UK Pension Transfer to New Zealand - The Definitive Guide
Our guide explains everything you need to know about UK to NZ pension transfers, including pros, cons, must-know considerations, tax obligations and the numerous New Zealand Superannuation Schemes that can receive the transfer value
Updated 27 January 2021
Pension transfers from the UK to New Zealand are increasingly popular but there are several things to be aware of before making a decision. As a general warning, the best approach is to proceed with caution - there are many negative aspects of pension transfers and your decision is usually irreversible. Whilst having control of what can be a significant sum of money might be very tempting there are a number of risks to your financial security that should be considered. There are specific processes and regulations you should know before transferring funds.
It’s always best to consult with a pension expert before transferring funds. This is because of the complexities around the types of UK pension schemes, the UK’s expansive pension legislation and the terms and conditions that might apply to the pension scheme. Here in New Zealand there are numerous issues too including tax, which can adversely affect your pension balances and the type of Superannuation Scheme selected as well as taking on a number of risks that might be held by a previous employer or current insurance company.
In this guide, we outline the general process for pension transfers from the UK to New Zealand. We cover:
It’s always best to consult with a pension expert before transferring funds. This is because of the complexities around the types of UK pension schemes, the UK’s expansive pension legislation and the terms and conditions that might apply to the pension scheme. Here in New Zealand there are numerous issues too including tax, which can adversely affect your pension balances and the type of Superannuation Scheme selected as well as taking on a number of risks that might be held by a previous employer or current insurance company.
In this guide, we outline the general process for pension transfers from the UK to New Zealand. We cover:
- Know This First: Is it Legal to Transfer Pension Funds to New Zealand?
- Transferring Pension Funds from the UK to NZ - Five Things to Know
- UK to New Zealand Pension Transfers - Frequently Asked Questions
- Other relevant points to consider before making a final decision
- UK to New Zealand Pension Transfers - Concluding Comments
Know This First: Is it Legal to Transfer Pension Funds to New Zealand?
In short, yes, it is legal. But you must transfer the funds into a Qualifying Recognized Overseas Pension Scheme (QROPS). A QROPS is qualified if it’s a New Zealand Superannuation Scheme registered with UK HM Revenues & Customs (here is a link to New Zealand registered schemes), and the choice is yours as to which scheme you want to invest in. However KiwiSaver schemes cannot register as a QROPS. There are a number of Superannuation Schemes operated by well-known investment managers. Examples include Booster, Britannia Retirement Scheme, Craigs, Kiwi Wealth and SuperLife.
Why is this important?
Transferring your pension as a 'recognized transfer' limits your tax liabilities upon transfer (in most cases) and protects your investment. However any guarantees or promises within the UK scheme would be lost upon transfer to the QROPS scheme you select. We explain this in detail below.
Why is this important?
Transferring your pension as a 'recognized transfer' limits your tax liabilities upon transfer (in most cases) and protects your investment. However any guarantees or promises within the UK scheme would be lost upon transfer to the QROPS scheme you select. We explain this in detail below.
Transferring Pension Funds from the UK to NZ - Five Things to Know
There are specific regulations for transferring funds from the UK to NZ, which we detail below:
1. Understand What Pensions you can Transfer
Generally you may transfer most pensions but there are some circumstances that preclude a transfer that a UK pensions specialist will be able to identify for you.
Examples of UK pension schemes include:
2. There are tax considerations
Tax regulations that took effect in 2014 aimed at bringing about a level playing field between those who transfer their benefits to New Zealand and those who decide not to. The regulations introduced a four-year transfer window. This starts the day you become a New Zealand tax resident. If you transfer your UK pension into a QROPS within this time, you won’t normally incur a New Zealand tax liability on the transfer.
After the first 4 years income tax will be assessed on the transfer value. There are two methods of calculating the liability (see here) .The taxable amount is assessed at your marginal rates of income tax.
If you are transferring a defined benefit scheme you can only use the Schedule Method. If you are transferring other types of scheme you can use either calculation method that results in the lowest tax liability
But your QROPS scheme will incur tax liabilities each year on taxable investment returns and typically the liability will not be dissimilar to the tax liability that would accrue under the schedule method. In addition the QROPS has management fees that will be deducted from your plan each year and your adviser may also make an annual charge. There may be tax implications for other savings for the following 2 years.
Superannuation Schemes might operate as PIE schemes (like many KiwiSaver schemes), as variable rate PIE schemes or as Widely Held share schemes. The latter assesses all taxable gains to one uniform rate of 28% regardless of your personal tax situation.
3. Understanding the UK Tax Liabilities
It’s best to use a pension expert when transferring your funds; one wrong move and you could lose a large portion of your retirement funds. While you'll need to transfer your money into a QROPS, there are other considerations to be aware of:
4. Know the Process to Transfer Your Pension from the UK to New Zealand
Your New Zealand Adviser may have to secure a report from an appropriately licensed UK adviser if the transfer value of your UK plan is £30,000 or more and your entitlement is held by:
Only specially licensed UK financial advisers can provide reports under 1 and 4 above. The UK adviser must provide a personal recommendation, which is based on the starting premise that a transfer is inappropriate unless on current evidence it is unquestionably clear that a transfer would be in an individual’s best interests.
5. Important: Don't Be Reluctant to Seek Expert Help
b. You transfer longevity risk’ to yourself;guessing what age will you die and thus how long will you need to make the money last for. People are living longer on average, but medical advances mean that for many the extra years are spent in poor health and with added costs. The Office for National Statistics in the UK offer a simple online tool that can give you some idea of your life expectancy, but personal health details should be taken into account
c. You transfer sequencing of investment risk to yourself, a run of negative investment years as you enter retirement could seriously impact on the ability of your fund to provide you with the income you need in retirement
d. Your own behavioural bias could lead you into making a bad decision. The lure of a significant sum of money instead of a guaranteed income in retirement can play havoc with your thought process
e. You are giving up a guaranteed income for life (and a surviving partner’s life), which might be accompanied by generous inflation proofing, for all the uncertainties identified in points a to d
1. Understand What Pensions you can Transfer
Generally you may transfer most pensions but there are some circumstances that preclude a transfer that a UK pensions specialist will be able to identify for you.
Examples of UK pension schemes include:
- Occupational pension schemes, which include
- Defined Benefit Schemes
- Small Self Administered Schemes
- Auto Enrolment Schemes (UK equivalent of KiwiSaver)
- Executive Pension Plans
- Private pension schemes, which include:
- Personal Pensions
- Retirement Annuity Plans
- Self Invested Personal Pensions
- Buy-out Bond
2. There are tax considerations
Tax regulations that took effect in 2014 aimed at bringing about a level playing field between those who transfer their benefits to New Zealand and those who decide not to. The regulations introduced a four-year transfer window. This starts the day you become a New Zealand tax resident. If you transfer your UK pension into a QROPS within this time, you won’t normally incur a New Zealand tax liability on the transfer.
After the first 4 years income tax will be assessed on the transfer value. There are two methods of calculating the liability (see here) .The taxable amount is assessed at your marginal rates of income tax.
If you are transferring a defined benefit scheme you can only use the Schedule Method. If you are transferring other types of scheme you can use either calculation method that results in the lowest tax liability
But your QROPS scheme will incur tax liabilities each year on taxable investment returns and typically the liability will not be dissimilar to the tax liability that would accrue under the schedule method. In addition the QROPS has management fees that will be deducted from your plan each year and your adviser may also make an annual charge. There may be tax implications for other savings for the following 2 years.
Superannuation Schemes might operate as PIE schemes (like many KiwiSaver schemes), as variable rate PIE schemes or as Widely Held share schemes. The latter assesses all taxable gains to one uniform rate of 28% regardless of your personal tax situation.
3. Understanding the UK Tax Liabilities
It’s best to use a pension expert when transferring your funds; one wrong move and you could lose a large portion of your retirement funds. While you'll need to transfer your money into a QROPS, there are other considerations to be aware of:
- You may be assessed for a UK tax liability if you subsequently leave New Zealand within five years of the transfer and don’t take remedial action. The remedial action required depends upon your age at the time and where you move. For example, if you move to Australia and are aged less than 55, you have no options available and would have to pay tax. This is because Australian schemes cannot receive UK tax relieved funds in respect of individuals who are (currently) below the age of 55 in addition, there are currently no UK pension schemes that will set up a new account to receive a transfer from a QROPS in respect of a non UK resident who is below the age of 55. If you have retained a UK pension scheme, you might be able to transfer back to that scheme but this would depend upon the type of scheme retained in the UK. Age 55 is critical and will increase to 57 some time in 2028.
- If you transfer to a QROPS which wasn’t eligible to register with HMRC, or whose registration is subsequently cancelled, you could incur a 55% tax liability. Make sure you undertake appropriate checks to make sure the scheme you are considering using has the systems, knowledge and controls to satisfy HMRC’s expectations
- If you receive more than £100,000 from the QROPS and return to the UK within the first 5 complete and continuous tax years from first leaving you could still be assessed for UK income tax.
- If you receive benefits from your QROPS and return to the UK, you (and your employer) may be stymied in your ability to make further pension contributions to a UK pension plan
4. Know the Process to Transfer Your Pension from the UK to New Zealand
Your New Zealand Adviser may have to secure a report from an appropriately licensed UK adviser if the transfer value of your UK plan is £30,000 or more and your entitlement is held by:
- a defined benefit scheme
- a pension annuity (a type of personal plan)
- a buy out bond that contains specific pension entitlements
- a personal plan, buy out bond or an executive plan that contains a guaranteed annuity rate clause
Only specially licensed UK financial advisers can provide reports under 1 and 4 above. The UK adviser must provide a personal recommendation, which is based on the starting premise that a transfer is inappropriate unless on current evidence it is unquestionably clear that a transfer would be in an individual’s best interests.
- Defined Benefit Schemes should make you aware within 1 month of receiving your request for a transfer value if you will need to secure a UK report
- Defined Benefit Schemes have 3 months to issue you with a transfer value (referred to as a Cash Equivalent Transfer Value)
- The quotation generally has a 3 months expiry date by which time, if the recommendation is to transfer, all completed documentation required by the scheme must be returned
- The UK scheme then has a further 3 months to finalise any due diligence and make payment, but if they need more time to make enquiries this is generally permitted
- If you have a personal scheme there are no set timescales apart from returning specific documents that form part of a large package of forms within 60 days of the transfer value quotation date.
- Due to concerns over scamming, UK pension providers will want to undertake significant due diligence on any transfer request, so be patient
- The best approach is often to work with a pension advisor in New Zealand to complete the transfer effectively
5. Important: Don't Be Reluctant to Seek Expert Help
- Transferring your pension funds to New Zealand might be a good idea if you’re retiring in New Zealand, but make sure you know the regulations.
- Transferring the types of schemes identified in point 4 comes with added risk, that’s why the UK financial services regulator imposes additional advice requirements. You (and your adviser) will need to consider additional factors including:
b. You transfer longevity risk’ to yourself;guessing what age will you die and thus how long will you need to make the money last for. People are living longer on average, but medical advances mean that for many the extra years are spent in poor health and with added costs. The Office for National Statistics in the UK offer a simple online tool that can give you some idea of your life expectancy, but personal health details should be taken into account
c. You transfer sequencing of investment risk to yourself, a run of negative investment years as you enter retirement could seriously impact on the ability of your fund to provide you with the income you need in retirement
d. Your own behavioural bias could lead you into making a bad decision. The lure of a significant sum of money instead of a guaranteed income in retirement can play havoc with your thought process
e. You are giving up a guaranteed income for life (and a surviving partner’s life), which might be accompanied by generous inflation proofing, for all the uncertainties identified in points a to d
UK to New Zealand Pension Transfers - Frequently Asked Questions
​Can I transfer my UK pension to New Zealand?
Yes, as long as you meet specific conditions:
- You are not already receiving income from most annuities purchased with your UK pension funds
- You aren’t receiving a pension from your defined benefit scheme or normally (but not always) you aren’t inside the final 364 days before the pension scheme’s normal retirement; and
- Your pension is not a State Pension or an unfunded public sector pension scheme (e.g. NHS, Civil Service, Police and Fire Services)
Can I transfer my UK pension to New Zealand while living in the UK?
Technically yes, but it would result in a tax penalty that would be deducted by the UK scheme. You might be able to reclaim the tax if you subsequently take up residency in New Zealand. But you will have lost out on potential investment returns on the money and the exchange rate of £ for $ is likely to be different.
How long does it take for UK pension funds to be transferred to New Zealand?
While there are no guidelines, and every scheme is different, you can expect any time between one and nine months (defined benefit schemes take the longest). Once the money is received in New Zealand, your investment scheme should issue you with confirmation of the amount received and details of the investment bought with the money.
How can I withdraw money from my QROPS account?
Once you reach the UK’s minimum pension age (currently 55), you can receive the money requested from your QROPS account (as a one-off payment, as a regular income or as a combination of both). There are other circumstances where you can have an early entitlement to your money, for example, retiring early due to ill-health.
Will I pay fees to transfer my UK pension to New Zealand?
Yes and No. It depends on how you initiate the transaction and who the QROPS manager is. While you will almost certainly pay ongoing management fees to the QROPS administrator and perhaps investment fees to the funds management group, there may also be a one-off advisor fee and/or ongoing service fee for handling the transfer and providing advice. To know what you’ll pay, ask upfront about the potential fees that will be charged to transfer the money and provide ongoing investment advice including how much it is sensible to spend each year throughout retirement
What happens if I transfer to an overseas scheme that is not a QROPS?
Generally, if you transfer to an overseas pension that it not a QROPS, the transfer will be seen as an 'unauthorised payment' which can incur a tax charge of up to 55%, in addition to other potential penalties. Never move your pension fund without full consideration - many scams exist in the UK and people have lost their pension balances and found themselves with tax bills to pay for the unauthorised payment they initially made. Pension schemes and insurance companies will undertake due diligence to try and eradicate this risk, but scammers can be very clever with documentation and when answering questions
How do I choose a QROPS, and which one is best?
There are many options when it comes to recognised overseas pension schemes. Generally, the best approach to find the most suitable is to consider the following:
Step 1: Understand the Investment options - is the fund growth-focused (the riskiest, as they invest in shares), balanced funds (mixing share investments with less risky term deposits and cash etc.) or conservative (even lower risk, with usually around 80% of the money invested in bank deposits and fixed-interest bonds). Do they offer passive or active funds management, perhaps they offer both.
Step 2: Understand whether the scheme is taxed under the PIE, Variable Rate PIE or Widely Held Share scheme tax rules- If it’s a PIE scheme the fund will be taxed using your PIR. If Variable Rate you could qualify for a 0% tax rate for a period of time. If Widely Held then regardless of your PIR or personal marginal income tax bank the taxable returns will be taxed at 28% In all cases permitted fees incurred can be offset against the tax liability
Step 3: Understand what happens to your money when it arrives-If the QROPS only offers $ denominated investments then your money will be converted on the day it arrives. Meaning it’s a single transaction that in hindsight could turn out to be good, bad or just indifferent. If the scheme offers both £ Sterling and $ denominated investments it will be up to you decide which currency you invest in. If you are using a financial adviser they will be able to provide advice on this matter, but bear in mind the £Sterling and $ cross is one of Sterling’s most volatile pairings
Step 4: Understand the fees - all QROPS funds charge management fees, usually in a dollar amount and/or a percentage of your investment’s value. Either way, the lower the fees, the better off you’ll be in retirement (if returns are equal among providers).
Step 5: Evaluate the Performance - you can only compare funds in the same categories; for example, it’s pointless to compare the performance of a growth fund with a conservative fund – they invest in entirely different things. To get an idea of the best-performing funds, shortlist some funds and ask for the most recent financial results (or look online). But extreme care needs to be taken, there may be reasons why one fund has outperformed another, perhaps the fund took an aggressive stance with its allocation to growth investments that paid off over the period. Regardless past performance is no guarantee of future performance of the value of units in an investment fund can fall as well as rise and isn’t guaranteed. This is where a financial adviser can add real value
Step 1: Understand the Investment options - is the fund growth-focused (the riskiest, as they invest in shares), balanced funds (mixing share investments with less risky term deposits and cash etc.) or conservative (even lower risk, with usually around 80% of the money invested in bank deposits and fixed-interest bonds). Do they offer passive or active funds management, perhaps they offer both.
Step 2: Understand whether the scheme is taxed under the PIE, Variable Rate PIE or Widely Held Share scheme tax rules- If it’s a PIE scheme the fund will be taxed using your PIR. If Variable Rate you could qualify for a 0% tax rate for a period of time. If Widely Held then regardless of your PIR or personal marginal income tax bank the taxable returns will be taxed at 28% In all cases permitted fees incurred can be offset against the tax liability
Step 3: Understand what happens to your money when it arrives-If the QROPS only offers $ denominated investments then your money will be converted on the day it arrives. Meaning it’s a single transaction that in hindsight could turn out to be good, bad or just indifferent. If the scheme offers both £ Sterling and $ denominated investments it will be up to you decide which currency you invest in. If you are using a financial adviser they will be able to provide advice on this matter, but bear in mind the £Sterling and $ cross is one of Sterling’s most volatile pairings
Step 4: Understand the fees - all QROPS funds charge management fees, usually in a dollar amount and/or a percentage of your investment’s value. Either way, the lower the fees, the better off you’ll be in retirement (if returns are equal among providers).
Step 5: Evaluate the Performance - you can only compare funds in the same categories; for example, it’s pointless to compare the performance of a growth fund with a conservative fund – they invest in entirely different things. To get an idea of the best-performing funds, shortlist some funds and ask for the most recent financial results (or look online). But extreme care needs to be taken, there may be reasons why one fund has outperformed another, perhaps the fund took an aggressive stance with its allocation to growth investments that paid off over the period. Regardless past performance is no guarantee of future performance of the value of units in an investment fund can fall as well as rise and isn’t guaranteed. This is where a financial adviser can add real value
Other relevant points to consider before making a final decision
- Transferring your UK pension isn’t as straightforward as it seems, and there’s a lot to consider. You may even decide not to transfer your pension even after moving to New Zealand, which you're fully entitled to do.
- If it isn’t right to transfer the benefits this year, that shouldn’t be the end of the issue, it is worthwhile reconsidering every year because individual circumstances change
- We’ve itemised six must-know facts below to help you navigate the process while being better informed.
- Whatever you decide, there will be advantages and disadvantages, and in many cases, it’s a significant financial decision. For this reason, it’s important to consider taking expert financial and tax advice.
- The UK has extensive protection for consumers ranging from requiring financial advisers to hold insurance to reimburse clients where they have erred and the error has caused financial loss, to the Financial Services Compensation Scheme which offers cover of up to £85,000 per investment or 100% of any annuity instalments if a provider goes bankrupt and the Pension Protection Fund which offers very significant protection to members of defined benefit schemes whose employer has ceased trading and there are insufficient assets in the pension fund to meet everyone’s accrued entitlement. New Zealand currently has no schemes or requirement for advisers to hold insurance (although a deposit guarantee scheme has been mooted by the current government)
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Transferring the pension could mean you relinquish other benefitsSome UK pension schemes provide additional features such as a spouse and/ or dependent pensions, inflation-linked increases and other benefits such as a funeral expenses grants. If you transfer the money to New Zealand these add-ons will be lost.
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Exchange rates significantly affect the amount of money you’ll receiveWith the effects of BREXIT and the relatively strong NZD:GBP exchange rate, you may transfer your pension balance when it’s less favourable to do so. For example, a £50,000 pension balance is worth $100,000 with a 0.50 NZD:GBP rate, but at 0.40 the balance jumps to $125,000.
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Pension terms and benefits vary between New Zealand and the UKThe UK is very pension benefit-focused, which can be financially rewarding to many people in their retirement. Your expected annual pension in the UK may be significantly more than what you’ll receive in New Zealand. In such cases, you may be in a worse financial situation by transferring to New Zealand.
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Once you transfer, you’ll give up your pension benefitsIf you transfer your UK pension you’ll give up on attractive terms and conditions like guaranteed annuity rates (they aren’t offered any more). If you transfer your Defined Benefit Scheme a previous employer won’t allow you to reinstate them, even if you return to the UK. A new employer is unlikely to offer access to membership of a defined benefit scheme. Even in circumstance where they do (such as NHS, Teachers and police service) they usually offer a fixed pension at retirement based on the value in your QROPS fund. It’s highly unlikely the fixed pension will be anywhere near the level of annual pension transferred to New Zealand in the first place, because the original transfer value was a discounted value of the true benefits and tax and charges will have been deducted each year.
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There are tax implications if you decide to transferTransferring pension(s) from the UK to New Zealand can have tax complications. To ensure you’re aware of the liability and when it must be paid, it’s best to consider taking specialist financial and tax advice. If you aren’t entitled to any benefits from the transferred fund you will have to meet the liability from your own funds
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You do NOT need to transfer your pension if you leave the UKIf you move to New Zealand, you do not have to transfer your UK pension. You are able to leave the pension in the UK and draw down on its benefits when you're eligible to. You can manage currency risk (just in case the New Zealand Dollar gains in value against the British Pound) many Foreign Exchange currency dealers will offer a contract offering a fixed exchange rate for the following 12 months which you can accept or decline (for now); in addition they tend to charge considerably less in bank costs to transfer money from the UK to your NZ bank account.
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UK to New Zealand Pension Transfers - Concluding Comments
- Transferring a UK pension to New Zealand is not straightforward and the decision-making process should not be rushed.
- UK personal pension plans are generally considerably cheaper to run than NZ Superannuation Schemes. The sponsoring employer meets all costs incurred in providing a pension from defined benefit scheme (except bank costs associated with paying the pension to you).
- If your situation is complicated, and/or if you feel like you need an expert opinion, New Zealand companies such as Booster, Britannia Financial Planning, Craigs, Kiwi Wealth and SuperLife all offer specified UK pension transfer advice. We have no relationship with these companies and link them as examples only.
