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Thread: Pension transfer can be complex

  1. #1
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    Default Pension transfer can be complex

    In today's Herald on Sunday...............
    David Milner, a certified financial planner with Britannia Financial Services, answers questions on bringing UK pensions to New Zealand.

    There is a photo with a caption.... NEW START: When grandparents emigrate from the UK to join families, pension portability can be an issue.

    Q My wife and I arrived in New Zealand from Britain in December. I am a computer programmer in my 30s and my wife works in human resources. We have frozen our pension savings in the UK and will start new savings schemes here. Will we have to pay tax on our UK pension savings even though no money is going into them?
    And if we start pension schemes here, will we have to pay tax on them in the UK?

    A The United Kingdom operates an EET pension savings system which means the savings are made (up to certain levels) with tax concessions, gains made within the scheme are tax-free (although some equity elements within UK pension schemes do not receive a full free tax entitlement).
    The pension or annuity paid at retirement age is taxable.
    New Zealand operates a TTE system which is exactly the opposite. Contributions made to NZ schemes are made from tax-paid income, gains made within the schemes are taxed. The resultant end benefit is therefore tax paid.
    If you have an interest in a UK pension scheme into which you paid more than $50,000 before you became a resident of New Zealand you will be caught under present FIF rules, and gains made by your UK fund should be declared after the expiry of the allowable exemption period of three years plus the remainder of the year in which you arrived in New Zealand.
    You will not pay UK tax on your NZ pension schemes.

  2. #2
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    Q I am a Kiwi who worked in the UK for 10 years in the 1990s. I had a couple of stints during which I was paying into work superannuation schemes. Is it possible to track these savings down and bring them back to New Zealand? I wouldn't think they would be worth terribly much, probably 20,000 pounds. How much would it cost me to bring the money back here? And are there other costs attached?

    A Yes, it is possible to track your pension. Visit website www.thepensionservice.gov.uk and click on the section headed pension tracing service, or you can correspond with the Pensions Advisory Service (OPAS) at : 11 Belgrave Rd, London, SW1V 1RB, United Kingdom. You should also visit www.ukpensionstonz.com.
    The benefits in your UK schemes will be expressed as a future pension but you can request the transfer to New Zealand of the cash equivalent value of those benefits. Transferring pension benefits is complex so you should select a transfer company well versed in the processes.
    There are new UK regulations coming into force on April 6, 2006, which will make transferring preserved benefits a little more difficult. At the moment pension transfers exit the UK without penalty, but from April next year there will be a penalty of up to 40 per cent payable on all transfers made to schemes which are not qualifying, recognised overseas pension schemes.
    There is a payment made for transfer services. These fees are negotiable and depend very much on the value of the transfer involved.

  3. #3
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    Nice - we are actually using brittania at the moment to investigate bringing some of our pensions over. I have 2 titchy ones which will currently get me a pension of about 46p a month (I wont spend it all at once!), and I can cash them in completely if I bring them over (Has to be under $20k nz) Alan has one he is bringing over and cashing in 49% (its over $20k), and one hes leaving because it has benefits attached.

    Not sure ive understood the process yet, but Britannia get the figures, and then we will look at the situation. We dont pay anything UNLESS we transfer - so i figured it didnt hurt to get the info.

  4. #4
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    I have heard that you shouldn't be paying to transfer and I have my doubts about some of the companies charge a percentage of around 3% All banks do it for free, I guess they make their money when you exchange at their rates. Speaking to ASB at the moment so will post how I go on.

    Michelle

  5. #5
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    Michelle,

    Ill talk to the bank next week!!!!!

    Thank you!!!!!

  6. #6
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    So what should we do? We both have private pensions in the UK, we have frozen one and we are paying minimal amount in the other. I am now offered 5% superannuation which I can pay into the councils scheme or into one of my own. What are my options with regards to continuing to contribute to my UK pension / should I transfer (can I transfer? Is that dependent on each policy etc?). I hate this sort of stuff...

  7. #7
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    I'm investigating this at the moment. Basically comes down to whether you want to get your mitts on your money, or want to reinvest it. ASB only let you get 20% and reinvest the rest til you are 50, no charge; Britannia let you get 49%, balance when you are 60, 5% charge.

    Anyone know if there are any other companies to look at except Britannia??

  8. #8
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    Just a not for people like me who have tuppence in thier pensions:

    If the Transfer amount is less that $20k NZ, you can actually take 100% of the pension pot out as cash! Over the 20k, and the maximun you can take in cash is 49%.

    One downside at the moment - you have to have a job or be self employed in order to transfer your pension - EVEN IF you are planning to take 100% out in cash. This is because for the UK pension company to release your pension you have to be able to put it into an Employee pension scheme.

    You cannot (from what im being told) have a private pension scheme here to put your pot into if you are not working in some form. It seems this is in order to try and stop us taking the pot out of teh UK.

    So now I have to form a company! I was going to do it anyway at some point (im an aromatherapist) but now I have to do it sooner rather than later.

  9. #9
    Join Date
    Oct 2005
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    Why not leave the pension in the UK ,then when it matures the income will be converted every month into NZ dollars, that way you benefit from the conversion over a longer period of time and not do it in one hit. Just a thought. Mine is staying in the UK.

    Steve.

  10. #10
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    Problem with leaving the funds in a UK pension fund when you have the option to get them out is that you are bound by the rules of personal pensions - basically you can have a third as tax free cash and the rest has to go to buy an annuity.

    Annuity levels have been dropping like a stone over a number of years due to the combined effects of gilt rates going down (which means that the two thirds which is invested produces less) and life expectancy going up (which means that the company providing the annuity expects to have to pay you for longer and as a result gives you substantially less each month).

    It is possible that people in their sixties will have had their potential pension REDUCED for each additional year they worked and contributed as opposed to retiring at 60, notwithstanding the fact that they continued to contribute to their fund. The additional amount they were putting in wasn't enough to make up for the reduction in what they were getting back in pension payments as a result of the above factors.

    The tight conditions surrounding how you cash in your pensions in the UK is a quid pro quo for the (not inconsiderable) sweetners the government gives you to put money in in the first place - to put in 10,000 pounds only costs you 6,000 if you're a 40% tax payer.

    Taking advantage of the option to transfer your pension on migration allows you to benefit from the tax credit whilst freeing yourself from the worst effects of the pension regulations - in NZ you might have to lock in your fund until you're 60 but after that it's yours to do with as you wish. If you prefer to fund a couple of rental properties rather than buying an annuity then you're free to do so. And if you die a year after drawing down your pension you don't lose a hugh percentage of your fund to the insurance company.

    You also benefit from differences in taxation by transferring - in the UK your contributions and fund growth are tax free and you then pay tax when you draw down the pension - the annuity is treated as taxable income. In NZ you pay contributions out of taxed income, and pay tax on the growth but are given the funds totally tax free at drawdown. When doing a transfer you can benefit from many years of tax free investment in the UK by transferring it into a NZ without paying any tax. You're then taxed on future growth, but at drawdown the whole of the pot is available tax free - quite a benefit IMO.

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