Key Reasons to Transfer Your UK Pension
We make it easy for you
Lyfords makes it easy for you to transfer your UK pension to New Zealand. We are skilled and experienced at dealing with all the red tape and requirements that the UK providers request.
The documents we send to you will be clear and simple. We will have done most of the work based on the information that you will have given us. You can have peace of mind that a professional is driving the transfer process for you.
Control – it’s your money
You will have more control over your money and where it is invested when you work with a professional investment adviser and the financial planning experts at Lyfords, rather than communicating with an institution on the other side of the world where the staff don’t know you.
You will have more information and choice on the investment managers who are responsible for managing your retirement savings.
You no longer need to worry about ongoing changes to the rules for UK pension transfers. You will no longer be concerned if your pension provider is merging, closing, or simply doesn’t have enough money in the pot to pay promised pension amounts to their members.
There are concerns in the UK around large company schemes being under-funded, and the possibility of your pension accounts not be getting credited with the full returns. More people are retiring and drawing down on their pensions, but less money is being paid into the UK pension funds. This is a concern to many Brits living in New Zealand. We discuss this further our blog How safe is your UK pension?
Minimise Your NZ Tax Obligations
If you choose to be paid a pension from your personal UK pension scheme this amount will be fully taxable in New Zealand as income. Taking a regular income from your transferred funds is not deemed to be taxable income in New Zealand.
If you are outside the 4 year tax exemption rule and transfer your funds to New Zealand you will pay NZ tax on a percentage of the amount transferred. This amount is based on how long you have been a New Zealand tax resident. It can still work out costing less by transferring your pension to New Zealand.
Access to Your Funds
If you transfer your pension funds to NZ, they must be invested in a QROPS superannuation fund. Defined benefit schemes can only be transferred into a QROPS. At age 55, you can withdraw all of your money, but your funds need to be invested for two to three years (depending on the QROPS) to avoid early withdrawal fees.
No Inheritance Tax
You can avoid inheritance tax on your pension through a QROPS transfer. Death duty in New Zealand is currently zero rated. When you are retired, you can have your money professionally managed without worrying about it being savaged by inheritance tax in the UK in the event that you die prematurely.
Avoid Future UK Pension Rule Changes
The rules for pension transfers frequently change, and when they do they are usually less favourable to you. UK pension regulation can change such that future transfers may be prevented or limited.
The professional team at Lyfords will ensure you understand any HMRC QROPS changes when it comes to transferring your UK pension. Transfer now and avoid the risk of any future regulatory changes in the UK.
If you haven’t transferred your UK pension before you die, your spouse might be paid half of the pension you would have received from the UK (but not always).
If you both die, your pension dies with you, unless you are leaving qualifying dependent children. In this case, your UK pension could continue for as long as your plan fulfills the scheme’s eligibility criteria.
For clients who have transferred their UK Pension funds into a NZ QROPS, their whole investment portfolio becomes part of their estate and is passed on according to the instructions in their Will.
Drawings Not Taxed
If you choose to receive a pension from the UK, it will be treated as 100% taxable income in NZ. Once you have transferred your funds into a New Zealand QROPS superannuation scheme, drawings are deemed to be capital and are not treated as taxable income.
Avoid Lifetime Allowance Charges
If you have pension funds in the UK and the amount exceeds the Lifetime Allowance amount of £1,073,100 (2021/22 tax year) you could be facing tax of 25% or even 55%. This is the Lifetime Allowance Charge. Previously this reduced each year based on the Consumer Price Index. The UK Government announced in 2021 that it will be maintained at this level for the next 5 fiscal years until 2025/26.
You may have applied under the ‘Fixed Protection’ scheme 2012, 2014 or 2016, or for ‘Individual Protection’ 2014, 2016 in which case different limits apply.
When you exceed the Lifetime Allowance level the amount of tax you pay on funds withdrawn above this amount depends on how the funds are taken. If you take it as a lump sum you will pay tax of 55%. If you take it as income or transfer the pension as a lump sum to a QROPS fund then you will pay tax of 25% on the amount exceeding the Lifetime Allowance amount.
If you transfer your pension into a QROPS this is referred as a ‘Benefit Crystallisation’ event. if the amount of the transfer is over the relevant lifetime allowance, a lifetime allowance charge will be levied. However, because the payment is not to the member, the rate charged is 25%, not 55%, despite the fact that it involves a lump sum.
Once transferred into a NZ QROPS any growth or drawings from your fund in excess of the UK Lifetime Allowance amount will not be subject to the Lifetime Allowance Charge.
The 4-Year Transitional Tax Exemption
When you move to NZ, you have 4 years to transfer your pension without incurring tax on the transfer value. This is the Transitional Tax Residency period. If you transfer after 4 years tax is payable on a graduated scale. Even if you do have to pay tax on the transfer after the exemption period there are still very clear benefits in transferring your pension. The sooner you action a transfer the less tax you will need to pay.
Transfer values for Defined Benefit schemes at historic highs
Currently transfer values for Defined Benefit pensions are at historic highs. These values may start to decline as interest rates rise.