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Catch-22 for New Zealand QROPS providers

Tough new rules for UK-New Zealand pension transfers will go ahead largely unchanged, despite strong lobbying from New Zealand's financial services industry.

Tuesday, March 20th 2012, 6:30AM 2 Comments

by Niko Kloeten

Good Returns reported last year on proposed changes to the Qualifying Recognised Overseas Pension Schemes (QROPS), which are used by expatriate Britons who want to transfer their UK pensions over to their new country.

New Zealand schemes have been hit with regulations requiring that 70% of investors' money is used to "provide an income in retirement", meaning investors will only be able to pull out 30% of their money initially when they reach the specified age of eligibility.

New guidance accidentally published by the UK's tax department HM Revenue & Customs, and reported by the International Adviser website, shows the harsh treatment of New Zealand schemes hasn't been watered down at all.

Britannia Financial Services director David Milner, an adviser who helps arrange pension transfers from the UK to New Zealand, said that apart from a few minor changes, "everything is still the same as it was" in the earlier draft.

"What it comes down to is that if they [scheme providers] are not fully compliant after April 5, they will no longer be a QROPS," he said.

"What it means is that any scheme that is currently a QROPS, that's fine, the money is still deemed to be a QROPS and can be transferred over until April 5.

"Any transfers made after April 5 could be deemed unauthorised payments and members could be subject to a 55% tax penalty.  Also, the UK company transferring the money to New Zealand could face a sanction charge of 40%."

Milner said the flow of pension transfers to New Zealand "might just slow right down" after tha changes kick in, until UK companies are "absolutely sure" the entities they are transferring pensions to are QROPS-compliant.

But changing existing schemes to comply with the new requirements is almost legally impossible, according to a joint submission on the changes by Workplace Savings NZ and the ISI (now the Financial Services Council).

As reported previously by Good Returns, KiwiSaver is exempt from the changes, but all other New Zealand scheme providers will have to change their trust deeds.

However, section nine of the Superannuation Schemes Act 1989 requires that all affected scheme members must consent to any change to the trust deed that postpone or adversely affect benefits.

"We submit that New Zealand scheme providers are not being given sufficient time to draft amendments to their scheme trust deeds and to obtain the required consents," the submission said.

"This will inevitably lead to all non-KiwiSaver schemes in New Zealand with QROPS status being non-compliant."

Milner said the only option for New Zealand schemes may be to cease being QROPS and then launch new schemes that are QROPS-compliant.

"We've got a new scheme we've registered and we hope to be fully operational by April 6," he said.

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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Comments from our readers

On 21 March 2012 at 8:40 am Zodiac said:
Hello, maybe the HMRC recognise that KiwiSaver is the closest thing we have to retirement savings and they want us to use it for the transfers. From the client’s point of view it has no entry fee and minimal trail (if any). It has Code Standard # 1 written all over it. AND the punters get an opportunity to use the money for what it was originally intended. What a great concept. Well done HMRC.
On 22 March 2012 at 3:22 pm andyh said:
It may well be in existing NZ QROPS holders best interests for their relevant QROPS provider to have to delist their QROPS from HMRC list of qualifying schemes. HMRC has explicitly stated that existing members whos QROPS is delisted because of these changes will be protected from any subsequent UK tax charges (its all there in the new FAQS on their site) as long as the original QROPS qualified (which NZ schemes did in fact before the rule changes). In effect members in such situations will be removed from HMRC sanction. De-listing QROPS schemes will of course have to tell HMRC what, if any transfers have taken place prior to the delisting; but as long as members have adhered to the previous (and still unchanged rule) regarding non residence in UK in this and previous 5 tax years they are not liable to a charge either if they have withdrawn benefits previously.
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