The 7 traps to avoid when transferring your UK pension
Pension Transfer Trap 1: The unexpected tax bill
When you are outside the four year tax exemption you will be required to pay tax in New Zealand on the transfer value based on how many years since you became a New Zealand resident.
If you are over the age of 55, schemes we recommend allow you to withdraw up to 30% without incurring early withdrawal fees to pay the tax due.
From the 1st April 2026 the IRD have changed their rules to allow the QROPS schemes to pay the tax on your behalf. This is the Transfer Scheme Withholding Tax (TSWT). A flat 28% “scheme pays” mechanism for eligible transfers to NZ QROPS superannuation schemes. You do have to nominate this at time of transfer. Refer to our blog What the April 2026 “Scheme Pays” rule means
The TSWT is ideal if you are in a 33% to 39% marginal tax bracket or have a large transfer.
Also refer to FAQ and the blog Taxation increments table.
Pension Transfer Trap 2: Changing your mind
Once you start drawing down on your pension fund in the UK it cannot be transferred to New Zealand. To transfer your pension you will have to show you are a permanent resident in New Zealand and must not have set-up regular drawdowns.
Pension Transfer Trap 3: Delaying your decision to transfer
Delaying your decision because of the exchange rate or a drop in the markets can be expensive.
If you have concerns about the exchange rate then discuss this with us. We can give you a consensus of the 18 month outlook for the UK/NZ exchange rate. There are many factors impacting the exchange rate.
If you are really concerned we can transfer your funds and retain them in Sterling cash and invest them either in a cash, socially responsible balanced or 100% equities portfolio all held and invested in Sterling.
There are downsides to doing this.
The longer you wait to transfer the higher your potential tax liability. Refer to Taxation Increments Table
Pension Transfer Trap 4: Your funds are locked-in
Avoid locked-in schemes. Some NZ QROPS schemes (not the ones recommended by Lyfords) lock members into the scheme beyond the conditions specified by the HMRC. They may also have high exit fees and in some cases performance fees.
Pension Transfer Trap 5: Hidden fees
Some UK schemes that are under funded are charging exit fees. It is important to take this into account when analysing your options.
Does the New Zealand QROPS scheme charge entry and exit fees? It has become common for most schemes to charge an early withdrawal fees if you withdraw any funds within the first 1-3 years. Usually, depending on the scheme a 30% initial withdrawal (if you are eligible) of your funds will not incur an early withdrawal fee.
Foreign exchange fees for conversion of pounds into NZ dollars may often be hidden in the exchange rate declared. Some providers in New Zealand are charging as high as 2% margin above wholesale rates for converting pounds into New Zealand dollars.
Pension Transfer Trap 6: Being too conservative
If you are retired we recommend your funds are invested into a ‘balanced’ risk-return profile scheme. This is 60% to growth assets (share, property) and 40% to defensive funds (cash, bonds).
If you are younger than 55 a growth risk-return profile (70% growth assets to 30% defensive assets) or higher may be more suitable. We will ask you to complete a risk-return profiling questionnaire and we will match this to your specific situation and our discussions.
By being too conservative your savings may not keep pace with inflation.
Pension Transfer Trap 7: Not reviewing your investments
Not reviewing your investments. We believe its important to keep track of your investments and review asset allocations to ensure your risk/return profile stays within their limits.
This is all part of the Lyfords service and we do not charge for review appointments.