UK emigrants and New Zealand residents who have worked in the UK usually find themselves leaving behind their locked-in pension funds when they arrive in New Zealand. This can present a number of difficulties.
Once you become eligible for payments from your fund, you will need to pay tax on thosepayments as well as bank transfer fees. You will also be exposed to exchange rate changes so that the amount you receive as a pension will fluctuate over time.
If you pass away with your money still in a UK scheme, your spouse is likely to receive a pension worth only half of what you would have received, whereas New Zealand retirement schemes pay the whole benefit to your spouse or dependants.
UK pension funds are classed as foreign investment funds by Inland Revenue which means if you are a New Zealand tax resident you may have to pay tax on the investment gains.
UK pensions can be transferred to New Zealand but can only be transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS) without incurring tax.
Up to 40 per cent of any money you transfer may go into an unlocked fund and can be withdrawn before retirement age without tax if withdrawn more than six years after leaving the UK. By contrast, some UK pensions allow you to take 25 per cent of your funds after the age of 55 without paying tax. Being able to withdraw funds can help with changing circumstances such as marriage, birth of a child or change in employment status.
Having your funds in New Zealand means it is easier to obtain information on how your investment is performing.
The transfer is best done with the assistance of a financial adviser to avoid unnecessary penalties and to be aware of your options.
Liz Koh is a financial adviser. Her disclosure statement can be obtained free of charge by calling 0800 273 847. www.moneymax.co.nz
