The lack of coordination between UK and New Zealand financial regulators (HMRC and IRD) often creates confusion, delays, and mountains of paperwork for those involved in pension transfers.

However, there’s some promising news on the horizon. Proposals within the Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Bill could bring two positive changes:

1. Easier Tax Payments for QROPS Transfers:

Currently, paying potential tax liabilities on UK pension transfers to a New Zealand QROPS can be a major hurdle. The proposed changes will allow individuals to pay this tax directly from the pension fund itself, removing the need to find the funds elsewhere.

Furthermore, the QROPS schemes will handle the calculations, cap the tax liability at 28%, and eliminate the need for an additional tax return. This streamlined process is a welcome dose of common sense.

2. Access to Funds for KiwiSaver QROPS Transfers:

After nine years of restricted access, those who transferred their UK pensions to KiwiSaver schemes may finally have some relief.

In 2015, HMRC (the UK tax authority) blocked KiwiSaver schemes from accepting UK pension transfers or funds derived from them.  Their concern was the early access provisions within KiwiSaver (for first-home purchases or hardship), which conflicted with UK regulations.

This created a double bind:

  • Those who had already transferred were locked into their KiwiSaver scheme, unable to transfer the UK portion elsewhere since no other KiwiSaver scheme could accept it.
  • Any withdrawals were deemed by the UK government to be sourced first from the transferred UK funds. Withdrawals before age 55 triggered significant HMRC tax penalties, effectively preventing first-home buyer, hardship withdrawals, or even accessing funds upon permanently leaving New Zealand until age 55.

Fortunately, the IRD is addressing this issue.  From April 2025, as proposed in the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Bill, members with UK transferred funds in KiwiSaver will be able to move those funds (including any growth) to non-KiwiSaver schemes.

This change will provide affected members with:

  1. Increased Flexibility: QROPS (Qualifying Recognised Overseas Pension Schemes) allow access to retirement funds at 55, compared to KiwiSaver’s age 65.
  2. Access to KiwiSaver Benefits: The ability to make hardship or first-home buyer withdrawals from their remaining KiwiSaver funds.