Our KiwiSaver schemes are no longer on UK's list of qualifying overseas pension schemes. Photo / Thinkstock
Our KiwiSaver schemes are no longer on UK's list of qualifying overseas pension schemes. Photo / Thinkstock
Thousands of KiwiSaver members are at risk of potentially facing a hefty tax bill if they switch to another scheme - and some may know nothing about it.
People who have transferred pension savings from the United Kingdom to their New Zealand KiwiSaver scheme could be taxed up to 55 per cent of that money if they switch to another KiwiSaver scheme.
That's because KiwiSaver schemes are no longer on the list of qualifying overseas pension schemes issued by UK tax department HM Revenue and Customs.
Around 20 KiwiSaver schemes were dropped from the list in April in a move which took the industry by surprise and has left savers practically trapped in their current scheme.
The schemes were dropped because KiwiSaver allows people to access their money before the age of 55 to buy their first home or through financial hardship.
If savers try to move their money it could trigger a 40 per cent tax for an unauthorised payment charge and a further 15 per cent payment surcharge because no KiwiSaver schemes are currently eligible to accept UK pension money.
The move also means Kiwis returning from a British OE and new British immigrants can not transfer any UK pension money into KiwiSaver, although they can put the money into a non-KiwiSaver qualifying superannuation scheme in New Zealand.
Providers were made aware of the change in April and have taken a mixed approach to telling members.
Therese Singleton, GM Investments and Insurance at AMP said it had not directly communicated the current position with all of its UK pension transfer customers as it had had "very little interest" from those customers looking to transfer their funds.
"In the very small number of cases looking to transfer we have provided full transparent information to clients to support their decisions."
*The numbers supplied are from the biggest KiwiSaver providers which accepted UK pension transfers. ASB, ANZ, BNZ, Mercer were not on the list of qualifying overseas pension schemes. AMP numbers are to the year ended March 31. Westpac and Kiwi Wealth numbers are aproximate.
Milford managing director Antony Quirk said it had adopted a case-by-case approach to transfers communicating on the basis of individual circumstances.
It had yet to have an affected member apply to switch to another scheme but had a protocol in preparation for it.
"Where a switch is initiated and we believe it could create a tax liability, we will inform the client and suggest they take appropriate advice."
Grosvenor head of sales and marketing Diana Papadopoulos said as it worked mainly though financial advisers it had kept the advisers up to date.
"As the implications of the UK changes have unfolded, we've been in regular communication with our advisers to ensure they're able to inform their clients."
A Kiwi Wealth spokeswoman said it had notified all immediately affected members - those who were in the process of transferring money when the change came in and those who had applied to transfer it after April 6 - urging them to get independent tax advice.
It had also placed information on its website for other members and updated its investment statement.
But the situation has already resulted in some savers having to back-pedal after trying to switch to another scheme.
The prohibition of transfers between KiwiSaver schemes is the key area of concern in this context, as it prevents a member exercising any choice of new scheme.
In a letter to commerce minister Paul Goldsmith KiwiSaver industry body Workplace Savings said the situation was "giving rise to mistakes (and forced unwinds) in terms of transfers between the schemes, and some increasing frustration on the part of affected members and providers."
"The prohibition of transfers between KiwiSaver schemes is the key area of concern in this context, as it prevents a member exercising any choice of new scheme," executive director Bruce Kerr wrote.
The body also warned the transfer problem might inhibit scheme mergers and wind-ups.
Last week the NZX wrote to investors in its Smartshares KiwiSaver scheme proposing to move them across to the SuperLife KiwiSaver scheme, both of which it manages.
But it told 12 of the 1350 members they could not be moved without risking the tax liability on their UK pension money which they had transferred to their New Zealand KiwiSaver account.
The bulk transfer is the first to occur involving UK pension money since the April change and has yet to gain approval from regulator the Financial Markets Authority.
Workplace Savings has urged the government to act quickly to resolve the issues.
"We request, on behalf of all affected KiwiSaver scheme managers, that these issues now be addressed as soon as practicable," Kerr wrote.
Commerce minister Paul Goldsmith said New Zealand's tax department was examining potential options to address the issue and were engaging closely with revenue and customs officials in the UK.
"Currently there is no set timeframe for reaching a solution. However, officials are aware of the importance of solving this issue and are giving it a high priority."
