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Concern at pension rush

A financial adviser is worried about misinformed investors rushing to beat an important deadline to transfer their foreign super savings to New Zealand.

Friday, February 21st 2014, 6:00AM 4 Comments

The Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Bill was recently amended so people who have applied to transfer their pensions before April 1 are eligible for the 15% amnesty tax rate. 

Tom Gilbert, of Pension Transfers, said in many cases people would be foolish not to do it, if their intention was to live and retire in New Zealand.  He had done some calculations in which people were $60,000 better off in tax terms with the 15% amnesty.

But Dai Eveleigh, head of investments and UK pensions at advisory firm First Capital Financial Services, said not everyone would benefit from the amnesty.

He said some investors were getting incorrect advice that could leave them worse off, often from financial advisers and accountants who were not specialists in the area.

“British expats are rushing to beat the deadline… however the inaccurate and false information in the marketplace is alarming and could end in many expats making poor or wrong decisions.

“I’ve even heard of people being told they have to transfer into KiwiSaver. The problem with that is that if a client transfers funds into KiwiSaver from a UK pension, then returns to live in the UK and makes a withdrawal from their KiwiSaver fund, they will trigger an unauthorised withdrawal penalty of 55%.”

Others had been told to take the amnesty when they would be better off using the existing tax rules, because their rate would be lower than 15%.

Tax consultant Terry Baucher agreed that investors needed to seek advice on whether moving their superannuation was the right thing for them. “They need to think about the whole investment consideration involved and take it from there. It’s not always just about tax.”

The IRD said it did not keep data on how many people might be eligible for the 15% amnesty.

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Comments from our readers

On 21 February 2014 at 10:40 am Dai Eveleigh said:
"... transfer their pensions before April 1 are eligible for the 15% amnesty tax rate."
Please note that the Amnesty discussed assesses 15% of the transferred value for tax purposes. The investor then pays tax on the assessed amount at their marginal tax rate.

"Others had been told to take the amnesty when they would be better off using the existing tax rules, because their rate would be lower than 15%"

Existing tax rules, such as Foreign Income Fund rules, may produce a better result that the Amnesty, particularly in situations where losses have occurred often due to currency changes.
On 21 February 2014 at 4:20 pm John Milner said:
Not quite sure about the 55% penalty Dai if the client is outside of their 5 year threshold.
On 24 February 2014 at 10:26 am Dai Eveleigh said:
Hi John, Circumstances in life change and clients (as well as Advisers / Accountants) need to consider potential changes, such as an expat returning to the UK before retirement age.

If the person transfers a UK Pension into KiwiSaver, and then returns to live or work in the UK, what is the impact? How will they make withdrawals? How much can they withdraw and when?
What penalties will apply in NZ? What penalties will apply in the UK?

The problem with Kiwisaver is that there is no flexibility for a client that returns to the UK.

If they return before the age of 65, and therefore become UK Tax Resident again, they will NOT be outside the 5 year threshold. The transferred funds will be stuck in KiwiSaver and potentially trigger a 55% penalty on withdrawal.
On 24 February 2014 at 5:37 pm A Renfrew said:
More people are calling due to the new Taxation and Remedial Matters Bill and it seems there is a lot of confusion about what is best for them. I talk to several people a day about transferring their pensions and nearly always say "that is not correct" or "that doesn't apply to you - you are a transitional tax resident" etc. Funny/bad story: A caller today said he went to the bank early in the New Year and enquired about transferring his UK pension into a Kiwisaver QROPS fund. The person explained that he would need to talk with someone else and made an appointment to meet with that person. It was one month out. When he was talking with that person he asked about transferring his pension and the new adviser popped out to ask the question to the person who made the appointment a month earlier! It was a loop and neither of them were able to help him. In conclusion; only those who are experienced with transferring UK pensions should be giving advice. Stick with your knitting!!

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