Tough new rules for UK-New Zealand pension transfers will go ahead largely unchanged, despite strong lobbying from New Zealand’s financial services industry.
Good Returns reported last year on proposed 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.
New Zealand schemes have been hit with regulations requiring that 70% of investors’ money is used to “provide an income in retirement”, meaning investors will only be able to pull out 30% of their money initially when they reach the specified age of eligibility.
New guidance accidentally published by the UK’s tax department HM Revenue & Customs, and reported by theInternational Adviser website, shows the harsh treatment of New Zealand schemes hasn’t been watered down at all.
Britannia Financial Services director David Milner, an adviser who helps arrange pension transfers from the UK to New Zealand, said that apart from a few minor changes, “everything is still the same as it was” in the earlier draft.
“What it comes down to is that if they [scheme providers] are not fully compliant after April 5, they will no longer be a QROPS,” he said.
“What it means is that any scheme that is currently a QROPS, that’s fine, the money is still deemed to be a QROPS and can be transferred over until April 5.
“Any transfers made after April 5 could be deemed unauthorised payments and members could be subject to a 55% tax penalty. Also, the UK company transferring the money to New Zealand could face a sanction charge of 40%.”
Milner said the flow of pension transfers to New Zealand “might just slow right down” after tha changes kick in, until UK companies are “absolutely sure” the entities they are transferring pensions to are QROPS-compliant.
But changing existing schemes to comply with the new requirements is almost legally impossible, according to a joint submission on the changes by Workplace Savings NZ and the ISI (now the Financial Services Council).
As reported previously by Good Returns, KiwiSaver is exempt from the changes, but all other New Zealand scheme providers will have to change their trust deeds.
However, section nine of the Superannuation Schemes Act 1989 requires that all affected scheme members must consent to any change to the trust deed that postpone or adversely affect benefits.
“We submit that New Zealand scheme providers are not being given sufficient time to draft amendments to their scheme trust deeds and to obtain the required consents,” the submission said.
“This will inevitably lead to all non-KiwiSaver schemes in New Zealand with QROPS status being non-compliant.”
Milner said the only option for New Zealand schemes may be to cease being QROPS and then launch new schemes that are QROPS-compliant.
“We’ve got a new scheme we’ve registered and we hope to be fully operational by April 6,” he said.