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QROPS now trapped in KiwiSaver funds

People who have moved their UK pension to KiwiSaver schemes are now trapped in their current funds, following a decision from the UK tax department.

Monday, June 29th 2015, 6:11AM 3 Comments

The savings industry in New Zealand has been caught on the back foot after the UK regulators poorly implemented a series of changes around QROP transfers.

The UK tax department HMRC decided, on April 4, that UK pensions could no longer be transferred to KiwiSaver funds.
It said KiwiSaver funds didn't qualify for QROPS transfers as members could withdraw funds before they reached 55. This can be allowed in the case of severe hardship, or for withdrawal for a first home.

However, fund managers and others in New Zealand only found out about the changes 11 days later.

AMP general counsel, Elaine Campbell says the changes happened without any consultation and came as a bit of a surprise.

They were now caught up in "a very undesirable position."

Since then Inland Revenue, the FMA and Workplace Savings have been working on getting changes to the April 4 ruling.

Last week they won some changes.

A key issue was people that people who were already in the transfer process when this rule change was discovered would have been subject to additional tax payments.

Under the latest changes New Zealand residents whose UK pensions were transferred into a KiwiSaver provider that qualified as a QROPS before the rules change on April 6 will not be taxed by the HMRC as long as the transfer was completed before June 17, IRD says

“We’ve managed to protect almost everything for those people who were in the process of transferring their UK pensions to New Zealand,” Workplace Savings executive director Bruce Kerr says.

It is thought that there were about 500 people in the process when HMRC made its decision.

“It’s a great win for investors who were in the pipeline,” he says.

However one of the bigger problems is that no KiwiSaver scheme now qualifies for QROP transfers.

"Due to the rule change there are no longer any KiwiSaver providers that qualify as QROPS – this means that KiwiSaver members with UK funds that are subject to QROPS may be liable for additional tax charges if they transfer their funds from one KiwiSaver provider to another,” IRD says.

Kerr says these people are essentially “trapped” in their current scheme.

He says it’s “unpalatable to leave (this situation) it unchallenged.”

Campbell says the need for advice for these people is  even more critical.

He says Workplace Savings has engaged law firm Chapman Tripp to do some work on finding a solution to the problem.

It is unknown how many people have transferred their UK pensions to KiwiSaver schemes, however it is a significant number and was expected to grow as an increasing number of Kiwi expats were looking to return to New Zealand.

Inland Revenue says it will report to Ministers on next steps and how KiwiSaver providers could become eligible QROPS funds again.

Kerr says this could include changes to the UK rules by HMRC and it could included changes to the KiwiSaver legislation.

Campbell says AMP is looking to see if there is an alternative offering it can take to market, other than a KiwiSaver scheme, for people who want to transfer their UK pensions to New Zealand.

Inland Revenue says New Zealand residents whose UK pensions were transferred into a non-KiwiSaver QROPS should check with their fund manager to confirm their status.

 

Tags: AMP Bruce Kerr Mortgage Rates QROPS WSNZ

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Comments from our readers

On 6 July 2015 at 9:18 am Admin said:
If KiwiSaver schemes have allowed withdrawals for first home purchase and financial hardship contrary to QROPS regulations they’ve only themselves to blame for the predicament they now find themselves in. Certain dispensations were granted to KiwiSaver schemes with respect to the transfer of UK tax relieved pension monies back in 2006 - but obviously HMRC have become aware of abuses taking place within the KiwiSaver industry and they have rightfully wielded the big stick.

It seems doubtful that HMRC will change its regulations a second time to accommodate KiwiSaver schemes meaning that changes will need to be made to the KiwiSaver Act 2006. Changes will be needed to ensure tax relieved funds transferred from UK pension schemes are ring-fenced in the same manner as transfers from Australian complying schemes. But this raises another interesting question; how much money transferred from Australian schemes under provisions within the KiwiSaver Act has been withdrawn for first home purchase contrary to exclusions contained in the Act? Are we shortly to see Australia ban transfers to New Zealand because of a similar disregard of regulations by KiwiSaver providers?

Another problem might be the development of systems to keep QROPS and Australian transfer money separate and identifiable within member accounts – because providers of registry services say no such systems exist at present no doubt meaning UK tax relieved money and transfers from Australia are simply lumped together in a single member account. This must lead to confusion if a member wants to transfer from a QROPS KiwiSaver to a non-QROPS KiwiSaver. How do providers cope with this situation? Do they report the transfer to HMRC as they are obliged to leading to possible tax consequences for the transferring member? The short answer is they probably don’t care.



Elaine Campbell’s comments (if correctly reported) must have been made a bit tongue-in-cheek. She says AMP is looking to see if there is an alternative offering it can take to market other than KiwiSaver when she must know through her previous role at the FMA’s director of compliance there are many long established non-KiwiSaver schemes successfully operating in the QROPS marketplace here in New Zealand. These schemes are all fully HMRC compliant as the latest published HMRC list of QROPS illustrates.



David Milner

Director, Britannia Financial Services Ltd

On 7 July 2015 at 4:18 pm Mr Mojo said:
Can anyone spot the "enlightened self interest" of the allegedly QROPS compliant non-KiwiSaver scheme who gouges 4 or 5% on UK pension transfers comment on this thread?
On 7 July 2015 at 10:23 pm John Milner said:
That's a heavy chip you carry on your shoulder Mr Mojo. You must be another Red Shed business based on price only. I've seen many of you come and go with little resources to build an actual business from a price undercutting strategy.

David's last comments regarding AMP's Elaine Campbell. I really don't understand what would be tongue in cheek about AMP launching a non-KiwiSaver QROPS product when there are already a few already in the market. So what? Of what interest is that of AMP? Although the QROPS market will now be a shadow of it's former self, it would be rather naive to think AMP wouldn't cover this change with a new product for it's large adviser channel if it wished to.

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