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QROPS rules put stop to mergers

British migrants whose pensions are now trapped in KiwiSaver schemes are a roadblock for providers wanting to merge funds or acquire other schemes.

Monday, September 28th 2015, 6:00AM 2 Comments

by Susan Edmunds

It was reported last week that 12 members of Smartshares KiwiSaver face a tax bill of up to 55% if they move their money to the now NZX-owned SuperLife scheme.

NZX has written to Smartshares KiwiSaver members suggesting they transfer to the SuperLife KiwiSaver scheme, which it acquired this year.

But 12 will not be able to because they moved their money under the QROPS regime. KiwiSaver schemes no longer qualify for QROPS under new British pension rules introduced this year.

This means any transfer to a new scheme will count as an unauthorised withdrawal and could be subject to a bill of 40% of the transfer and 15% of the balance.

Most KiwiSaver schemes, excluding ASB, BNZ and ANZ were QROPS providers under the previous rules and may have people in their schemes who are now trapped.

David Ireland, of Kensington Swan, said it would have an impact on any schemes that wanted to merge future.

Members have also lost the ability to transfer schemes to one that might be better suited to their needs.

He said Workplace Savings NZ was working with IRD and HMRC in Britain, trying to find a solution. 

“Officialdom at both ends of the globe is aware of the issue. KiwiSaver is something I don’t think HMRC fully understood when making these changes. KiwiSaver is collateral damage. For those who legitimately transferred into a KiwiSaver scheme they are caught in no man’s land.”

The NZX said it would keep the SmartKiwi scheme open to accommodate the members and any higher costs of running it with fewer members would be met by the NZX.

It told its members:  "Smartshares has raised its concerns in respect of the recent UK law changes with HMRC… We have asked HMRC to allow you to transfer to another KiwiSaver scheme without unauthorised payment charges."

Workplace Savings NZ executive director Bruce Kerr wrote to Commerce Minister Paul Goldsmith, outlining his concerns about the trapped members.

“New Zealand’s foreign tax regime strongly incentivises transferring UK pension moneys to an NZ retirement scheme within four years after a person becomes tax resident in NZ, as unless there is a transfer within that four-year window a later payment or transfer from the UK scheme is taxable in NZ and  there is therefore a strong appetite for transfers; but the only schemes now available for UK pension transfer purposes are a limited pool of non-KiwiSaver schemes which are not subject to the unreasonable fees restriction set out in the KiwiSaver Act,” he wrote.

He said that, in cases of mergers, the Financial Markets Authority has advised that it may be unable to consent to the bulk transfer of all members and assets if there are UK pension transfer moneys in the scheme.

Goldsmith replied that IRD was working with HMRC. “Although there currently isn’t a timeframe for reaching a solution, officials are aware of the importance of solving this issue and will continue to give it a high priority.”

Tags: KiwiSaver QROPS

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Comments from our readers

On 28 September 2015 at 9:15 am John Milner said:
My advice to clients is to start talking compensation from both your adviser and the scheme. There has always been a risk to transfer to a KiwiSaver. To those advising clients in this area, they should have known the risks. It's not good enough to say they couldn't predict the future. The rules and spirit of QROPS has been known for a long time. If you didn't have access to the right product, you shouldn't have transferred the funds. Beginning and end of story.
On 28 September 2015 at 11:34 am Another AFA said:
Advisers that have recommended UK Pension transfers into KiwiSaver schemes should notify their P.I insurer immediately!!

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