer I quizzed the "adviser" / "salesman about the lost of the largely tax free status on returns pre-retirement and the adviser seemed clueless - he was just after commission.

On 14 December 2011 at 11:09 pm tel-boy said:

mmm!
Will the IFA be looking at whether their members gave appropriate advice considering the tax disadvantages, exchange rate risks and high fees.

On 14 December 2011 at 11:42 pm billy the broker said:

Question people....when they come hunting..who will be held accountable??

On 16 December 2011 at 4:30 pm Mike said:

Ultimately the UK HMRC have the ultimate sanction of removing a scheme's QROPS status so why have they not done that?
There are clear rules in place at this time around transfers and reporting requirements and if HMRC believe they are being broken they should do something about it under those rules.
As for the question of "forcing" the transferee to take an income, it is my opinion that HMRC do not realise that in any event, in any investment these ex-UK residents are paying tax here in NZ - and ultimately the UK system wants people to be taxed......and that is exactly what happens to UK pensions here in NZ!
As for "bad" advice - I am sure there has been some out there and anyone transferring a UK benefit who does so without either seeking advice or having that advice in writing with the tax implications explained should be wary of engaging that adviser.
Whilst the process is relatively simple the tax issues are crucial and should be clearly laid out to the transferee!

On 19 December 2011 at 11:17 am denis said:

So does this mean that all KiwiSaver schemes have an exemption because they're KiwiSaver schemes? Or is it only KiwiSaver schemes that are also a QROPS?

Wouldn't it be easier for the HMRC to only allow future transfers into a KiwiSaver scheme? No more QROPS.

On 17 February 2012 at 1:39 pm mike said:

its all very well UK HMRC wanting to ensure that pension provision is in place in the UK, but what right do they have to tell me as a NZ citizen what i should do with money that i have saved and in reality what chance do they have in getting the UK tax that they want to impose if i chose to ignore their unfair rules?

On 17 February 2012 at 6:00 pm Phil said:

Under what principle do UK authorities believe they have the right to meddle in former citizens right to determine their own financial futures? Those who leave the UK do so for many reasons, but transfer of accumulated wealth should be governed by the state in which an individual has chosen to make their new life, not be shackled by the archaic and fundamentally flawed policies of their former residence.

On 7 March 2012 at 1:19 pm Gareth Grey said:

HMRC have a right to sanction tax rules upon former UK citizens because all pensions transferred have tax relief. As a result tax on pension income come retirement will not occur so seeing the tax relief used in the way it was arranged seems fair? Perhaps should all migrants have the tax relief deducted on departure? Please note I am migrant and pension adviser. My clients know the rules and tax implications so it is down to the client to get the right advise and being prepared to pay a reasonable and agreeable fee for service. Gareth@tni.co.nz

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Crackdown on UK-NZ pension transfers

New Zealand has been targeted in a UK crackdown on overseas pension transfers, leaving providers in a race against time to comply with the proposed new rules.

Monday, December 12th 2011, 10:16PM 12 Comments

Comments from our readers

Commenting is closed