Many returning New Zealanders and British expatriates transfer their UK pensions to New Zealand for the QROPS advantages on offer. The reasons that they do this are varied and can range from wanting the funds closer to home so that they can be managed more easily to protecting themselves from any nasty future legislative changes. Most peoples reasons vary although we have found some common threads tend to dominate once people fully grasp the implications of a pension transfer.
Benefit payments from New Zealand QROPS are NZ tax-free
Distributions from New Zealand superannuation schemes as tax free as they are considered capital distributions rather than income payments. This means when it comes time for you to receiving funds from your New Zealand QROPS you do not need to declare anything in your New Zealand tax return, these are unique NZ QROPS advantages. This is also good news if you leave New Zealand as the New Zealand QROPS will stay pay you tax free from New Zealand, so you will not suddenly need to transfer your pension if you change countries.
You do not have to purchase an annuity or fixed drawdown
As New Zealand schemes do not make income payments, only capital distributions, you never have to purchase an annuity. Therefore, if you wish to leave the scheme after you have started to receive your ‘income for life’ you can, unlike if they were in drawdown or had purchased an annuity in another foreign QROPS. Furthermore, you would receive the full remaining value of their scheme on transfer (subject to individual scheme exit charges).
Excellent and stable regulatory environments
New Zealand has an excellent regulatory body, with wide ranging powers, in the Financial Market Authority (FMA) see http://www.fma.govt.nz/ govern New Zealand superannuation schemes. In addition the Inland Revenue (the New Zealand tax authority) see http://www.ird.govt.nz closely monitor superannuation schemes tax compliance (as well as having been responsible for the set up of the KiwiSaver industry in New Zealand). Every scheme must be individually registered with and extensively reviewed by both the FMA and the Inland Revenue.
The FMA and Inland Revenue set policy that is important to New Zealand superannuation and not specifically designed to maximise QROPS outcomes. This is important as it makes QROPS a by-product of New Zealand legislation rather than the focus of it – which is friendlier for the HMRC.
English speaking by heritage
Being English speaking is crucial for most members as it means the following:
- All governing documentation is in English and not open to interpretation in another language
- All relevant authorities websites are understandable and complaints processes easy to follow
A large British expat population and strong links to Great Britain
New Zealand has inward migration from the United Kingdom of around 15,000 people a year (and significant outward migration as young New Zealanders seek work in the United Kingdom), so NZ QROPS advantages are that there are already many New Zealanders and British expats in the schemes already. These strong permanent and temporary people flows require mechanisms to ensure portability of property, funds and pensions easily – this is recognised by both governments. This provides New Zealand QROPS industry with a natural hedge, as QROPS are required to assist the migrants in their settlement. Indeed, United Kingdom pension transfers were occurring to New Zealand long before the introduction of QROPS legislation – so this is not a recent phenomenon.
Full scheme transparency at all levels – including fees
Financial disclosure requirements in New Zealand are designed to protect the interests of the investor in financial products and services. The level of disclosure required for New Zealand schemes is second only to perhaps Australia, which is why many New Zealand QROPS investment statements run to 30 plus pages. This means that the member can satisfy himself or herself on every point prior to investing in the QROPS.
Furthermore, fee disclosure is completely transparent in New Zealand so there can never be any hidden fees leading to nasty surprises for the member in the future.
Death benefits and no inheritance tax in New Zealand are QROPS advantages unique to New Zealand
On death, a New Zealand scheme will typically pay out 100% of your remaining superannuation scheme benefits to your nominated beneficiaries. Such a payment will be free of any inheritance tax payments in New Zealand.
The other benefits
There are a multitude of other benefits that give NZ QROPS advantages over other QROPS, including:
- The ability to easily and transparently set fees between an advisor and a member
- Most schemes will allow members access to 30% of the funds at age 55 years
- Many schemes offer funds denominated in sterling, thereby reducing the currency exposure of members to the New Zealand dollar
New Zealand pensions law is, by in large, based on United Kingdom pensions law meaning that New Zealand schemes use similar terminology and rules around pensions (unlike comparing UK and US pensions, for example, which are very different).