UK PENSION TRANSFERS – 1 DECEMBER CHANGES
Stephen Jonas , 31 May 2016
If you are yet to explore the merits of transferring your UK Pension to a New Zealand Superannuation Scheme, then the changes that take effect on 1 December may prompt you to act.
A very simplistic explanation of the change is that currently you may be able to access up to 30% of your funds at the age of 55 years. From 1 December 2016 however, this will be reduced to approximately 9%, though the amount you can access differs and is dependent on a number of factors.
If you would like the flexibility to access funds at age 55 you may wish to consider initiating the investigation of your UK Pension now. This doesn’t cost anything and there is no obligation to transfer. It is however critical you understand the merits and limitations of transferring a UK Pension to New Zealand and it may take several months to obtain the information necessary for you to make an informed decision.
Outlined below are a few key thoughts.
What legislation impacts UK Pension Transfers?
NZ Legislation – Financial Markets Authority (FMA) governs the regulations for NZ Superannuation, and the Financial Markets Conduct Act 2013 (FMCA) is the legislation we are governed by.
UK Legislation-) – Pension Schemes Act 2015 and the Qualifying Recognised Overseas Pension Schemes (QROPS) rules governed by Her Majesty’s Revenue & Customs (HMRC)
What are the changes?
The Financial Markets Conduct Act 2013 (FMCA) changes the rules governing access to funds within New Zealand superannuation schemes, effective 1 December 2016. Individuals joining superannuation schemes from 1 December 2016 will not be able to access their funds until they attain the age of entitlement to National Super, currently 65. There are provisions however within FMCA for early withdrawals of income but only in the 10 years prior to the age of entitlement to national super (currently 55 years). While withdrawals between the ages of 55 and 65 will still be allowable, the amount that can be withdrawn will be based on a sliding scale and the prevailing scheme and QROPS rules
Transfers after 1 December 2016
If you have not commenced the transfer process and joined a New Zealand QROPS Superannuation Scheme prior 1 December 2016, you will be subject to reduced access to retirement funds from 55 years of age.
Transfers prior to 1 December 2016
These rules do not necessarily impact existing members in existing schemes, or those who initiate the transfer of a UK Pension into a New Zealand QROPS prior 1 December 2016. By all accounts, you will have access to a proportion of your funds at the age of 55 years. The amount you are entitled to will be determined by both your individual UK Pension Scheme and the date you transferred to the NZ scheme.
Currently, individuals who transfer their UK Pension to a New Zealand QROPS, may be able to access up to 30% of their total retirement funds at the age of 55; subject to the rules that apply to their individual UK Pension Scheme. Post legislation imposed in 2012, 70% of the amount transferred, has to be used to generate an income for life; therefore the rules preclude full withdrawals at retirement.
In summary, how much money can a client access at age 65 years?
FMCA legislation allows withdrawals between the ages of 55 and 65, with 100% access to all funds at age 65 years (age of entitlement). HMRC QROPS legislation however does not permit 100% access at age 65 and the amount a client can access differs depending on the UK Pension Scheme and several other factors.
What steps can I take to transfer my UK Pension Scheme?
Seek advice from a specialist.
Initiate the investigation process. This doesn’t mean transfer, simply obtaining the information to enable you to make an informed decision on whether to transfer or not.
Join a NZ QROPS (qualifying recognised overseas pension scheme).