There are different types of New Zealand QROPS, they all offer different features and a significant amount of choice. It is not a case of one-size-fits all. Broadly speaking the three types of New Zealand QROPS schemes:
- Portfolio Investment Entity (PIE) schemes – these are schemes that offer there own unitised funds
- Investment Platform Schemes – which offer a wide range of investments through third party platforms
- Single Member schemes – bespoke schemes set up specifically for a single member
It is important to understand the differences between these types of schemes as well as the differences between the Trust Deeds of the schemes in each category in order to determine which is going to meet your needs best.
Analysis of transfers into QROPS for the year ended 31 March 2020 shows that the PIE schemes received the largest amount of funds from transfers, followed by investment platform schemes.
Figure 1: Where transferred UK pensions ended up by QROPS type
Source: Annual reports of NZ QROPS schemes for year ended 31 March 2020
What follows is a broad outline of the types of New Zealand QROPS. It is important that you select the right type of scheme for you, thankfully when you deal with us due to our independence we are able to offer access to schemes in all of the categories mentioned below.
*note: From 6 April 2015 the HMRC changed the rules and KiwiSaver schemes can no longer meet the criteria to be QROPS, this means that you can no longer transfer a UK pension into a KiwiSaver scheme.
Portfolio Investment Entity Schemes
These schemes are by far the largest portion of QROPS in New Zealand, and in the past have attracted the most funds into them. Why, because they make it easy to set and forget for your retirement planning. They have standard managed fund options designed to meet your risk profile (and change with it over time). These schemes typically offer funds such as cash, conservative, balanced, growth and aggressive. The point of these funds is to make selection simple and build funds that people can easily identify with.
PIE schemes are also designed to tax your investment growth in line with your income tax. That means PIE schemes can often be a great option for people who earn less than $48,000 a year (based on 2021 income levels).
Some PIE schemes are zero-rated, this means that if you are not resident in New Zealand or are a transitional tax resident you will not pay any tax on your investment earnings in the scheme.
If you are intending to transfer your UK the selection of a PIE scheme is very important and we recommend that you get independent financial advice from a qualified adviser to assess all your options before transferring.
The major QROPS PIE schemes in New Zealand are Booster, Ranfurly, NZ Funds, NZ Retirement Trust, Garrison Bridge, Britannia and Superlife.
Investment Platform Schemes
Some types of New Zealand QROPS sit over the top of investment platforms (such as the AEGIS or JMIS investment platform). These investment platforms allow a wider selection of investment options (they are very similar to UK self-invested personal pensions “SIPPs”) and these investment options usually include access to sterling and New Zealand dollar-denominated funds. Thus for people that want a higher degree of flexibility in their investment selection these schemes can be fit for purpose.
The trade-off for offering a wider selection of funds is that these schemes are not able to match your investment income tax rate (known as the prescribed investor rate “PIR”) with your personal income tax rate. Now, this is not an issue if you earn over $48,000, but it could be a disadvantage if you have little income or are not taxed at the highest income tax rate in New Zealand.
The major investment platform schemes are i-select and Craigs.
Single Member Schemes (SMS)
These are similar to the concept of a UK small self-administered scheme (SSAS) and allow for the ultimate investment flexibility. But with investment flexibility comes a considerable amount more administration. New Zealand small self-administered schemes require accounts to be prepared, you to act or appoint a trustee and the scheme to be managed in a way that follows the QROPS rules as well as UK investment guidelines.
There are asset classes that you may not invest in through the SMS such as residential property, art, wine or any other exotic assets.
These solutions are highly bespoke and have typically only been economic where people are transferring in excess of $1million. The SMS is a highly specialised product and we recommend that you engage a financial and tax adviser before establishing an SMS.
Making a decision on scheme type is crucial
As can be seen every scheme type is different and some types of scheme will suit some types of people, but there is no ubiquitous one size fits all QROPS scheme solution. It is important that you understand your situation and how you can use it to your advantage (like whether you are a transitional resident and so can save tax) in determining the right scheme type for you. Selecting the right type of scheme is crucial and we recommend that you get professional financial advice.
Then once you know what scheme type is right for you then it’s a case of analysing the schemes within that type to determine which fits you best. This might involve looking at the fees within the scheme, the historic returns and investments of the scheme, the rules around benefits and retirement ages and more. Again we recommend that you get professional financial advice to help you through this process.