Expats who have recently transferred money into Kiwisaver Qualifying Recognised Overseas Pension Scheme (QROPS) in New Zealand have won a stay of execution on tax penalties.
HM Revenue & Customs (HMRC) has agreed to waive any tax penalties on unauthorised transfers to New Zealand Kiwisaver QROPS between April 6 and June 17, 2015.
The ruling does not apply to all Kiwisaver pensions –only those whose details were handed over during talks with Workplace Savings NZ, the New Zealand Inland Revenue’s Policy Advice Division and the New Zealand Financial Markets Authority.
HMRC will not reveal the details of which schemes are involved as part of a general policy of not commenting on individual QROPS schemes.
The agreement was reached after HMRC wrote to QROPS schemes pointing out that any that paid out benefits to retirement savers under 55 years old breached a new pension age test introduced on April 6, 2015.
Pension age test
The test aligned QROPS pension withdrawals with the new flexible access rules for UK pension schemes that came into force on that date.
Retirement savers who transferred cash into Kiwisaver schemes without the exemption face a 55% tax charge on any amount receiving pension relief contribution on payments into a UK pension scheme.
According to the last HMRC QROPS List published on June 1, 2015, New Zealand has 34 QROPS making up just under 1% of the global market by number of schemes.
Providers had already delisted 21 schemes since May 15, 2015, in fear that transfers would attract the tax penalty.
Kiwisaver schemes are special pensions with rules that allow members to withdraw cash for certain reasons if they are below the age of 55 years old.
New Zealand QROPS are not the only offshore pensions affected by the new pension age test.
A number of schemes have been delisted in Ireland, while providers in Australia are also seeking a tax exemption for recent transfers.
Australia and Ireland are home to most of the world’s QROPS schemes – 1,653 making up 44% of the market are based Down Under, while 787 in Ireland give the country a 22% market share.
How the pension age test affects QROPS in other financial centres remains unknown until HMRC publishes a new QROPS List on or around July 1, 2015.
Altogether, 45 financial centres offer 3,702 QROPS and many are suspected to have overlooked how the pension age test affects their compliance with HMRC rules.