KiwiSaver: Transferring UK pension a thorny issue

Your KiwiSaver provider must be a Qualifying Recognised Overseas Pension Scheme (QROPS) in order to accept your UK pension transfer. Photo / Thinkstock

Important to consider circumstances and possible charges if you’re thinking of bringing savings home.

I am working in the UK and trying to determine whether to join my employer's pension scheme.
I have a KiwiSaver account from when I was working in New Zealand.
My intention is to use this KiwiSaver money when I purchase my first home on my return to New Zealand.
My question is, if I join an overseas pension scheme and transfer this back to my KiwiSaver on return, does this become an employee contribution and therefore withdrawable for my first home deposit?
Or is this overseas pension not withdrawable until retirement?

With so many people choosing to head off overseas for work it is good to check out how easy it is to bring any superannuation savings back with you when you return.

Rules to make transfers between New Zealand and Australia easier were put in place last year but what about Britain, a popular destination for Kiwis to travel to for work?

Sean Donovan, KiwiSaver associate at Milford Asset Management, took a look at your question.

"This is a great question.

"The answer is not straightforward because it is dependent on UK tax law enforced by Her Majesty's Revenue & Customs (HMRC)," Donovan says.

"Your KiwiSaver provider must be a Qualifying Recognised Overseas Pension Scheme (QROPS) in order to accept your UK pension transfer. In order to maintain its status as a QROPS your KiwiSaver provider must meet certain obligations with the HMRC, particularly surrounding the reporting of withdrawals.

"Specifically, a withdrawal before the UK retirement age (such as a first-home withdrawal) could trigger an Unauthorised Payment Charge and such payments must be reported back to HMRC by the KiwiSaver provider.

"The HMRC deems any payment out of a QROPS in respect of UK transferred funds as coming out of the transferred funds first.

"The KiwiSaver provider is required to report payments where the client has been a member of their particular scheme for less than 10 years or the client has been a tax resident in the UK during any of the five previous UK tax years.

"Interestingly, the HMRC can only levy the member with an Unauthorised Payment Charge if the member has been resident in the UK during any of the previous five UK tax years.

"If the member has not been resident in the UK for any of the previous five UK tax years the member will be exempt from any charges.

"This levy can be up to 40 per cent of the withdrawal's value.

"Also, a surcharge of 15 per cent can be triggered where the total withdrawal is greater than 25 per cent of the value of the account.

"So in total a surcharge of up to 55 per cent of the withdrawal amount can be owed to HMRC in the UK.

"When you transfer your QROPS back to your KiwiSaver account, it is treated as a member contribution.

"You are able to withdraw the funds out of your KiwiSaver account for a first home deposit, however it is important you consider your circumstances and potential charges you may incur by doing this.

"Independent tax or financial advice can assist your decision-making process," Donovan says.

If you are planning on jetting off to a new job overseas you can still be a member of KiwiSaver and make voluntary contributions but you won't be eligible for the annual member tax credit of $521.43.

If after a year of living abroad you decide that you're going to make it a permanent move you can apply to withdraw your KiwiSaver money.

You will be able to take out your contributions, your employer's contributions and the $1000 kick-start.

The member tax credits you've been paid can't be withdrawn.

If you do decide to return to New Zealand at some point in the future it is possible to rejoin KiwiSaver but you won't be eligible to get another $1000 kick-start payment.

This ability to withdraw your funds doesn't apply to a move to Australia.

If you're planning to make a permanent move across the Tasman your only options are to transfer your KiwiSaver money to a complying Australian superannuation fund or leave it in KiwiSaver.

Disclaimer: Information provided is stated accurately to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.

To have your KiwiSaver questions answered by the NZ Herald's panel of industry players email Helen Twose, helentwose@gmail com