Relocating to New Zealand is an expensive exercise for British expats and returning Kiwis. While it can seem like you’re constantly spending money - on shipping, airfares, accommodation - transferring your UK pension to New Zealand along with your personal possessions might just gain you a windfall in the long run.

It’s a complex process, but you can end up with a tax-free pot of money in New Zealand, as I learned recently from UK pension transfer expert, Tom Gilbert.

What are the benefits of transferring your pension scheme to New Zealand?

Basically the gains come from the different rules and regulations relating to UK pension funds once they reach New Zealand.

Tax gain

Most workers in the UK will have built up a balance in a UK-based pension scheme, and contributions are not taxed. The schemes are designed to pay out an income when you reach the age of 55, at which point you’d pay tax as you draw it down.

But once you transfer the money in your scheme back to New Zealand, any funds you take out are treated as a capital withdrawal and there is no tax.

Estate planning

If your pension remains in the UK and you pass away, half of the Fund’s balance will go to the government and the remainder to any remaining spouse. If it is transferred to New Zealand, the entire Fund passes to the family estate should you pass away.

What happens to the money in New Zealand?

QROPS

The money from your UK pension scheme must go into a Qualified Recognised Overseas Pension Scheme (QROPS) in New Zealand. This is very much like a Kiwisaver scheme - it’s a managed fund but with QROPS rules rather than Kiwisaver rules. You can choose between different types of fund (conservative, growth, high growth etc) and if you're worried about exchange rate losses, you can transfer the money here and hold it in in sterling, or a sterling international fund portfolio, waiting for a better exchange rate.

Withdrawals

Be aware that the same withdrawal rules apply as the UK - you won’t be able to take fund out of the QROPs until age 55. Plus, If you leave your pension in the UK there is a guarantee on the income, but this doesn’t apply when you transfer your pension scheme to a QROPS in New Zealand. Your pay-outs will depend on the Fund’s performance.

What’s the best approach for Kiwis who came back home due to COVID, and may return again to the UK?

If you’re a returning Kiwi who has been non-resident for tax purposes while away, there’s a four year window to transfer your offshore pension funds and not pay tax here.

But if you are planning to retire in New Zealand, it’s worth researching the pros and cons of bringing your pension home sooner rather than later. The UK government is tightening the rules. In 2015 the number of public sector schemes that could be transferred was cut significantly. For example, teachers, police, NHS. armed services and some other public service public unfunded defined benefit schemes are not transferable. With private schemes it is easier and some public schemes are still eligible, but overall it is getting more difficult to do.

Each case is individual and will depend on the conditions and benefits offered in your UK pension scheme, and your personal tax and financial situation. Once the money is transferred to New Zealand you can’t transfer it back, so it’s highly advisable to seek advice from a registered financial advisor and an international tax specialist before making any decisions.

If you’d like more tips to help your relocation to NZ, download our FREE Move to NZ Checklist HERE.

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Want a local expert to help you find your home in NZ? Mobile Relocation helps returning Kiwis and newcomers to NZ find their new home and so much more.

Contact us today to talk about how we can carry your relocation burden.

Bridget is a New Zealander who has lived and worked as a diplomat in Singapore and India. After experiencing all facets of the relocation experience, she founded Mobile to work with private individuals moving to NZ and leading local and international businesses bringing in offshore talent. bridget@mobile-relocation.com

Amanda is a former US immigration attorney who moved to NZ with her Kiwi partner and three children during COVID. She enjoys making the journey easier for those following a similar path and providing the perspective of someone who’s recently been there. amanda@mobile-relocation.com

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