Key Reasons to Transfer Your UK Pension

You will have more control over your money and where it is invested when you work with a professional investment adviser and the financial planning experts at Lyfords, rather than communicating with an institution on the other side of the world where the staff don’t know you.

You will have more information and choice on the investment managers who are responsible for managing your retirement savings.

You no longer need to worry about ongoing changes to the rules for UK pension transfers. You will no longer be concerned if your pension provider is merging, closing, or simply doesn’t have enough money in the pot to pay promised pension amounts to their members.

There are concerns in the UK around large company schemes being under-funded, and the possibility of your pension accounts not be getting credited with the full returns. More people are retiring and drawing down on their pensions, but less money is being paid into the UK pension funds. This is a concern to many Brits living in New Zealand. We discuss this further our blog How safe is your UK pension? 

If you choose to be paid a pension from your personal UK pension scheme this amount will be fully taxable in New Zealand as income. Taking a regular income from your transferred funds is not deemed to be taxable income in New Zealand.

If you are outside the 4 year tax exemption rule and transfer your funds to New Zealand you will pay NZ tax on a percentage of the amount transferred. This amount is based on how long you have been a New Zealand tax resident.  It can still work out costing less by transferring your pension to New Zealand.

If you transfer your pension funds to NZ, they must be invested in a QROPS superannuation fund. Defined benefit schemes can only be transferred into a QROPS. At age 55, you can withdraw all of your money, but your funds need to be invested for two to three years (depending on the QROPS) to avoid early withdrawal fees.

You can avoid inheritance tax on your pension through a QROPS transfer. Death duty in New Zealand is currently zero rated. When you are retired, you can have your money professionally managed without worrying about it being savaged by inheritance tax in the UK in the event that you die prematurely.

The rules for pension transfers frequently change, and when they do they are usually less favourable to you. UK pension regulation can change such that future transfers may be prevented or limited.

The professional team at Lyfords will ensure you understand any HMRC QROPS changes when it comes to transferring your UK pension. Transfer now and avoid the risk of any future regulatory changes in the UK.

If you haven’t transferred your UK pension before you die, your spouse might be paid half of the pension you would have received from the UK (but not always).

If you both die, your pension dies with you, unless you are leaving qualifying dependent children. In this case, your UK pension could continue for as long as your plan fulfills the scheme’s eligibility criteria.

For clients who have transferred their UK Pension funds into a NZ QROPS, their whole investment portfolio becomes part of their estate and is passed on according to the instructions in their Will.

If you choose to receive a pension from the UK, it will be treated as 100% taxable income in NZ. Once you have transferred your funds into a New Zealand QROPS superannuation scheme, drawings are deemed to be capital and are not treated as taxable income.

This is no longer relevant.  The Lifetime Allowance charge has been removed from 6th April 2023.  The Allowance will be abolished entirely from 6th April 2024.

Previously if you had pension funds in the UK and the amount exceeded the Lifetime Allowance amount of £1,073,100 (2021/22 to the 2025/2026 tax year) you could be facing tax of 25% or even 55%. This was the Lifetime Allowance Charge. 

If you transferred your pension into a QROPS this was referred to as a ‘Benefit Crystallisation’ event. If the amount of the transfer was over the relevant lifetime allowance, a lifetime allowance charge would have been levied. 

Once transferred into a New Zealand QROPS any growth or drawings from your fund in excess of the UK Lifetime Allowance amount would not have been subject to the Lifetime Allowance Charge.

When you move to NZ, you have 4 years to transfer your pension without incurring tax on the transfer value. This is the Transitional Tax Residency period. If you transfer after 4 years tax is payable on a graduated scale. Even if you do have to pay tax on the transfer after the exemption period there are still very clear benefits in transferring your pension. The sooner you action a transfer the less tax you will need to pay.