How does New Zealand treat foreign superannuation funds?
New Zealand generally considers Foreign Superannuation (such as UK pensions), as pensions schemes set up outside New Zealand to provide retirement benefits. The benefits held within these schemes are generally not taxable and can therefore continue to grow whilst you are resident in New Zealand.
However, if you take any income or capital from the scheme, or transfer the benefits, the funds withdrawn may be subject to tax in New Zealand.
Periodic regular payments
Regular periodic foreign pension payments are taxed in New Zealand as ordinary income at your individual marginal rate.
If you are within the transitional tax resident period, you will be exempt until the period comes to an end. Thereafter, the income will be taxed in full at your marginal tax rate.
Lump sums (including ad-hoc payments)
Lump sums withdrawals and transfers are generally liable to tax in New Zealand. To determine the tax rate that will apply individuals have a choice of two methods:
1.) the ‘formula method’, or
2.) the ‘schedule method’
The default method is the schedule method, which is one most often used in practice.
Under both methods, New Zealand grants a four-year exemption period, which is similar to the transitional resident tax rules. Once you have been tax resident for more than four years, any lump sum, or transfer to New Zealand, will be subject to tax at a progressively higher rate.
This is best illustrated by way of an example.
Let’s assume that Tracy moved to New Zealand on 1 April 2018 and became a NZ tax resident 183 days later on 1 October. The four-year exemption period should apply from 1 October 2018 until 30 September 2022.
The tax year in New Zealand runs from 1 April to 31 March of the following year. The tax year that the four-year exemption period ends falls is therefore the 2023 income tax year and considered tax year A. Let’s assume that Tracy withdraws the equivalent of $100k NZD from her foreign pension as a lump sum in November 2026. This withdraw occurs in the 2027 income tax year and which is considered tax year B.
By subtracting A from B (2027 – 2023), this places Tracy in Year 4, where the proportion subject to tax under the schedule method is 18.6% – please see the table below.
If we assume that Tracy’s marginal rate of tax in New Zealand is 33%, the tax payable will be $100,000 x 0.1806 x 0.33 = $6,138.
If Tracy decides to make another $100k NZD withdraw, but this time in January 2033, this places her in year 10 (2033 – 2023) and the tax payable would be $100,000 x 0.4439 x 0.33 = $14,648.70.
The Schedule Method
| Year | Percentage | Year | Percentage |
| 1 | 4.76% | 14 | 60.27% |
| 2 | 9.45% | 15 | 64.08% |
| 3 | 14.06% | 16 | 67.84% |
| 4 | 18.60% | 17 | 71.53% |
| 5 | 23.07% | 18 | 75.17% |
| 6 | 27.47% | 19 | 78.75% |
| 7 | 31.80% | 20 | 82.28% |
| 8 | 36.06% | 21 | 85.74% |
| 9 | 40.26% | 22 | 89.16% |
| 10 | 44.39% | 23 | 92.58% |
| 11 | 48.45% | 24 | 95.83% |
| 12 | 52.45% | 25 | 99.08% |
| 13 | 56.39% | 26 + | 100.00% |
The tax is normally payable after the end of the tax year when you complete your tax return. The same method also applies to pension transfers to New Zealand, such as those from the UK.
For more information on transferring UK pensions to New Zealand, please download our UK info pack.
Please note that the information contained in this note is general in nature and should not be considered as individual advice. If you would like to discuss your individual situation with an adviser, or have any questions, please contact a member of the Pacific Wealth team.
