Inside Money: Transtasman transfers: a heads up

9:30 AM Thursday Sep 20, 2012

Come in spinners, the long-awaited Australian leg of the trans-Tasman super transfer has arrived.

Bill Shorten, the Australian Minister for Financial Services and Superannuation, presents the proposal as a simple solution: "This will make it easier for people to move freely between the two countries, help consolidate their retirement savings in their country of residence and avoid paying fees and charges on accounts in the two countries."

And so it will, but it doesn't mean you should. A closer inspection of the draft legislation reveals the two-way transfer process will not be a seamless one.

The difficulties, most of which will be administrative problems for the respective Australian superannuation and KiwiSaver providers, relate to the fundamental differences between the trans-Tasman retirement savings schemes.

For example, Australians can currently access their super between age 55-60; KiwiSavers have to wait to 65 (or later as members must have been in a scheme for a minimum of five years).

Under the draft legislation, KiwiSaver and Australian super providers will have to 'tag' any transferred money and apply the country of origin access rules to that component. That is, KiwiSaver money moved to Australia can't be withdrawn until age 65 while Aussie super money shifted to a KiwiSaver account can be taken out when the member hits 60 (or earlier depending on the complicated 'preservation' rules relating to the particular individual).

I couldn't tell whether the country of origin access rules also apply to any investment earnings on the transferred component after shifting - if I have to, I'll read it again.

While the above rule might not be a huge problem, it does introduce a level of unwanted clunkiness.

Furthermore, the Aussie legislation excludes the explosively popular self-managed super funds (SMSF) from the KiwiSaver transfer deal.

However, the big difference between the KiwiSaver and Australian super relates to the tax treatment of investment earnings. Once a transfer is completed, the new country tax rules apply, so it's a factor you have to consider. In Australia, super investment earnings are taxed at a concessional 15 per cent, or zero in the 'pension phase' (KiwiSaver has no equivalent here).

KiwiSaver earnings, meanwhile, are taxed at the individual proscribed investor rate (PIR), which tops out at 28 per cent. (As Morningstar's recent after-tax KiwiSaver survey illustrates, New Zealand does have other tax quirks that should be taken into consideration).

And there's also the currency question. Maybe it makes sense to keep your savings diversified across the two currencies if you can.

Either way, the trans-Tasman super transfer call isn't as simple as tossing a couple of coins in the air and betting on heads.