Worth Moving UK Pension to New Zealand (QROPS)?

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Topic Author
RecommendedBogle
Posts: 5
Joined: Sun May 07, 2017 5:15 pm

Worth Moving UK Pension to New Zealand (QROPS)?

Post by RecommendedBogle »

Hi all,

I moved from UK to NZ and was wondering whether it was worth it to move my UK private pension fund (held in Vanguard accounts) to NZ. Would love to hear from anyone who has also done the same.

In the UK, you pay into your private pension using tax-free salary and don't pay tax while it grows. You then pay income tax when you withdraw it (like the US I believe).

In NZ, your private pension is taxed whie it grows (it is complicated, but basically NZ assumes you earn 5% gains on your pension balance each year and you are taxed about 17 - 28% on that 5% gain). But then when you withdraw from your pension (when you retire), it is tax free (i.e. not included in your taxable income). I think this is the case anyway.

When someone moves to NZ, for the 1st 4 years, NZ does not tax any overseas earned income/gains. That means I could move my UK private pension to NZ and NZ will not retroactively tax me for the gains I have earned in my UK pension since the start of the UK pension. If I move the UK pension to NZ after my first 4 years, then NZ will tax all the gains in my pension since the day I started contributing to it (eek).

Once the pension is in the NZ system, then no income tax is paid on withdrawals upon retirement. So in an ideal world, that means if you are already retired, you could move to NZ, transfer your UK private pension (which was growing tax free) and then withdraw in NZ without paying NZ income tax! Ultimate win! The only NZ tax you would pay is the annual growth while being held in your pension pot.

Note that even if I don't move my UK pension to NZ, then after my 1st 4 years in NZ (i.e. the tax free years), NZ will tax my annual gains in my UK private pension anyway, so there is no escaping NZ taxing the compounding growth inside the pension plan after the 1st 4 years of moving to NZ.

However, I am in my mid-40s, so am 20 years away from full access to my pension (I am FIRE already, so my pension is really extra insurance). Also, the UK only allows a limited number of NZ pension managers to accept UK pensions (they must comply with something called QROPS requirements, to ensure the NZ pension follows UK pension laws against early withdrawals) and the NZ pension managers all charge ridiculously high management fees, even if you choose passive tracking funds. Eg. 2-3% management fees for NZ pension managers and extra costs per transactions, vs 0.07% - 0.24% fees per fund I am currently paying Vanguard UK. Finally, the NZ pension managers usually only offer a curated list of funds to invest in (active and passive), vs the wide range of funds I can access via Vanguard UK or other UK pension managers.

So I am wondering what everyone's thoughts are? My UK pension is currently worth around £400k.

The advantages of keeping the pension in the UK are: no forex fees to transfer, low Vanguard fees, no transaction costs, wide range of funds to invest in and security of Vanguard holding my money. Cons: I then pay NZ income tax on my withdrawals when I retire, risk forex fluctuations since I live in NZ and my pension is in £. Also, NZ will tax any annual growth in my UK pension after my 1st 4 years in NZ anyway.

The advantages of moving the pension to NZ are: no NZ income tax payable on withdrawals when I retire, pension held in NZD which is convenient for someone living in NZ, and no NZ tax on any gains I have made on my pension while it was in the UK. Cons: I pay 20-30 times management fees every year (vs Vanguard UK) plus additional transaction fees, have a much reduced range of funds to invest in and NZ fund managers may not be as secure/stable as Vanguard UK.

I guess I need to run numbers for various permutations/growth to really get a iron-clad answer to my conundrum and my gut is saying just keep it in Vanguard UK to maintain the low fee growth. But interested in anyone's thoughts or if I have made any crucial mistakes in my assumptions/knowledge.

Thank you.
TedSwippet
Posts: 5166
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Worth Moving UK Pension to New Zealand (QROPS)?

Post by TedSwippet »

RecommendedBogle wrote: Tue Jul 13, 2021 6:27 pm Note that even if I don't move my UK pension to NZ, then after my 1st 4 years in NZ (i.e. the tax free years), NZ will tax my annual gains in my UK private pension anyway, so there is no escaping NZ taxing the compounding growth inside the pension plan after the 1st 4 years of moving to NZ.
Are you sure about that? The following paper suggests that as of 2014 you are not liable for NZ tax on any UK pension gains until you make actual withdrawals:

https://www.taxtechnical.ird.govt.nz/en ... rannuation

Whether or not this changes things for you is hard for me to tell. Not in NZ, never have been, and I've always viewed QROPS with a lot of suspicion (though much of that could just be a consequence of having seen how horribly it interacts with US taxes).

Fundamentally, this looks like a pure tax play, then. Projections will tell you a bit about how it might pan out, but then there's the ever-looming spectre of political risk -- tax law changes that might at worst entirely invalidate any move (or non-move) you might (or might not) make.

A prime example of that would be the constant reductions in the UK pensions Lifetime Allowance (LTA). It is currently just a tad above £1m, having dropped from £1.8m in just a few years. Maybe it will rise in future; or maybe not. At £400k you could be nudging up against that in 15-20 years even with no added contributions. That's a potential motivation to QROPS out before.

Or, your plans might change, and you could retire in the UK, in which case by retaining a UK pension you can easily take advantage of the UK 25% tax-free pension commencement lump sum. (I'm assuming here that NZ won't honour that; I took a quick look at the UK/NZ tax treaty, and didn't see anything that looked all that promising, but I could have missed something.)

No direct (or even indirect) experience of either NZ or QROPS, so apart from the above, just be very, very careful here would be my suggestion. Some of these actions are probably not reversible.
Last edited by TedSwippet on Wed Jul 14, 2021 5:14 pm, edited 1 time in total.
Topic Author
RecommendedBogle
Posts: 5
Joined: Sun May 07, 2017 5:15 pm

Re: Worth Moving UK Pension to New Zealand (QROPS)?

Post by RecommendedBogle »

Thank you so much TedSwippet. Food for thought. Yes, I am very wary of moving it to NZ, given the political risks (LTA and other potential UK changes) and the fact that life plans are never certain. I am wondering whether I should just split my UK pension into 2 accounts (I previously consolidated them all into one UK SIPP) and transfer one to NZ via QROPS and leave the other in the UK (thereby reducing the chance of it accumulating more than the current LTA). Best of both worlds...or worst of both worlds :)
TedSwippet
Posts: 5166
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Worth Moving UK Pension to New Zealand (QROPS)?

Post by TedSwippet »

RecommendedBogle wrote: Wed Jul 14, 2021 4:47 pm ... transfer one to NZ via QROPS and leave the other in the UK (thereby reducing the chance of it accumulating more than the current LTA).
Just a note here that a QROPS transfer from a UK pension is one of the tests against the LTA. That is, QROPS doesn't bypass LTA issues (you don't get off that easily!). QROPS might however let you duck under the LTA before investment growth causes your pension to exceed it.

Details from the horse's mouth (a Google search will get you more user-friendly versions of this):

https://www.gov.uk/hmrc-internal-manual ... /ptm088690
Topic Author
RecommendedBogle
Posts: 5
Joined: Sun May 07, 2017 5:15 pm

Re: Worth Moving UK Pension to New Zealand (QROPS)?

Post by RecommendedBogle »

Thanks so much again TedSwippet.
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