UK Pension Transfers

The death knell for widows’ pensions: Over 1m in private sector could lose historic right to spouse’s benefits

admin — Thu, 14 Nov 2013 03:51:20 +0000

Fall in number of private sector workers covered by final salary pensions
It has dropped from more than five million in 1995 to just 1.7million now
The move could salvage schemes by making them affordable for bosses

Widows could lose their historic right to a pension under plans to halt the ‘terminal decline’ of final salary schemes.

Private sector bosses currently have to make payments to a retired worker’s surviving spouse, typically worth at least half their full pension.

But that obligation would end under proposals from the Department for Work and Pensions.

Concern: Widows could lose their historic right to a pension under controversial new plans

The soaring cost of final salary pensions – or ‘defined benefit’ schemes – have seen the number of private sector workers covered drop from more than five million in 1995 to just 1.7million now.

The new measures, which could come into force by April, are designed to save the schemes.

As well as signalling the end of widow and widower benefits, the plans could force employees to wait longer before they can retire on a full pension as well as see their payments frozen and left at the mercy of inflation.

The proposals do not affect public sector workers or those in the private sector with ‘defined contribution’ pensions – where benefits are not linked to salaries.

Steve Webb, the pensions minister, insisted the controversial move could salvage final salary pensions by making them affordable for bosses.

‘We want to enable firms to offer good pensions without a lot of regulations,’ he added. ‘If we do nothing, everyone will end up with a pension that doesn’t link to their earnings.

Plan: Steve Webb, the pensions minister, insisted the controversial move could salvage final salary pensions by making them affordable for bosses

‘Traditional final salary defined benefit schemes which give the consumer certainty are in terminal decline.’

The changes will make the final salary schemes cheaper for bosses – at the expense of workers whose benefits will be watered down dramatically.

Former Downing Street adviser: Leading pensions expert Dr Ros Altmann said state workers are ‘the pensions aristocracy’

Payouts to retired workers must rise by at least 2.5 per cent a year but this rule might be scrapped.

For someone on a pension of £10,000 a year, this would cost them around £70,000 over a 25-year retirement period.

The DWP report states: ‘Of course, employers could continue to offer schemes that include index-linked benefits and survivor rights if they so choose, but it would no longer be a statutory requirement.’

The proposal, subject to a six-week consultation, will affect only the future rights – any pension already built up will be protected.

Laith Khalaf, of financial advisers Hargreaves Lansdown, said: ‘Under these proposals, workers could save diligently throughout their lifetime, only for the rug to be pulled from under them at the last minute.’

Dr Ros Altmann, a leading pensions expert and former Downing Street adviser, said: ‘State workers are the pensions aristocracy. They have an incredibly valuable and generous pension arrangement which is beyond the dreams of everybody else in this country.’

Bosses would also be given greater flexibility to change the age at which a worker is allowed to retire on a full pension.

Earlier this week, a report, published jointly by the Pension Protection Fund and The Pensions Regulator, said a record 30 per cent of ‘defined benefit’ pension schemes have closed to existing workers.

The speed at which schemes have closed is alarming. In 2008, the figure was just 17 per cent, rising to 19 per cent in 2009, 21 per cent in 2010, 24 per cent in 2011 and 26 per cent in 2012.

‘We want to enable firms to offer good pensions without a lot of regulations. If we do nothing, everyone will end up with a pension that doesn’t link to their earnings’

Steve Webb, pensions minister

The Government’s proposals are an attempt to slow down the rate of closure.

Its report warns: ‘Without Government intervention to allow more flexibility and reduce constraints for employers sponsoring defined benefit pensions, they are likely to disappear almost completely from future pension arrangements.’

Lord Oakeshott, a leading Liberal Democrat peer, said: ‘There is no easy answer to the affordability crisis for many private sector pension schemes so more flexibility may well be the only way.’

Sourced from http://www.dailymail.co.uk/news/article-2491732/Widows-pensions-Over-1m-private-sector-lose-historic-right-spouses-benefits.html

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Taxation of Foreign Superannuation

admin — Wed, 10 Jul 2013 06:15:25 +0000

Taxation of foreign superannuation

Fact sheet

Why are changes being made?

The current rules for taxing New Zealand tax-residents on their interests in foreign superannuation schemes are complex. Tax may be imposed under a number of different regimes, including the foreign investment fund (FIF) international tax rules, the dividend rules, and the trust distribution tax rules. It can be difficult to determine whether the FIF rules or other tax rules apply.

Depending on which set of rules applies, your foreign superannuation is taxed either on an annual basis calculated on the value of your investment (under the FIF rules), or at the time you receive the income (for instance, a pension payment, a lump sum withdrawal, or a transfer to another scheme). The application of different rules can lead to differing results across people in similar circumstances.

What are the proposed new rules?

Under the proposed new regime for taxing your foreign superannuation, as outlined in the officials’ issues paper, the FIF rules would no longer apply. You would only need to consider whether you have New Zealand tax to pay when you receive a pension payment or lump sum, or when you transfer your superannuation to another scheme.

If you receive a pension payment, you would be taxed as many always have been – at your individual marginal tax rate (ranging from 10.5% to 33%).

A lump sum withdrawal or a transfer to another scheme would be taxed depending on how long you have been in New Zealand before you withdraw or transfer. Only a portion of the lump sum would be included in your taxable income. The remainder would not be taxable. This is called the inclusion rate approach.

The proposed new rules are intended to be simple and easy to comply with.

What is the inclusion rate approach?

Once the necessary legislation is enacted, the inclusion rate approach would apply to lump sum amounts, both withdrawals and transfers to another scheme. Instead of paying tax on your foreign superannuation annually, this approach means that the tax liability on your foreign superannuation is typically deferred until you receive the income.

The extent of the lump sum that would be included in your taxable income, on which you apply your marginal tax rate, would depend on how long you have been a New Zealand tax-resident for before you receive the lump sum. The longer the duration, the greater the amount that would be included in your taxable income. The proportion of the lump sum to be included would range from 0% (in the first two years) to 100% (after 25 years).

When would the new rules apply from?

Once the legislation is enacted, the new rules would apply to income received from a foreign superannuation scheme – including pension payments, withdrawals and transfers to another scheme – on or after 1 April 2011.

However, if your interest in a foreign superannuation scheme was taxed under the FIF rules in the 2010–11 income year or earlier years, and you declared this income in your tax return by 31 March 2012, you would continue to apply those rules instead.

Separate rules may apply to transfers or withdrawals of foreign superannuation made between 1 January 2000 and 31 March 2011. These are explained below.

I transferred my superannuation to New Zealand several years ago and did not pay any tax on the lump sum amount. What do I do now?

In some cases, no tax would have been payable on the lump sum. This is true if you had been properly declaring income on your foreign superannuation under the FIF rules at the time you transferred. You will have no further tax to pay on that lump sum amount.

In other situations, the FIF rules would not have applied and so tax on the lump sum may have been payable. If you were not applying the FIF rules to your foreign superannuation at the time you transferred, once the proposals become law you can apply a single low inclusion rate to your withdrawal or transfer. The issues paper proposes that a small portion of the lump sum (such as 15%) would be included in your taxable income, on which you would pay tax at your marginal rate. The remainder would not be taxable. No use-of-money interest or penalties would apply. Alternatively, you can use the relevant tax rules that existed at the time of the withdrawal or transfer, along with use-of-money interest and relevant penalties. This option would be available for transfers and withdrawals between 1 January 2000 and 31 March 2011.

If you choose to apply a single low inclusion rate to your lump sum and the proposals in the issues paper become law, you would need to notify Inland Revenue before 1 April 2014. Details of how to make this disclosure will be provided once the policy has been finalised.

I am a transitional resident and want to withdraw my superannuation from the foreign scheme. Do I have to do anything?

New migrants who have been away from New Zealand for at least 10 years may qualify as a transitional resident if they arrive after 1 April 2006. Transitional residents are exempt on most types of foreign income, including foreign superannuation, for approximately the first four years of being a New Zealand tax-resident.

If you are a transitional resident, your foreign superannuation – including any withdrawals or transferred amounts – is not subject to New Zealand tax as long as you remain a transitional resident.

Under existing law, any earnings (such as interest income) on an amount of superannuation that is brought to and invested in New Zealand may be taxable while you are a transitional resident. This tax treatment is not affected by the proposals.

I have superannuation in a foreign scheme from when I worked overseas, which I have not yet brought to New Zealand. Do I have to do anything?

If your superannuation is still in the foreign scheme, you would not need to do anything under the proposed new rules until you receive a pension or lump sum, or transfer to another scheme. At that point, and once the necessary legislation is enacted, you would either pay tax on your pension or apply the inclusion rate to the lump sum withdrawal or transfer and pay tax on the result.

Alternatively, if you previously paid tax under the FIF rules on your foreign superannuation in the 2010–11 or earlier income year by 31 March 2012, you would continue to apply the FIF rules. Any income that you actually receive would not be taxed under the proposed new rules.

I ceased being a transitional resident in the 2011–12 income year. In that year, I paid tax under the FIF rules on my foreign superannuation for the first time. Am I able to continue to use the FIF rules?

To be able to continue using the FIF rules in future income years, the current proposals would require you to have returned FIF income for the 2010–11 income year by
31 March 2012.

As you were not subject to the FIF rules in the 2010–11 income year due to being a transitional resident, once these proposals become law you may not continue to use the FIF rules. When you receive income from your foreign superannuation scheme in the form of a lump sum or pension, you would be taxed under the new rules. Any FIF tax that you have already paid would be refunded to you or used to offset any tax payable on receipt of the income.

I have superannuation in an Australian scheme and want to transfer it to New Zealand. How will this be affected?

In most situations, foreign superannuation held in an Australian superannuation scheme would not be taxable annually under the FIF rules. Instead, you would need to consider how it would be taxed when you make a lump sum withdrawal or transfer.

Under the Australia-New Zealand double tax agreement, if you receive a lump sum amount from Australia under a retirement benefit scheme, or in consequence of retirement, it is not taxable in New Zealand. You would not be taxed under the proposed new rules.

If the double tax agreement does not apply, transfers into a KiwiSaver scheme from an Australian superannuation scheme may still be tax-free under an agreement on the portability of retirement savings between Australia and New Zealand. This is not yet in force, but will come into effect shortly after both countries inform each other that the necessary legislation has been enacted. In New Zealand, the relevant legislation was passed in 2010.

Once your superannuation has been brought to and invested in New Zealand, any investment gains (such as interest income) will be taxable under existing law. That is, the current tax treatment of such income will be retained.

Sourced from http://taxpolicy.ird.govt.nz/publications/2012-other-foreign-super-fact-sheet/overview-0

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Moves to simplify tax rules on foreign super

admin — Wed, 10 Jul 2013 06:13:36 +0000

OPINION: It hardly comes as a surprise to learn that there are parts of the tax rules that are more complicated than they should be.

One of those areas deals with how foreign superannuation schemes are taxed. Included in the usual flurry of post-Budget activity this year is proposed legislation to simplify those rules.

We live in a modern, mobile world where labour easily crosses borders. Kiwis are especially known for their love of travel, including working holidays during which they contribute a portion of their earnings into compulsory retirement savings. Also affected are migrants, looking to make a new life in New Zealand.

The result is that there is a large number of New Zealanders who have savings in superannuation schemes that are based offshore. For a long time, the tax rules for these have been far from clear – especially regarding lump sum receipts.

People who aren’t New Zealand tax residents and transitional residents (generally, the first four years of tax residency for new Kiwis and returning ex-pats who have been away for more than 10 years) don’t have to worry about any of their foreign superannuation holdings, as they don’t have to pay tax on any non- New Zealand sourced income. But what about New Zealand tax residents?

To date, they’ve had to wade through a mire of different tax regimes to work out the right treatment. The first port of call is the foreign investment fund (FIF) regime. This body of rules deals mainly with investments in foreign companies but also applies to holdings in foreign superannuation schemes. Under the FIF rules, tax is paid on notional income calculated under a variety of possible methods.

These include the “fair dividend rate”, which generally calculates income as equal to 5 per cent of the opening market value of an investment; and “comparative value”, which taxes the movement in value of an investment – even if not realised. The practical difficulty in applying these rules to foreign superannuation schemes is that it can be difficult to obtain the information needed to carry out the calculations.

Because (as is the case with tax rules) there are a lot of exceptions and exclusions, it’s quite possible that the FIF regime may not apply to a particular foreign superannuation scheme. If that’s the case, other tax rules need to be considered. The tax treatment may depend on the legal structure of the fund.

New Zealand’s company tax rules will apply if it is a foreign company or unit trust. Cash distributions are taxed as dividends unless an exception to the dividend rules applies, such as certain returns of original capital. Alternatively, if the foreign superannuation scheme is structured as a trust, then distributions received may be taxed as beneficiary income.

The rules for foreign trusts are complex. As with the FIF rules, it can be difficult – to the point of impossible – to obtain the information needed to work out if a distribution can be treated as tax free. Foreign superannuation schemes do not maintain their records with New Zealand tax rules in mind.

So the Government has decided to simplify matters. Regular pension receipts will continue to be taxed. It is proposed that lump sum withdrawals be taxed on a progressive basis. The longer a person has been a tax resident, the greater the percentage of the lump sum that will be subject to tax.

For example, after two years of residency, it is proposed that only 9.45 per cent of a lump sum be taxed; after 10 years the percentage increases to 44.39 per cent; 100 per cent is taxed after 25 years. The FIF and other rules will be specifically kept out of play. There are transitional rules, including a “15 per cent” method for taxpayers who haven’t complied with past obligations – provided they disclose their failure to comply.

Different rules applying to the trans-Tasman transfer of super savings will come into effect next month.

The proposed legislation will provide clarity to the taxation of foreign superannuation. It will also encourage the repatriation of superannuation savings to New Zealand sooner rather than later. The costs of early exit and any tax costs in the country of the scheme still need to be considered.

Sourced from http://www.stuff.co.nz/business/money/8752162/Moves-to-simplify-tax-rules-on-foreign-super

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UK Coal’s long-anticipated entry into administration hits pension scheme

admin — Wed, 10 Jul 2013 04:23:48 +0000

Pension Protection Fund, the government-sponsored pensions lifeboat scheme, takes over responsibility for partially honouring pension promises

The retirement savings of 7,000 past and present mineworkers at UK Coal, Britain’s largest coal mining business, took a hit on Tuesday as the pit operating group responsible for repairing the pension scheme’s deficit of at least £450m sank into a long-anticipated administration.

But in a complex deal between the government, the Pension Protection Fund (PPF) and two sets of administrators, some 2,000 jobs have been saved, largely at two of the mining group’s three deep pits.

The third pit, Daw Mill, the site of a devastating fire in February, is to be permanently closed, the company confirmed, with 350 workers made redundant. Before the fire, a restructuring deal at Daw Mill had been expected to generate £100m in cashflows by the middle of next year for the group’s struggling pension scheme.

Despite years of financial woes, UK Coal still generates 6% of the nation’s electricity by supplying Drax in North Yorkshire and three other power stations in Nottinghamshire. Accounting for more than half the coal mined in the UK, the mines are still seen by many in Westminster as fulfilling an important role in near-term energy security requirements for Britain.

One source involved in the restructuring said the company had been “overwhelmed at how helpful government had been at every turn”. However, early plans to involve the Shareholder Executive investment quango in a rescue of UK Coal were ultimately ditched. The quango is already responsible for taxpayer holdings in such businesses as Royal Mail, Channel 4, Eurostar and the Royal Mint.

Meanwhile, the PPF, the government-sponsored pensions lifeboat scheme, has taken over responsibility for partially honouring the pension promises made by UK Coal before its demise.

After taking into account the value of brownfield development land, the likely hit to the PPF is estimated to be between £450m and £500m, according to independent pensions expert John Ralfe. That makes it the biggest ever deficit taken on by the lifeboat scheme, more than the £333m hit from the UK administration of telecoms equipment maker Nortel in 2009.

UK Coal pension scheme members who have not yet reached retirement will now have 10% wiped off the retirement value of the pension they have accrued. Meanwhile, weak inflation protection within the PPF means all scheme members can expect to see the value of their retirement savings further eroded over time.

In a highly unusual arrangement, the continuing operations of UK Coal will rapidly pass through the hands of administrators, re-emerging under a new company called UK Coal Production.

Although the new business will not technically be owned by the PPF, administrators from PricewaterhouseCoopers said the lifeboat scheme would “retain economic benefit through substitute debt instruments”. The size and maturity of these new obligations are not disclosed.

Among the assets in the UK Coal pension schemes – inherited now by the PPF – is a 75% interest in Harworth Estates, which owns brownfield land previously used for mining operations. The minority interest is held by stock market listed company, Coalfield Resources. This was, until a complex restructuring deal last year, an enlarged operation encompassing the mining operations of UK Coal as well as these property interests. At that time it went by the name UK Coal.

Sourced from http://www.guardian.co.uk/business/2013/jul/09/uk-coal-enters-administration-pension-scheme

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Pensions have gone from BMW to old banger – and there’s no way back

admin — Wed, 10 Jul 2013 02:41:58 +0000

Britain’s company pensions, once the envy of the world, are now mediocre, and attempts to find a happy medium will fail.

Imagine you are talking to your boss about your benefits package for the following year. You’ve agreed on a pay rise and now you turn to the fringe benefits.

“Bad news,” he says. “We’ve reviewed our policy on company cars and can no longer afford the BMW you’ve had since you joined. Your new company vehicle is a 25-year-old Reliant Robin.”

Far fetched? This is exactly what millions of workers have been told over the past decade or so if you just substitute “pension” for “company car”.

For when it comes to company pensions there is no middle ground. The old ones – the BMWs – had everything. They included a link to final salary, offering the chance that, once the state pension and reduced outgoings were taken into account, your standard of living would be much the same when you retired. They offered index linking against the ravages of inflation and a pension for your spouse, while there was no danger of your income being at the mercy of financial markets.

The replacement for these gold-plated pensions is as different as it’s possible to be.

They don’t offer a known income in retirement and there’s no link to final salary; index-linking and a pension for a surviving spouse come only at the cost of a worse income for yourself; and movements in the markets could have a huge effect on your income.

The Government realises that some kind of halfway house between “defined benefit” pensions (the BMW) and “defined contribution” schemes (the old banger) would be desirable. It has come up with “defined ambition”, a rather vague concept that, it is hoped, will give workers a little more certainty about the income they can expect in retirement.

Old-banger pensions involve two distinct areas of uncertainty: you don’t know how much money you will have saved by the time you retire, and you don’t know how much income each pound you have saved will buy. A “defined ambition” pension could, for example, remove one of these uncertainties by guaranteeing a minimum value of your pension pot at retirement age.

But pension experts tell me that this middle way will never get off the ground. The moment you have a framework that forces employers to share some of the risk with the pension scheme members, it’ll be the thin end of the wedge, companies fear – the Government won’t resist the temptation to gold-plate the requirements, a little at a time, until this hybrid vehicle is as good as the BMW.

Why are the experts so sure this will happen? Why, it’s exactly what happened last time with final salary pensions: ministers added so many bells and whistles that they became superb pensions – but unaffordable.

With the old banger, companies feel safe – the schemes are simple and stable; they make no promises. Change that formula ever so slightly and there’s no knowing where it will end, employers say.

Well intentioned ministers destroyed a British institution that was the envy of the world, and employers will not be hoodwinked into bringing it back.

So you won’t be getting your BMW back – it’s the old banger pension or nothing.

Sourced from http://www.telegraph.co.uk/finance/personalfinance/comment/10168223/Pensions-have-gone-from-BMW-to-old-banger-and-theres-no-way-back.html

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Citigate transfers pension liabilities

admin — Wed, 10 Jul 2013 02:39:49 +0000

CITIGROUP has shifted responsibility for paying the pensions of 20,000 past and present staff of EMI Group to Pension Insurance Corporation (PIC) in a landmark deal relieving the bank of up to £1.5bn of liabilities.

The bank, which employs 1,200 people in Belfast, is the latest employer to insure against lengthening lifespans which impose hefty extra costs on retirement funds.

It is paying the specialist insurer an undisclosed fee in the largest UK pension risk transfer to date, Citi and PIC said yesterday.

The deal is the biggest since Legal & General took on £1.1bn of pension liabilities from the T&N Retirement Benefits Scheme in 2011, according to data from Towers Watson, which advised the trustee for the EMI deal.

Citigroup seized the music company in 2011 from financier Guy Hands after private equity firm Terra Firma Capital Partners defaulted on its loans.

Sourced from http://www.belfasttelegraph.co.uk/business/business-news/citigate-transfers-pension-liabilities-29408167.htm

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Aussie ‘super’ transfer enabled

admin — Sun, 07 Jul 2013 04:57:26 +0000

An estimated $16 billion of New Zealanders’ money currently in Australian superannuation schemes is now transferable to KiwiSaver, thanks to legislation that came into effect on July 1.

Statistics New Zealand said more than 9000 people migrated to New Zealand from Australia last year and the new rules allow for greater economic mobility between the two countries.

One of those 9000 was Timaru local Hayley Strachan.

She moved back recently after several years in Australia and had been told at the time she was unable to move her money back with her.

“I looked into transferring my money as I would rather it be with me.”

Although not ruling out moving back across the Tasman, Miss Strachan is definitely moving her funds so she has greater control and lessened fees being paid to several different funds.

Another returnee, Christina Cahill, had seen a flyer but had discarded the idea of transferring her funds as she believed it to be complicated.

Moving money into KiwiSaver is relatively easy, involving providing KiwiSaver with the name of funds that money is invested in and the tax file number. The KiwiSaver scheme will do the rest.

After being informed of the process, Miss Cahill reconsidered her stance.

“Well if it’s not going to be a pain in the butt I will do it.”

The head of Wealth Advisory for ASB, Jonathan Beale, said this was a great opportunity for New Zealand to increase the amount of money in the local stockmarket and a chance to enhance financial literacy.

“It’s a really good chance for Kiwis to see where their money is invested and have more control on what it is invested in.

As was the case in Australia, more money invested would attract companies to the sharemarket.

Increased investments in New Zealand could buoy the local economy, providing cushioning during economic downturns.

The only caution Mr Beale had for those wishing to roll over funds was that there was a transfer period of 30 days, during which there was no control over the exact day for currency trading purposes.

Sourced from http://www.stuff.co.nz/timaru-herald/news/8876370/Aussie-super-transfer-enabled

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New tax rules target overseas super payments to Kiwi residents

admin — Thu, 20 Jun 2013 05:21:30 +0000

New tax rules target overseas super payments to Kiwi residents

Inland Revenue is getting ready to clamp down on thousands of New Zealand residents who haven’t been paying tax on withdrawals from their overseas superannuation schemes.

The Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill which sets out new tax rules on overseas superannuation schemes passed its first reading in Parliament yesterday.

The legislation is a response to concerns that as many as 70 per cent of New Zealand residents who have overseas superannuation schemes have not been paying the right amount, or indeed any tax, when they withdraw money.

The existing rules are complex and some people may have been advised their overseas superannuation schemes were tax exempt.

In some cases one group of savers treating their foreign super schemes as “foreign investment funds” under present rules may have been paying just 1.65 per cent tax on any investment gains on their overseas superannuation. Others could pay up to 30 per cent tax on lump sum payments from superannuation savings held in a trust structure, IRD analysis suggested.

Under the new law, savers will no longer be able to treat foreign superannuation savings as foreign investment funds but will either pay tax on investment gains when they receive lump sum payments from those schemes or transfer them to New Zealand or Australia.

Any annuity or pension payments from foreign super funds will continue to be taxed under current rules.

The new legislation includes measures to allow those who haven’t been following rules to come into line by paying appropriate penalties and interest or by paying tax on 15 per cent of a previous withdrawal from their foreign super scheme.

Sourced from http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10890194

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Clarity brought to issue of transfer of offshore pensions

admin — Fri, 14 Jun 2013 05:00:54 +0000

There’s new clarity on tax for advisers who have clients with foreign superannuation scheme interests.

The new Taxation Bill aims to simplify the system by introducing a new cash-based regime to tax interests in foreign schemes. It also contains a partial amnesty for people who have withdrawn a lump sum or transferred it into a New Zealand scheme without declaring it to Inland Revenue as income.

Chapman Tripp senior associate Emma Harding said the system had been very complex and hard to understand. “Anecdotally, some people were not paying tax or didn’t realise they were liable.”
She said they would predominantly be British immigrants, or New Zealanders who had worked in Britain, although people from Canada, the United States and other countries would also be affected. The changes do not alter the looming transtasman superannuation portability regime.

Under the new regime, a person will only be taxed when they receive a withdrawal from the scheme, or when they transfer it to a New Zealand or Australian superannuation scheme. The withdrawal is tax-free if it is made within the first 48 months of residency in New Zealand.

Outside that period, if the saver has information on the rate of growth since they moved to New Zealand, they can opt to be taxed on it under the formula method. Otherwise, they will be taxed under the schedule method, where a percentage of each withdrawal is treated as taxable income.

The IRD had earlier caused alarm by suggesting that immigrants would have to pay tax on the growth of their funds from the start, not from the point the person moved to New Zealand.

Taxpayers who are already filing tax returns on foreign schemes under the FIF regime can choose to continue or move to the new cash-based system.

Harding said it would be a much more straightforward system but the change would draw attention to tax obligations that people might not have known about. “This will bring the issue to the forefront of people’s minds. The rules were very complicated, [IRD] had to come up with a hard and fast rule.”

People who have made withdrawals since 2000 and before April 1 next year and not paid tax on them will be allowed to pay tax on 15% of the amount withdrawn. This must be included in tax returns before 2015.

Harding said it might be worth encouraging people to withdraw before next April if 15% was a lower percentage than would be taxable under the new provisions.

Sourced from http://www.goodreturns.co.nz/article/976500949/clarity-brought-to-issue-of-transfer-of-offshore-pensions.html

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Changes tipped for pension transfer regime

admin — Fri, 15 Mar 2013 04:15:11 +0000

Proposed changes to the tax treatment of foreign superannuation funds transferred to New Zealand are likely to be tweaked before being put to Parliament this year.

Last July, Inland Revenue released a paper setting out options for the tax treatment of foreign pensions transferred to New Zealand.

The consultation period closed in September.

The proposal would see a percentage of transferred funds being treated as taxable income on a sliding scale depending on how long the owner of the funds had lived in New Zealand at the time of the transfer.

However, it is understood that the tax department is planning to adjust its proposal to account for “transitional residents”.

New residents to New Zealand are given a four-year tax exemption on their foreign-sourced investment income.

This means that under the current proposal, those inside this four-year period at the time of transfer wouldn’t be taxed at all, while those just outside it would be taxed on 15% of transferred funds.

Industry sources suggest this will be changed so that rather than being counted from the day someone arrives in New Zealand, the clock will start at the end of the four-year transitional residency period.

Chris Heffernan, an accountant at Leech & Partners, said if the rumoured changes did go ahead it would be fairer than having people go straight into the second band of taxable income after the transitional period.

“To ignore the fact they have not been residents and then treat them as residents would be unfair.”

An Inland Revenue spokesperson said no final decision has been made as yet, so no further material has been available for public release.

“Officials have analysed the submissions received and recommendations based on public feedback are being proposed to the Government for consideration.

“It is expected that draft proposals will be included in legislation for introduction by the middle of this year.”

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