If you have lived or worked in the UK, you may have accumulated pension savings in a UK scheme. When moving to New Zealand, you have the option of leaving your pension in the UK or transferring it to a New Zealand scheme. While this might sound straightforward, the decision requires careful planning due to tax implications, investment differences, and potential loss of any UK pension guarantees.
In this post, we will explore New Zealand’s Qualifying Recognised Overseas Pension Scheme (QROPS), and when it might be beneficial to transfer your UK pension versus leaving it in the UK.
What is a NZ QROPS?
A New Zealand Qualifying Recognised Overseas Pension Scheme (QROPS) is an overseas pension scheme recognized by His Majesty’s Revenue and Customs (HMRC) in the UK. It allows individuals to transfer their UK pension funds to New Zealand without incurring an unauthorised withdrawal charge.
Key features of a NZ QROPS:
- Similar to UK defined contribution pension schemes.
- Allows tax-free withdrawals in New Zealand (as funds have been taxed on the growth).
- Can provide greater control over withdrawals compared to UK pensions.
- Requires reporting to HMRC and NZ Inland Revenue.
- Can be subject to 25% Overseas Transfer Charge if certain conditions are not met (e.g., not being a NZ tax resident for five years after transfer).
Defined Benefit vs Defined Contribution Transfers
If transferring a defined contribution (DC) scheme, the process is simpler as you are moving a pot of money from one provider to another.
However, if transferring a defined benefit (DB) scheme, you lose guaranteed lifetime income in exchange for a lump sum investment, making the decision more complex.
Key Considerations: Transfer vs. Leave Pension in the UK
1. Tax Considerations
One of the biggest factors when deciding whether to transfer is taxation. Here’s how tax can impact your decision:
- UK pensions grow tax-free, but withdrawals are normally taxable in both the UK and New Zealand.
- NZ QROPS funds are taxed on investment growth, but withdrawals are tax-free.
- Transfers are tax-free if done within four years of becoming a NZ tax resident.
- After four years, a transfer is taxable under the Foreign Superannuation Tax system.
2. Investment Costs & Returns
- UK pensions often have lower fees and benefit from tax-free investment growth.
- NZ QROPS typically have higher fees and tax on investment returns, reducing growth potential.
3. Withdrawal Flexibility
- UK pensions can offer flexible withdrawals at age 55 (rising to 57 in 2028) but the options depend on your pension provider.
- NZ QROPS provide full control over withdrawals after age 55.
Key Takeaways:
- Leaving the DC pension in the UK could result in higher growth, but also a higher tax burden upon withdrawal (subject to your individual tax position at that time).
- Transferring within four years of becoming a NZ tax resident could be optimal – but depends on the NZ QROPS fees, UK pension fees, the investment returns and what tax you will ultimately pay on withdrawal.
Defined Benefit (DB) Transfers: Special Considerations
If you hold a Defined Benefit (DB) pension, the decision to transfer is even more complex. Transferring a DB pension means giving up a guaranteed lifetime income in exchange for a lump sum.
Pros of Keeping a DB Pension in the UK
✔ Guaranteed lifetime income, unaffected by market fluctuations.
✔ Spousal benefits, often providing 50-67% of pension income to a surviving spouse.
✔ Eliminates investment risk, providing stability in retirement.
✔ No need for expensive UK financial advice (required for transfers over £30,000).
Pros of Transferring a DB Pension to NZ QROPS
✔ More control over withdrawals, allowing you to manage tax liabilities.
✔ Funds become part of your estate and can be passed on to beneficiaries.
✔ No UK income tax on withdrawals once transferred.
✔ Could be beneficial for single individuals or those in poor health who may not fully utilize DB pension benefits.
Important: If your DB pension transfer value is over £30,000, you are required to obtain UK-based financial advice, before the pension scheme administer will allow the transfer to progress.
Summary: Should You Transfer Your UK Pension to NZ QROPS?
There is no one-size-fits-all answer. The best option depends on your financial goals, tax situation, pension type, and investment preferences. Here’s a simplified decision guide:
✅ Consider transferring if:
- You intend to stay in NZ longer-term and want to keep your financial affairs simple.
- You want greater flexibility in how and when you withdraw funds.
- Your UK pension has high fees or limited options for withdrawal.
- You have a DB pension but prefer control over lump sum withdrawals rather than a fixed income.
❌ Consider leaving it in the UK if:
- You have a Defined Benefit pension providing a strong guaranteed income.
- You are close to retirement and your UK pension offers flexi-access drawdown allowing you to take the funds over several years.
- You intend to move back to the UK in the future.
Final Thoughts
Deciding whether to transfer your UK pension to a NZ QROPS requires careful evaluation of tax consequences, investment growth, and retirement flexibility.
Seeking professional financial advice can help you make the best decision for your individual circumstances.
If you’d like to learn more about transferring your UK pension or other financial planning considerations for migrants, check out our YouTube channel or visit www.pacificwealth.co.nz.
If you have any questions, feel free to reach out.
