QROPS NZ Explained
QROPS NZ – If you are moving to New Zealand or retiring in New Zealand, you may want to look into transferring your pension to a Qualifying Recognised Overseas Pension Scheme (QROPS) in New Zealand. New HMRC rules for 2017/18 mean that you can transfer a UK pension to New Zealand and access your entire pension pot from the age of 55. However, under the new rules, you must remain tax resident in New Zealand for five years or move to another QROPS in the country you are moving to in order to avoid a 25% exit tax. A QROPS in New Zealand faces zero income tax at retirement age, no tax on growth and no tax on death. The whole pension pot can be transferred to your heirs tax-free upon death.
If you have an occupational pension scheme, final salary scheme, defined benefit (DB) pension scheme, a SIPP, SSAS or defined contribution (DC) pension scheme in the UK and you are leaving the UK to live and work in New Zealand, you are entitled to transfer your existing UK pensions to a QROPS NZ. However, please note, that if you transfer your pension to New Zealand, you need to live there as a resident for five years after transfer otherwise you could face a retrospective 25% exit tax charge. After five years, you can go and live elsewhere without the exit charge being imposed.
A QROPS NZ is a tax neutral jurisdiction where you can move your UK pension scheme to get it out of the UK tax net. There will no longer be any tax in the UK as long as you remain tax resident in New Zealand for five years and there is no tax in New Zealand on your pension scheme. If you retire elsewhere in the world within five years, there would be a 25% exit charge imposed after the transfer unless you can move your pension to another QROPS in the country you move to.
QROPS NZ Rules 2017/2018
- Full pension flexibility allowed, similar to the UK
- You can access your pension in one go as a tax-free lump sum at age 55 or you can take a series of lump sums or take a pension income
- The smart move is to keep your pension wrapped in the QROPS as long as possible as it avoids all tax on death, as soon as you cash your pension in, it forms part of your estate and may be subject to 40% UK Inheritance Tax (IHT)
- There are also exit fees to cash your pension in early
- If you transfer your pension to a NZ QROPS and then move to another country, there may be a 25% exit tax within five years of your pension transfer, unless you move your QROPS to the country you live in or you move it to a QROPS in Malta and live in Europe
QROPS NZ Examples Under the New Rules
- You move your UK pension to New Zealand and after three years you move to Australia. If you move your pension to a QROPS in Australia there is no tax charge. Although, there are pension transfer limits in Australia which may make that difficult.
- You move your UK pension to Australia and after six years you move to another country. As long as you don’t move back to the UK, your pension would not be taxed in the UK or New Zealand. Although you may pay some tax in your new country of residence.
- You move your UK pension to New Zealand and after one year, you move to Portugal in Europe. If you don’t transfer your pension out of the QROPS NZ, you would face a 25% exit tax. You could however, transfer to a QROPS in Europe via Malta to avoid the 25% exit tax.
- As you can see, new HMRC rules have made transfers to QROPS a lot more complex. Also, it is difficult to know what the government will do after Brexit.
Why Transfer a UK Pension to a QROPS NZ?
- You live in New Zealand and wish to retire in New Zealand; you should be resident in New Zealand for five years after the pension transfer to avoid the 25% exit tax
- You will later move to Australia after five years of living in New Zealand and want to take advantage of the Trans-Tasman Retirement Portability Agreement which allows your UK pension to be transferred to NZ and your retirement income is paid out tax-free into your Australian bank account, also avoiding taxes on growth and death
- You want to transfer your pension out of the UK tax net before Brexit to make sure your QROPS is locked in under current rules
- British expats, Irish expats, Dutch expats, Kiwis who have a substantial pension in the UK and any holder of a DC or DB pension scheme in the UK can transfer to a QROPS in New Zealand
British expats in NZ and Kiwis who have worked in the UK can both transfer their pensions to a QROPS NZ to get out of the UK tax net and have the choice of a managed pension account in GBP.
In fact, British expats or Kiwis who live anywhere abroad can take advantage of a QROPS NZ. Kiwis working in the UK can also transfer their existing UK pensions into a QROPS to avoid the 45% tax upon death after age 75 as well as UK income taxes of up to 45%. Much has been said of the legality of the QROPS NZ schemes and the possibility to access 100% lump sum in cash from the pension scheme as a British expat. When QROPS first came out, this was allowed, then NZ QROPS had to provide an income for life for 70% of the pension transfer. However, with the new UK pension flexibility rules, this has paved the way once again for you to transfer your pension and “cash it in”. However, this is not recommended due to IHT issues and the high cost of long term old age care. As long as your pension remains in a QROPS, you can target compounded returns and there is no tax on death as long as you remain resident abroad outside the UK.
The QROPS NZ is actually a highly regulated OECD pension scheme and is suitable for British expats in New Zealand and British expats who live offshore in countries which have Double Taxation Agreements with New Zealand. QROPS in NZ can be used as an appropriate vehicle for your pension to mitigate taxes including avoiding all UK taxation on your current pension as long as you remain tax resident outside the UK.
You can click here for the New NZ QROPS rules for 2017/18 and coverage of the New Zealand Financial Conduct Bill.
Originally, due to rules which allow New Zealand residents to access as much of their pension as they wanted, financial advisors were touting the New Zealand QROPS as a 100% cash-in of your UK pension. This loophole had been firmly closed by HMRC before, but with UK pension freedoms, this is now allowed in New Zealand for QROPS . You can take one tax-free lump sums or multiple lump sums or take no lump sum and just be paid a pension income or even use the QROPS in New Zealand just as a tax planning vehicle, parking the whole lot in the QROPS to avoid any tax on death. But, don’t forget the new five year rule as regards to the exit tax.
You can access 100% of your pension pot from age 55, but there will be exit fees, IFA fees and QROPS trustee fees to pay, but would still likely be substantially less than paying UK income tax.
There is no tax on income at source in NZ, no tax on growth and no tax on death in NZ.
There have been changes to both HMRC tax rules and New Zealand tax law which means that if you are a British expatriate in New Zealand, you should transfer your pension to a QROPS in New Zealand only rather than any other jurisdiction abroad such as Malta. If you transfer to a 3rd jurisdiction such as Malta, you will now get hit with a tax on your pension under their ‘Foreign Investment Fund’ (FIF) rules. This is an important distinction.
As of 2016/17, New Zealand will now tax overseas pension schemes if you are tax resident in New Zealand. So, really the only appropriate QROPS for a resident in NZ is a NZ QROPS / ROPS.
Why Not Leave My Pension in the UK? Why Transfer to a QROPS NZ?
Let’s examine a typical scenario facing British expats in New Zealand.
NZ QROPS Example
John decides to emigrate to New Zealand to retire. He receives around about £18k per year from his UK pension of which he pays around £3500 in taxes. This is deducted in the UK.
Every year, John has his UK pension paid out in New Zealand Dollars and he has claimed for this as a credit for the British tax he paid on it in his NZ IR3 tax return. The NZ Inland Revenue’s view is that John is not entitled to claim this tax credit and now want to tax John in New Zealand
The reason for NZ Inland Revenue’s view stems from the fact that HMRC signed away their rights to tax this income under the Double Tax Agreement (DTA) between New Zealand and the United Kingdom.
New Zealand now want to tax this income. They will deduct what you already paid in the UK and tax you in NZ. This could end up being more or less tax than what you already paid depending on your circumstances.
A transfer to a QROPS in NZ would avoid both UK and NZ taxation. Furthermore, the family would get the whole pension pot paid out upon death.
Using the example above, John has a pension pot of around £360,000. In the UK, he can take 25% or £90k as a lump sum and the rest would give him his pension income. In a QROPS NZ, he could take as much pension as he likes tax-free via pension income, a tax-free lump sum or a series of lump sums.
In the UK, depending on the type of pension, the spouse would normally get around half the income or about £9,000 p.a. upon death. Under a QROPS, his wife would get the entire £360,000 as a cash lump sum upon death. This could be the difference of paying off the mortgage or sending the kids though school. Furthermore, you can nominate the beneficiaries.
One of the other advantages is that it is discretionary managed with a range of investment options. Many pensions in the UK are tied to CPI (a measure of inflation which has historically been 2.81% from 1989 until 2013, whereas the cautious discretionary managed portfolio in the NZ QROPS we have been using for clients has averaged around 5% per year.
So, if you have a 300k pension pot at 50, by 65 it has grown to £454,623 in the UK if tied to inflation (assuming the average rate above).
Under a QROPS, that pension has grown to £623,678 (assuming the average 5% return historically delivered by the QROPS). So,not only do you avoid UK and NZ taxation, but have a bigger pot in which you can draw a higher lump sum from. Please note that this may not always be the case and historical returns are not a predictor of future returns. Your pension would be subject to market fluctuations rather than tied to inflation. A final salary pension in the UK gives you a guaranteed return as it is tied to inflation. You would be giving this guarantee up if you transferred to a QROPS in NZ.
Can I cash-in my UK pension through a QROPS pension transfer to NZ and take a 100% lump sum?
Yes, thanks to 2017/18 pension rules. Before, HMRC shut this loophole down, but this all changed when HMRC changes UK pension rules to allow full flexible drawdown. The QROPS scheme we use in New Zealand can now allow full flexible drawdown from age 55.
New QROPS NZ Pension Transfer Guidance
(1) APSS263 form must be filled out to inform HMRC of the QROPS scheme you will be use and that you are aware of the new QROPS tax guidance
(2) There are revised reporting requirements which mean that your QROPS NZ pension trustees must inform HMRC for a period of 10 years after transfer. This doesn’t affect you directly as it is the trustees who must undertake these requirements, however it pushes up the cost of QROPS in the future due to increased admin costs for the QROPS NZ trustees.
(3) NZ QROP schemes should be open to residents as well as non-residents.
(4) Members can transfer up to £1,000,000 for 2017/18 onwards. Any amounts above this will be taxed at 25%. Click here for current levels and more guidance on the lifetime allowance for QROPS transfers to NZ.
(5) Any transfers to New Zealand may be subject to a 25% retrospective tax on your entire pension pot if you become resident outside NZ within five years of transfer. Although, there are options such as moving to another QROPS in the country you live in to help avoid this tax.
No (5) above is important. You must be very clear on your retirement intentions. Even if your plans change and it is not your fault, you will still be subject to a 25% exit tax.
QROPS NZ | The Benefits of a QROPS New Zealand
- No UK income tax and no NZ income tax
- No UK inheritance tax (IHT) or death tax; any UK pensions you draw down will automatically become subject to 40% UK IHT on top of any death tax the rest of your unused pension would face
- Avoids up to 45% tax upon death after 75 in the UK and UK income taxes of up to 45%
- Also no NZ tax on death
- Avoids UK CGT if you own commercial property as part of your QROPS, although there are issues here and this may not be the best vehicle to move into, a SSAS may be more appropriate or other vehicle for your properties
- Ability to steer clear of UK dividends tax
- No NZ PIE tax: no tax on income in NZ
- A Discretionary Fund Manager (DFM) is appointed, so you don’t have to worry about managing your funds
- 5 strategies to choose from: cautious, conservative, balanced, progressive, adventurous
- Access your entire pension pot as one tax-free lump sum, a series of lump sums, as a pension income or just roll up your pension as an estate planning tool passing the whole lot onto your children
- Secure, well regulated pension environment in New Zealand and their first language is English
Taxes on NZ QROPS
Taxation will depend on where you live and where your QROPS is situated. The plan we use is registered as a ‘Foreign Investment Zero-rate PIE (Portfolio Investment Entity) Scheme’. This means that, generally, non-New Zealand tax residents will not pay New Zealand PIE tax on the foreign sourced income of the Scheme.
In other words a NZ QROPS avoids tax in the UK as long as you remain tax resident outside the UK.
It avoids the 25% exit tax as long as you remain resident in New Zealand for the five years subsequent to transfer.
There is no tax in New Zealand. If you move to another country after five years, there is no tax in New Zealand on your QROPS, but you may face income tax in your country of residence.
Tax on NZ QROPS for British expats in NZ
For a British expat who moves his UK pension to an NZ QROPS, your investment would grow tax-free and you would receive income from your NZ QROPS tax-free. You also avoid UK taxation on your pension scheme.
NZ QROPS Changes
Tax on 3rd Jurisdiction QROPS such as a Malta QROPS for British expats in NZ
For Brits in this situation, you can be taxed as your pension is seen as an overseas pension scheme under the New Zealand Inland Revenue department’s ‘foreign investment fund’ rules. This is because the NZ Inland Revenue requires taxpayers to declare their worldwide earnings including payments from third party QROPS. If you have just moved to NZ, you would receive a 4 year reprieve and then you would be taxed.
British expats who already hold a 3rd jurisdiction QROPS such as in Australia, Malta, the Isle of Man, Guernsey, Gibraltar or Hong Kong will have to pay back taxes on their pension. You can read more about the taxation on foreign pensions in NZ here, but the effective rate would be around 5% on a lump sum transfer to NZ. Click here for more info on the charges and effective rate of tax on foreign investment funds for Brits with a 3rd party QROPS living in NZ.
Tax on NZ QROPS for British Expats Who Live Outside the UK
For British expats who live outside the UK, the tax would depend on the country you live in as well as the Double Taxation Agreement between the country you live in and New Zealand. But, usually you just pay local income tax in your country of tax residence. There would now also be a 25% exit tax.
NZ QROPS Providers
There are many NZ QROPS Providers in the market. Click here for a QROPS list NZ.
Pension Transfers to NZ | Can a British Expat Receive an NZ Super?
Can I transfer my UK state pension to New Zealand?
No, you cannot transfer your UK state pension to New Zealand, but you can have it paid into a bank account in New Zealand. However, your UK state pension will not increase in line with UK inflation (CPI) once you have moved abroad. It will effectively be frozen.
What about a NZ Super? Can I receive this as a British expat in New Zealand?
Yes, there is a reciprocal agreement between the UK and NZ. You can claim the NZ Super, which is the New Zealand state pension scheme immediately when you turn 65, no matter how long you’ve been in New Zealand providing you qualify for the UK pension. If you don’t qualify for the UK state pension, you can still get the NZ state pension as long as you have lived in New Zealand for 10 years since the age of 20 with five of those years spent in NZ since you turned 50.
The New Zealand Super (the NZ state pension) is a bit more than the UK state pension; for example, a single person living alone would receive $348.92 per week (£183.25) from the NZ state pension as against the maximum of £107.45 per week from the UK state pension as of April 1st 2012.
QROPS NZ Pension Transfer. Who can take out a QROPS NZ?
Who can take out a NZ QROPS?
The QROPS NZ pension transfer is available to both NZ residents and residents in all other countries including British expats. So, anyone who has worked in the UK and built up a pension is eligible for a pension transfer to a QROPS NZ.
- Members can transfer into a NZ QROPS whether they are UK resident or otherwise
- You can transfer before you move overseas, but only benefit tax-wise once resident in New Zealand, otherwise your lump sum tax treatment would still be under UK rules
- The scheme can accept transfers from most UK pension arrangements including transfers from Employee Sponsored (Final Salary or Group Money Purchase) or Personal Pension Schemes or SIPPs
- Protected Rights and GMP funds are accepted into the scheme
- The scheme can accept transfers from other international schemes
- Additional Contributions can be paid into the QROPS in New Zealand
- Additional lump sums may, subject to UK funding restrictions, be paid into a UK SIPP then transferred into the QROPS NZ.
The QROPS (NZ) Superannuation Scheme we use is registered with HMRC, Her Majesty’s Revenue and Customs, as a ‘recognised scheme’.
Who Would Benefit Most from a NZ pension scheme?
Any British expats or New Zealanders who have worked in the UK or other expats who have worked in the UK and are returning home to retire in New Zealand.
Countries with Double Taxation Agreements with NZ
- Czech Republic
- Hong Kong
- Russia Federation
- South Africa
- United Arab Emirates
- United Kingdom
- United States of America
QROPS Specialists can help you complete your pension transfer to New Zealand and provide advice on which QROPS best suits your individual needs. For more information on a QROPS NZ Pension Transfer, please contact us.QROPS NZ | Pension Transfers to New Zealand | 2017/18 Rules by Richard Malpass