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Transferring your UK Pension to New Zealand – The Basics Explained

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Transferring your UK pension to New Zealand can appear quite an overwhelming process, however, the monetary benefits can make it all worth it. When you are planning a move to New Zealand, reassessing your financial position is one of the first parts of the planning stages!

Money matters are always confusing. Nevertheless, we’re here to shed a bit of light on the situation and make sure you make the right decision when transferring your UK pension to New Zealand.

Why should you transfer your UK pension to NZ?

There a whole range of reasons why a UK pension transfer to NZ is a great idea. These include;

  • Keeping control of your finances;
  • Tax advantages;

Gain Control Over Your Finances;

Spreading your finances between two countries, both with ever-changing rules and regulations to keep track of can be slightly overwhelming. Even worse, losing track of these changes in legislation can be detrimental to your finances!

By transferring your UK pension to NZ and consolidating your money, you will only have to worry about changes in one country i.e. New Zealand. And let’s face it, Brexit is wreaking havoc on the reliability of the British economy at the moment!

Moreover, moving your British pension to New Zealand will mean that you won’t have to worry about currency value fluctuations, bank transfer rates or any of that boring stuff.

Better still, compared to the UK, New Zealand pension schemes are much more flexible when it comes to investing your money. So flexible, in fact, that you can choose exactly where to invest the majority of your funds!

Reap Those Tax Advantages;

Depending on how and when you decide to transfer your money to NZ, you can avoid a whole lot of hefty taxation. Your pension can be taken in two ways; as a tax paid lump sum or tax paid income.

If you choose to take either of these within the four-year tax exemption period, there will be no tax on your UK pension transfer to NZ. Yes, you heard it right, absolutely 0% tax! There is a £1 million maximum on the tax exemption, so as long as you’re pension pot is less than one million you will get the full tax exemption. Anything over one million will be taxed at 25%.

Moreover, on a slightly morbid note, New Zealand does not impose an inheritance tax. This means that your whole pension pot can be transferred to your heir tax-free in the event of your death. Compared to the UK, where inheritance tax can often be as high a 50%, this is a huge tax advantage.

What To Consider Before Transferring Your Pension to NZ

Of course, there can be drawbacks too, and these must be considered before you choose to transfer your pension for good.

Firstly, once you transfer your pension scheme to NZ, you automatically lose any income guarantees or dependants pensions that may have been built into your UK pension scheme. Depending on your pension scheme agreement in the UK, this can be disadvantageous for some people.

New Zealand’s pensions schemes are also taxed quite differently compared to here in the UK and generally, are liable to more tax. Designed for capital growth rather than for income, investment income can be taxed at a rate as high as 28%. Although this seems extortionately high, many consider this tax burden to be relatively small when considering the high quality of investments that they can choose for their pension fund.

Finally, and this one is a big one, you cannot transfer your pension fund back to the UK once you have chosen to retire in New Zealand. So please make sure you are completely certain that NZ is the place you want to be during your old age. Yes, it is a beautiful country, but we all know a heap of other factors comes into play when deciding to move to New Zealand.

Is this retirement at its finest?!

When Is The Best Time To Transfer Your Pension?

There are two main things to consider when you are looking for the most advantageous time to transfer your pension;

  • Legal time frames
  • Market fluctuations

Legally, you can only begin transferring your pension once you have permanently emigrated from the UK. After that, there is currently a four-year transfer window that beings from the first day that you are a New Zealand tax resident, within which you can transfer your pension to NZ without any tax obligations whatsoever.

Transferring your money within these four years is, without doubt, the most advantageous time to do it! Following this, as long as you maintain your residency in New Zealand for five years, you will not need to pay tax on your UK pension in New Zealand.

During these years, keep an eye out for any fluctuations in the currency exchange rate as well as new legislation in both countries that could have an impact on your transferral. With such an unpredictable political environment in Britain at the moment, the pound is at its most unpredictable.

Choosing to transfer your pension fund when the pound to New Zealand Dollar exchange rate is in your favour is a great opportunity to maximise your pension pot.

How Do I Start The Process?

So, you’ve weighed up all the costs and benefits of transferring your UK pension to NZ and decided it’s the best option for you. Now what? Here’s a quick breakdown of what you need to do to get the ball rolling.

Become a tax resident in New Zealand – this is an essential first step.

Choose a best performing QROPS New Zealand scheme – a ‘qualifying recognised overseas pension scheme’ or in other words an overseas pension fund that can accept transferred UK pensions.

Fill in an APSS263 Form – this is a basic form that should be submitted to your UK pension scheme administrator telling them of your intentions and which QROPS scheme you want to use.

Choose the best time to transfer it – a good QROPS scheme will hold your money until the best conditions come along for transferring it, guaranteeing the best exchange rate for your transfer.

Transferring your whole life’s retirement fund from one country to the other can seem like a huge step, but it doesn’t have to be! Hopefully, we have helped you to understand both the positive and negative implications of transferring your UK pension to New Zealand, so you can choose what is best for you!

If you would like more help with planning your move to New Zealand do check out our Moving to New Zealand Checklist, it’s a guide we created when we moved here so we hope it can help you with your move to New Zealand.