Two proposals are included in the Taxation Bill which was introduced to Parliament in August.

These address the inability of some migrants to pay tax that becomes due in New Zealand on the transfer of their UK pension to a recognised overseas pension scheme (ROPS) without withdrawing money from the fund, which would in itself attract UK tax.

It also addresses the existence of “locked in” KiwiSaver funds.

What’s changing?

The bill proposes a “scheme pays” option that would allow a migrant who transfers their pension to a New Zealand ROPS to pay any New Zealand tax due on the transfer out of the money being transferred, at a rate of 28 percent.

For the first four years that someone is a tax resident in New Zealand, their transfer is not taxable but after that point a portion of the transfer is taxed at the migrant’s New Zealand marginal tax rate.

But without this “scheme pays” ability, the migrant could be stung for an unauthorised withdrawal – that is, accessing their pension before they would have been able to, had they stayed in the UK. This can mean a tax charge of up to 55 percent on the withdrawal.

The bill also proposes making the scheme pays option available to pension funds from other countries.

This would apply from April 1, 2026.

Finance Minister Nicola Willis has noted that this is the system used in Australia to address this issue.

People would retain the ability to pay the tax themselves at their normal marginal rate if they preferred.

Kirsty Hallett, associate director at Deloitte, said the changes could reshape the landscape of overseas pension transfers. 

“’Scheme pays’ is intended to remove an existing barrier for individuals of transferring their UK pension entitlements to a New Zealand scheme as under the current rules the person making the transfer needs to have access to funds from other sources to settle the New Zealand tax due on the transfer, which at times can result in a significantly liability.”

She said the proposed changes also brought the reporting of pension transfers into investment income reporting rules.

“Therefore regardless of whether you elect for ‘scheme pays’ you will need to advise the New Zealand scheme of the taxable amount of the transfer as this will be reported by the scheme to Inland Revenue and you will see this amount on your annual income summary. This change is intended to raise compliance with the overseas pension transfer tax rules by providing Inland Revenue with greater visibility over overseas pension transfers.” 

How are KiwiSaver funds locked in?

KiwiSaver schemes have not been able to be ROPS since 2015 but some people who moved their pensions before then have their money in KiwiSaver funds.

That means they cannot shift to a new ROPS scheme without being taxed by the UK.

The bill would allow KiwiSaver providers to move transferred, “locked in” funds to a ROPS with the migrant’s consent, which would give many people more investment choices.

Any remaining funds in the KiwiSaver scheme would be managed under the normal KiwiSaver rules.  

This would take effect from April 1, 2025.

Advice is important

Moving your pension internationally is a big decision and should be made carefully. It will be important to seek professional advice on the tax and currency implications of your decision.

In addition, professional advice can help you to decide your investment strategy for your pension transfer and assess how that fits within your wider financial life.

We are here to help

Our professional team are experts in pension transfers, and the investment questions that can come with them. If you’re wondering what the changes might mean for you, or whether a transfer is appropriate, drop us a line. We are ready to help.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.