Understanding UK and New Zealand Pensions
Pensions legislation differs from country to country and the specifics of a pension scheme differ from company to company and often there is more than one pension scheme provided by a company.
Here is a brief general description of UK and New Zealand pensions as it applies to New Zealand residents. This is not a full list and our Authorised Financial Advisers (AFAs) can help further should you have concerns in this area. Disclosure Statements for these advisers are available on request and free of charge.
- UK pensions generally give you either a predetermined income stream based on how many years you have worked for the company, your salary when you left and other factors (generally termed Defined Benefit) or leave you with an amount at retirement, depending on contributions, investment returns, fees and other factors which provides you income during retirement (generally termed Defined Contribution or Money Purchase).
- With a Defined Benefit Scheme interest, if you live a long time your retirement savings will provide you with an income for the full length of your life (and, depending on the scheme's terms, the life of your spouse).
- Some UK Defined Benefit Schemes may have certain guarantees as to the amount of the pension (which can be linked to and increased with changes to the inflation rate).
- For Defined Contribution/Money Purchase Schemes, should you live for a long time (and depending on the amount of your retirement savings) you may have insufficient retirement savings later in your retirement.
- At age 55 years, you can withdraw up to 25% of your pension without UK tax.
- Lump sums transferred by you may not attract any NZ tax if transferred in the first four years of becoming a NZ tax resident. If transferred after 4 years, then an escalating portion of the transfer value will be subject to NZ tax. See IRD 1024 for the relevant percentages.
- Regular UK pension payments made to you will be assessed as income and will need to be included in your NZ tax return. This will apply regardless of whether it is a Defined Benefit or a Defined Contribution Pension.
- In UK pension schemes, income earned on your retirement savings is generally exempt from tax. UK tax may be payable when you draw down on your retirement savings.
- With Defined Benefit Schemes, your pension "dies with you and your spouse" - that is, the pension is structured so that payments end when you and your spouse have died. There is no lump sum to pass to your estate, but you do get the advantage of your spouse being able to receive a pension.
- If you retain your pension in the UK, then bank transfer charges and exchange rate fluctuations apply to each payment sent to New Zealand. This can affect the value of your payments.
- Any payments which are deemed "unauthorised payments" will be subject to UK tax and penalties.
New Zealand Pension (Superannuation)
- New Zealand Superannuation Schemes are generally similar to UK Defined Contribution or Money Purchase schemes as they provide an amount of money from which you receive income during retirement. There are however important differences around tax.
- Like UK Defined Contribution Schemes, returns from investments in New Zealand Superannuation Schemes depend upon the performance of the scheme’s underlying assets, fees charged, taxes and expenses recovered, and therefore will fluctuate and will affect the amount of return earned each year.
- Should you live for a long time (and depending on the amount of your retirement savings) you may have insufficient retirement savings later in your retirement.
- For a UK Defined Contribution/Money Purchase Scheme, the amount transferred to New Zealand (excluding fees) should be equivalent to the amount in the UK pension scheme. For a Defined Benefit Scheme, the amount transferred to New Zealand (excluding fees) is determined by the pension scheme trustees.
- UK pensions transferred to the Britannia Retirement Scheme or any other QROPS may not attract any NZ tax if transferred in the first four years of becoming a NZ tax resident. If transferred after four years, then an escalating portion of the transfer value will be subject to NZ tax. See IRD 1024 for the relevant percentages.
- In New Zealand Superannuation Schemes, income earned on your retirement savings is taxed. As the Britannia Retirement Scheme is a Portfolio Investment Entity (PIE), tax is paid by the Manager at your prescribed investor rate (PIR) on the Scheme’s income which has been attributed to you, and there is no further NZ tax payable on withdrawal.
- The Britannia Retirement Scheme allows you to flexibly receive benefits (withdraw money) to suit your requirements from age 55 years.
- All payments made within 10 years of the transfer are required to be reported to HMRC within 90 days.
- If you become seriously ill you may be able to access your savings straightaway.
- Your pension account balance is paid to your estate when you die.
IMPORTANT NOTE – PENSIONS ARE COMPLICATED AND THE ABOVE IS NOT INTENDED AS AN EXHAUSTIVE LIST OF KEY POINTS WHICH MAY VARY BY SCHEME AND BY PERSON. IF IN DOUBT YOU SHOULD SPEAK WITH ONE OF OUR AUTHORISED FINANCIAL ADVISERS WHO WILL HELP YOU WITH WHICH OF OUR SERVICE PROPOSITIONS BEST SUIT YOUR REQUIREMENTS AND SUGGEST ANY OTHER ADDITIONAL ADVICE YOU MAY NEED. DISCLOSURE STATEMENTS FOR THESE ADVISERS ARE AVAILABLE ON REQUEST AND FREE OF CHARGE.