The UK QROPS pension industry has seen major changes since April 2012 when the UK HMRC tightened up the QROPS rules to prevent unauthorised withdrawals.
The latest UK changes that came into effect on 6th April 2015 removed the ability for UK Government funded pension schemes like Teachers, NHS, Armed Forces and Civil Service pensions to transfer both internally in the UK and overseas. These new regulations also removed many worldwide QROPS schemes from the recognized list of overseas pension schemes – including all NZ Kiwisaver schemes – as they no longer met the UK QROPS requirements. Almost all Australian schemes were also removed overnight.
In New Zealand, a review of the tax regime affecting Foreign Superannuation schemes resulted in tax changes that came into force on 1st April 2014. Now there is further new NZ legislation coming into effect from 1st December 2016, which will restrict the amount of funds that can be withdrawn from a New Zealand superannuation scheme for members age 55 years old, to only 10% of the fund balance.
The Financial Markets Conduct Act (FMCA) will better align the accessible age for personal superannuation scheme withdrawals with Kiwisaver schemes – the Kiwisaver rules do not allow withdrawals until age 65, except under hardship or first home ownership.
However, currently the UK QROPS rules allow for withdrawals of everything except 70% of the originally transferred UK funds, at age 55. Effectively this works out to be 30% plus all fund growth, less any fees. The new NZ FCMA legislation will therefore significantly restrict the availability of funds to withdraw, even if QROPS rules say otherwise, as NZ FCMA legislation will take precedent. Schemes cannot opt out of the new FCMA rules.
Most NZ QROPS schemes intend to continue operating as usual for existing members who join their scheme prior to 1st December 2016 – and they should continue to be able to use the existing withdrawal rules for existing members, subject to the final FCMA legislation. These schemes will be sectioned off and closed to new members.
But all new UK QROPS transfers from 1st December 2016 will face the restricted withdrawal rules of the new FMCA legislation. This could make it harder for members to access sufficient funds to finance early retirement, or to pay any tax bill resulting from the transfer.
Consequently it is important for UK migrants who have not already transferred their UK Pensions and who may be adversely affected by this NZ legislative change to discuss their options with a professional Adviser. It is also important for those who have already transferred to review their existing QROPS scheme, to make sure that their existing scheme is not intending to lock them in to the new FCMA rules – in such cases a transfer to an alternative QROPS scheme prior to 1st December 2016 may be worthwhile.
Legislation is constantly changing in both New Zealand and the United Kingdom – taking the right advice is critical to ensure you keep up to date and protect your pension benefits.