Investors now more than ever are conscious of their after tax investment returns. So once a transfer has been made to a QROPS you want to ensure that your funds are growing with the least possible taxation.
To encourage foreign investment into New Zealand and develop a fund administration industry in New Zealand the government developed a tax regime that is favourable to overseas investors. This extends to Australian residents who transfer their pensions into New Zealand QROPS. Broadly, the is called the zero rate portfolio investment entity (PIE) regime. At its heart it allows Australian residents who transfer their UK pensions into specific schemes (known as zero rate PIE scheme) to enjoy tax-free growth in their investments.
Zero rate PIE schemes are only available to non-New Zealand residents
As an Australian resident you will accrue a significant tax advantage by transferring your UK pension into a zero rate PIE. Where significant growth in the funds is expected then this can lead to large tax savings.
Not many NZ QROPS are zero rate PIE schemes
In order to become a zero rate PIE the New Zealand QROPS must be fully invested in offshore investments. Therefore, most New Zealand QROPS are not zero rate PIEs as they offer New Zealand based funds (like cash, NZ shares ect). The NZ QROPS that are zero rate PIEs tend to have structured their funds to be attractive to overseas residents. That is why for those servicing Australian residents their funds are usually denominated in Sterling and Australian dollar funds, with Australian and UK based fund managers.
Tax for Australians in standard NZ QROPS is 28% on growth
If you invest in a New Zealand QROPS that is not a zero rate PIE then you will pay 28% on the growth in your funds each year. What’s more this 28% can be on the currency revaluation of the funds if they are not denominated in New Zealand dollars. Therefore, there is more currency risk exposure in investing in a scheme that is not a zero-rate PIE.