Formula method getting great tax results on UK pension transfers

Overlooking the formula method for tax on pension transfers is dangerous.

If you have been in New Zealand for longer than four years and want to transfer a UK pension (or any overseas pension) then you have tax pay on the transfer.

There are two methods for calculating the tax if you have a contributory pension scheme (not a final salary pension), these are the “Formula Method” and the “Schedule Method”. The great news is that you get to use the one that gives you the lowest taxable income.

The schedule method is really easy to understand. Simply work out the number of years that you have been in New Zealand and then look at a table that gives you a percentage. Multiply that percentage by your transfer value and that’s what you need to declare as taxable income.

The formula method is more complex but can be more rewarding

The formula method is more complex. But in lay terms seeks to tax the value difference between your pension four years after you arrived in New Zealand and the date you transfer it to New Zealand.

Because all these calculations need to be done in New Zealand dollars the results can be favourable depending on when you arrived in New Zealand due to vagaries of change rates. The NZD:GBP exchange rate has wildly lurched between NZD3.68 and NZD1.68 over the last 20 years. Because it has been rooted toward the low end over the last 5 years the formula method has come to the fore.

Even though investments have often gone up over time the exchange rate has knocked the stuffing out of those gains. The usefulness of the formula method is shown in the graph below. When the performance of the FTSE100 is adjusted into NZD (by simply multiplying it by the exchange rate) it shows that there has not been a linear curve up over time (which is what the schedule method implies). Instead it shows FTSE100 in NZD values have been similar too or greater than what it is now. This proxy calculation means that the formula method could be giving a way better tax result.

Your position under the formula method is an exact science

You need to know your previous fund value, current fund value and relevant exchange rates (as well as making sure that the funds are comparing like with like). That is why we recommend that you seek our professional guidance and get our report on your UK pension, which will outline and calculate your tax obligations under both the formula and schedule tax methods.

 
 


 

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straightforward and painless

Until now I'd imagined my UK pension funds being locked away behind all manner of firewalls and bureaucratic hurdles to access on retirement. Before committing the one surviving official document of my English OE to the bin - a single page detailing my private pension details - I contacted you out of curiosity. The result feels a little like winning lotto.

Peter W

very stress free

Thank you Cambel for your help and guidance throughout this process in getting my pension transferred (very stress free for me). It is greatly appreciated and I would certainly recommend you and Charter Square to others who are interested in transferring their pension.

David R, New Zealand

You guys rock!

I just wanted to say a great big thank you to you and your team. You are all totally awesome. I received a cheque yesterday from the Prudential to apologise for the ‘recent inconvenience’ that I had experienced. Thank you for doing this for me. You guys rock!

Noelle B, New Zealand

professional, insightful

Charter Square were professional, insightful and a pleasure to work with. They rose to the challenge of consolidating my overseas pensions and bringing them home with minimum fuss for me and maximum effort on their part.

Jens H, New Zealand

thorough, professional and prompt

Very thorough, professional and prompt service from the team at Charter Square. Thanks for making the bewildering world of pension transfers super simple.

Jules T, New Zealand

Best party to deal with

Thank you kindly for keeping in touch with me. For now, I will not be moving my pension. I will however be keeping your details and referring back to you when I wish to pursue. You by far are the best party to deal with, no nonsense, professional and in my opinion genuine. I do sincerely thank you for your advice to date.

GE, New Zealand

Freedom

Securing the freedom to use savings that are actually ours to work with has been stressful in the extreme. While I never planned on giving up there were many times when the current (UK) holder made the whole process seem well beyond my determination and ability. It’s easy to look at the 36 month history of this claim with the benefit of hindsight, but the conclusion is that employing Charter Square in the first instance would have been wise had I been able to anticipate the red-tape that appears to have been deliberately created to stall access.

CP, Auckland