Can I transfer QROPS money from one KiwiSaver provider to another?
The short answer is no, QROPS money cannot be transferred from one provider to another. You might be asking why that is if you may have done so in the past, so let's take a step back and look at what QROPS are, why KiwiSaver is no longer eligible, and finally, what choices you have for your superannuation when emigrating to New Zealand with your UK pension.
What exactly is a QROPS?
The term QROPS stands for a “qualifying recognized overseas pension scheme” and to qualify and be eligible as a QROPS scheme it must meet certain requirements set by Her Majesty’s Revenue and Customs (HRMC). While QROPS are mostly relevant for British citizens permanently emigrating out of the United Kingdom they are also relevant for expatriates who’ve built up their UK-registered pension over 5 previous tax-paying years. When emigrating, the UK requires that the superannuation fund you transfer your pension to be recognised as a QROPS.
Does KiwiSaver qualify?
As to why exactly KiwiSaver is no longer eligible for QROPS, that is because of the nature of it itself and the ability to withdraw funds before retirement. What this means is that due to them permitting early withdrawals before the age of 55 they don’t qualify and are unauthorised by the HRMC.
These early withdrawals could be for a number of reasons, but the most frequent would include first home withdrawals, financial hardships and serious health issues necessitating their withdrawal for medical costs. As stated earlier KiwiSaver does not currently offer any providers that qualify as QROPS, but prior to regulation changes made by the HRMC in 2015, all schemes were in fact eligible.
Those who these changes affected were able to transfer their funds and not be taxed if they transferred by June 17th 2015. But some investors were caught in the process of transferring their UK pensions over to KiwiSaver, and following these changes were saved from any added tax implications as a result of transferring to a superannuation fund that wasn’t QROPS. Since then though any QROPS monies remaining in KiwiSaver will be taxed if withdrawn or transferred before retirement age.
How your UK pension can be taxed
So now that we’ve established that KiwiSaver schemes are no longer eligible as QROPS, we must talk about the tax implications as a result. The expectation of the HRMC is that QROPS monies will remain in your fund until eligible for withdrawal, meaning retirement age which is of course 65 in New Zealand. As such, as a way to prevent early withdrawals and transferrals from New Zealand based KiwiSaver funds the HRMC can impose a tax on these withdrawals. UK legislation states that they can tax these funds up to a maximum of 55%.
This puts New Zealand residents with their UK pensions within a KiwiSaver fund in a difficult situation, as the money is effectively “trapped” within the given fund it is within with no recourse except to be potentially taxed heavily if withdrawn or transferred. On having accessed your QROPS funds within a KiwiSaver fund you may be contacted by the HRMC to seek tax compensation up to the aforementioned maximum of 55%. Although potential penalties may not apply to you if you have been a non-UK tax resident for at least five full and consecutive UK tax years after leaving the UK.
Ultimately the issue involved here is that even if you are not planning on accessing your pension until retirement, your investment cannot be modified at all. Depending on changes in lifestyle and individual circumstances your risk tolerance and desired returns may change and this static investment may be a detriment to meeting your retirement goals.
An option available to UK citizens permanently emigrating to New Zealand is QROPS eligibly superannuation schemes that aren’t KiwiSaver funds. The benefit to transferring your UK pension to a New Zealand based QROPS is the tax benefits, these include paying no income tax at retirement age, no tax on fund growth and no tax on death. The result of this is that there is no tax upon inheritance upon your death, and so long as you remain a New Zealand resident for 5 years your heir/s will receive the full lump sum. To find out whether any of this will apply to you please seek out your financial adviser for more targeted taxation advice.
Your alternatives to KiwiSaver
Now that the changes made by the HRMC are in place the only way you can transfer your UK pension is via a QROPS. There are a number of options available to you for investing your UK pension into a New Zealand based superannuation, one option includes National Capital’s affiliated company SwitchSuper.
SwitchSuper is an option offered by the Portfolio Superannuation Scheme (PSS) and is a qualified recognised overseas pensions scheme (QROPS), a status granted by the HRMC. SwitchSuper offers investment options managed by Simplicity NZ Limited, those being growth, balanced and conservative fund options.
There are some further advantages to transferring your UK pension to a New Zealand based QROPS aside from those mentioned earlier. These include but are not limited to, no need to worry about exchange rates between the UK and NZ, better communication from NZ-based financial advisors, more choice when investing, the potential to pay less tax and having more control around your retirement income than you would with a UK pension company.
Something worth noting regarding your UK pension is if it’s at all eligible for transfer overseas. Certain pensions schemes such as state pensions, unfunded public sector pensions or civil service pensions have different regulations regarding emigration out of the UK.
Get fully informed about what QROPS options are available by checking out the UK’s website listing all recognised overseas pension schemes.
How to choose the right QROPS for you
As with any investment decision you should consider all aspects of where your money is being invested and what your needs are from it. There are various QROPS funds to choose from and there will be funds available that will suit your individual circumstances.
This may be in terms of the fees you wish to pay, your tolerance for risk, how funds are taxed and which currency you decide to invest with and their conversion rates. Performance of your chosen fund may be a priority to you also, and while past performance can be an indicator of future performance it’s advisable to look at the investment allocation of the fund as well.
Ethical and social concerns may also be a priority for you with your investments, this and all other considerations help to show that those looking to emigrate front the UK must take a multi-faceted approach to choose what QROPS is right for them.
Leaving New Zealand with your UK pension funds
Once you’ve moved your UK pension into a QROPS fund in New Zealand you will be viewed as an entirely new customer if you choose to return to the UK and start a new pension scheme and may not receive the same benefits you had prior. Permanently leaving New Zealand at this point means you can withdraw the entirety of your QROPS and take them with you when emigrating if you are of retirement age. One caveat to doing this is that if after moving to New Zealand you choose to live in another country within 5 years, the NZ QROPS will contact the HRMC regarding your emigration and they will enact what’s called the Overseas Transfer Charge (OTC). This charge is a one-off tax of 25% on your transferred UK pension funds if you do emigrate within the aforementioned 5 years.
Moving Forward
Ultimately, the changes made by the HRMC regarding KiwiSaver’s eligibility for QROPS have had a large impact on a significant number of expatriates from the UK, so if you have any further questions get in touch with your financial advisor for personalised advice. Its status as ineligible for QROPS may change in future depending on rulings in the UK by the HRMC which are always being updated, as well as changes in legislation. But for now, there are alternatives that are good options for investing your QROPS monies, allowing UK emigrants to invest in a superannuation fund and live the life they want in good old New Zealand.
