New Zealand QROPS face a massive cut in the amount that pension savers can take as a tax-free lump sum later this year.
New laws starting on December 1, 2016, will slash the tax-free lump sum from 30% of the QROPS fund to just 10% of the fund value.
The new rule is part of an overhaul of pension regulation in New Zealand and does not give providers any opportunity to opt out of the change.
But providers will have the choice of shifting all their members over to the new rules or applying them to retirement savers who start a scheme on or after December 1.
According to New Zealand pension experts, anyone transferring into a Kiwi QROPS cannot take the 30% lump sum at 55 years old from December 1.
New Zealand Kiwisaver QROPS transfers
So what should New Zealand QROPS savers or expats planning to transfer their pension to a New Zealand QROPS do?
The issues to consider include:
- Transfer tax
Many QROPS savers took the 30% lump sum to help pay tax on the pension transfer in New Zealand. Now, they need to consider whether the 10% lump sum will cover this and if funds have to be raised from elsewhere
- Flexible access
Sooner or later, HM revenue and Customs (HMRC) in the UK will figure out how to roll out flexible access overseas.
Some New Zealand QROPS include the option to take the entire fund at 55 years old, but picking the right provider would need careful reading of each scheme’s trust deed and an understanding of how the new rules would affect this
- Third party QROPS
Another option for UK expats is whether transferring a UK pension to a QROPS in another jurisdiction, such as Malta, Gibraltar or the Isle of Man would offer a solution to the tax and flexible access issues.
The three jurisdictions allow QROPS savers to live wherever they wish, while Malta already has a framework for providers to offer flexible access
Whatever the outcome, any expat moving to New Zealand before December 2016 should examine their QROPS options with an international IFA with experience in New Zealand as well as third party finance centres.