Can I transfer my UK pension to NZ?
This article is co-written by Brigette Arnold Manaia and Brittany Jackson from Alvarium Wealth. It does not constitute investment, legal, or tax advice.
For many New Zealanders, an OE to the UK remains a popular choice. Recent research by Auckland Airport and Kantar suggested that nearly a third of Kiwis who are planning their OE intended to head to London[1].
In many cases, this stint in the Northern Hemisphere can lead to UK-based Kiwis accruing a number of UK assets, including pensions – either in the form of workplace pensions (i.e. Defined Contribution, or Defined Benefit), and/or in the form of self-invested personal pensions, commonly referred to as SIPPs. Other examples exist too.
Likewise for Brits moving permanently overseas to New Zealand, the reality of having UK-held retirement savings raises important questions about when, how or if to bring those assets into NZ.
In the following article, we summarise some of the key things that are worth keeping in mind for anyone who falls into these two camps.
Why transfer to NZ?
Weighing up whether or not to transfer UK pension assets into New Zealand depends on your unique, personal circumstances. However, broadly speaking, there are some common ‘pros’ for doing it, which include the following:
· Retirement income from NZ Super schemes is tax-free. Conversely, in the UK, the taxation on pensions involves a number of different layers. (You can read more on the UK government website: Tax when you get a pension: What’s taxed -GOV.UK).
· Provided you transfer your UK pension to NZ within an appropriate time frame – typically within four years of you setting foot in NZ, and assuming you don’t leave for long chunks of time in that time – then you won’t be liable for tax on that capital transfer.
· If you do miss the tax-free window for transferring your pension over, then all is not lost. The NZ tax liability associated with the transfer is typically still low for the years immediately after the four-year tax-free window (based on the ‘The schedule method’[2]). However, the liability rises significantly the longer you leave it.
· Bringing assets into NZ also gives you more optionality to invest locally, and to engage local professional advice.
On the flip side, it’s important to think carefully about your medium and long-term plans. A short-term decision made in isolation of the bigger picture regarding your goals and circumstances, could come back to bite.
For example:
· If you think there’s a good chance that you’ll move back to the UK, especially in your later years when you’ll be reliant on your pension, then it may not make sense to transfer that pension into NZ. That’s not to say that you can’t technically bring it into NZ and then take it back to the UK if you change your mind. But it’s not advisable from a cost and efficiency perspective.
· The tax on a transfer may also be prohibitive. Before making any decision, it’s important to clarify your tax position, both in the UK and in NZ. In recent years, the UK tax regime under the current Labour government has become more punitive. This alone needn’t stop you from transferring a pension to NZ, but having clarity about your full tax obligations can help avoid nasty surprises further down the line.
· In some cases, the type of pension that you have might dissuade you from transferring assets into NZ. For example, the terms of a ‘Defined Benefit (DB)’ pension are typically more generous than a ‘Defined Contribution (DC)’ pension. And if you transfer out of a DB pension, it’s often a permanent, irreversible move. You therefore need to be clear about the benefits that you’ll lose were you to exit your UK pension.
· In our experience, some of the UK public sector pension schemes can also be very hard to transfer out of, and into NZ. For example, the NHS pension scheme is more complicated to exit than some private schemes.
A few things worth keeping in mind
If you do decide to bring your pension assets into NZ, then your elected NZ scheme for receiving the funds must be something called a ‘qualifying recognised overseas pension scheme’. Or for short, a ‘QROPS’.
As the UK government website states, this is an important thing to clarify prior to a transfer: “If it’s not a QROPS, your UK pension scheme may refuse to make the transfer, or you’ll have to pay at least 40% tax on the transfer.[3]”
At the time of writing, and depending on your personal circumstances, you may be able to benefit from the UK’s ‘overseas transfer allowance’ which is currently set at £1,073,100. Any (total) pension transfers into NZ that equate to under or up to this figure, can be treated as tax-free. Anything above this figure may then be subject to taxation at 25%.
Away from tax, it’s also important to clarify the fees involved in a pension transfer. Some NZ-based Advisers will charge a fee simply for the act of helping you to make a transfer. At Alvarium Wealth, we do not charge a transfer fee.
Accessibility considerations
If you do intend to transfer your UK pension to NZ, then UK government rules currently state that you can access the original transfer amount, plus accumulated gains and income, at age 55. From 6 April 2028, this increases to 57[4]. If you were to contribute additional funds, not derived from UK Pensions, this amount is not accessible until age 65, in accordance with NZ Super regulations.
Funds must be held in QROPS until accessible at age 55 (soon to be 57 as stated above). Once transferred and the member reaches the relevant eligible age, 30% of the initial transfer plus first-year ‘income for life’ can be accessed without incurring an exit fee. For example, if you transfer at age 54, at age 55 you can access a 30% lump sum plus first-year ‘income for life’ without incurring an exit fee. The following year, a second ‘income for life’ can be accessed fee-free. Any amount withdrawn over and above this within the initial two-year window would be subject to an exit fee.
Once the two years have passed, you can have full (tax-free) access from 55 or 57. For amounts not originating from UK pension funds, withdrawals follow the Superannuation Scheme rules in the Financial Markets Conduct Regulations 2014, generally from age 65, with possible earlier access in limited cases such as permanent early retirement from age 60.
Having the right experts on your side
At Alvarium Wealth, we’re in the fortunate position of being specialist QROPS-authorised Advisers on the wider Wealth team.
As a result, we have a strong background in helping New Zealanders and Brits to transfer their UK pension assets over to NZ, and in collaborating with Investment Managers to build diversified and resilient portfolios for clients.
As part of that process, we choose to work with the i-Select Superannuation Scheme. Consequently, the total fees for our pension transfer clients will not exceed 2.5% (of your Super funds undermanagement).
And as a reminder, we don’t charge a ‘transfer in’ fee, unlike some other NZ Advisers.
Final thoughts
Given that pensions are a form of long-term investment, it’s important to take a long-term perspective when thinking about how you want to manage this aspect of your financial plans.
If you do intend to stay in NZ for the long-haul, then the potential tax efficiencies of transferring your UK pension(s) into an NZ-equivalent scheme are compelling. But as the saying goes, you shouldn’t let tax wag the tail of the investment dog!
Taxation is only one part of financial planning conversations, albeit a fairly major one for high-net-worth and ultra-high-net-worth individuals. As ever, it’s important to seek the right professional advice to ensure your assets are managed securely, efficiently, and in a way that best represents your personal objectives.
One final piece of context worth considering – if you do intend to transfer a UK pension into NZ, then don’t leave it until the final stages of the four-year tax-free window. Depending on your UK provider’s processes, it can take 9-12 months before your funds are released into NZ, by which time you could be subject to NZ tax.
Likewise, it’s not uncommon to have more than one workplace pension, depending on how many UK employers you worked for. Proactive planning and early engagement of a professional Adviser can make all the difference. We can even help you find old pensions that you’ve only just remembered you had!
Any questions?
If you would like to explore your options regarding a UK pension transfer into NZ, please email us directly, using: brigette.manaia@alvarium.co.nz , and, brittany.jackson@alvarium.co.nz.
[1] Source: https://corporate.aucklandairport.co.nz/news/publications/thegreatoe
[2] Source: https://www.ird.govt.nz/-/media/project/ir/home/documents/forms-and-guides/ir1000---ir1099/ir1024/ir1024-2024.pdf?modified=20240503012806&modified=20240503012806
[3] Source: https://www.gov.uk/transferring-your-pension/transferring-to-an-overseas-pension-scheme
[4] Source: https://www.i-select.co.nz/articles/upcoming-changes-to-the-uk-normal-minimum-pension-age
Photo credit: Yong Chan, Unsplash
