Also, those individuals cashing in their pensions early have forgotten that this is part of their longer-term retirement planning, so how are they going to have sufficient money to live on in retirement?
To prevent individuals from accessing their transferred pensions early, the UK imposed certain restrictions back in April 2006 that in simple terms stipulated money could not be withdrawn from a transferred pension until the individual had left the UK for five full tax years.
Any withdrawals before this five-year period would mean a potential tax liability of up to 55 per cent of the fund.
From April 6, 2012, the reporting period has increased from five years to 10 years, so any transfers made after April 6, 2006, means that the New Zealand superannuation provider will have to report back any withdrawals made before April 6, 2016, which then could incur the 55 per cent tax penalty.
Furthermore, there is now a requirement that when money is withdrawn from the New Zealand superannuation, 70 per cent of the fund has to be used to provide a regular income for life.
These changes are trying to ensure that no one is better off from transferring their pension from the UK to New Zealand in terms of getting their money out early and with no tax consequences.
New Zealand superannuation providers have had to revisit their schemes, known as qualifying recognised overseas pensions schemes to ensure they meet the new rules. Many have stopped taking transfers as they do not adhere to these rules and those that wish to remain in the marketplace are busy revising their documentation.
It is important anyone who has a private or employer-sponsored scheme left in the UK receives professional and impartial advice. There are many facets in considering whether it's best to transfer the pension here or keep it in the UK and not just relating to the new rules.
Charlene Overell is a director and authorised financial adviser of G3 Financial Freedom in Tauranga. A disclosure statement is available on request free of charge. She can be contacted by phone: (07) 571 5333, mobile 021 599 940 or by email: charlene@g3freedom.co.nz