When you can take it with you

By JANINE OGIER

Going on the big OE is usually a chance for fun and adventure, not a time to worry about retirement savings.

But if you pay superannuation contributions while you're abroad, once you get back home there are things you can do to manage that money or get your hands on it.

First, though, the bad news. If your time overseas was spent working in Australia, in most cases you can kiss your foreign pension plan goodbye.

That's because you can't get access the cash or transfer the superannuation savings to a New Zealand fund when you leave Australia.

It's frustrating, but an inherent part of the Australian retirement system.

Australia's rules say that any worker between the ages of 18 and 70 who is paid A$450 or more a month should have superannuation contributions made on their behalf, by their employer, to a super fund.

It doesn't matter if that OE job was a career role in Sydney's financial industry, a part-time waitering job on the Gold Coast or casual fruit picking in Queensland - the employer is obliged to pay your super contribution at 9 per cent of your wage.

The money becomes available when you are 65 but if you retire young, it is held until you are 60 if you were born after June 30, 1964, or until 55 if you were born before July 1, 1960. (For the intervening years the age is 56, 57, 58 and 59.)

Some exceptions do let contributors have their money once they leave the lucky country, but they don't apply to ordinary New Zealanders so there's no point in getting your hopes up.

But if your superannuation is less than $200 you can retrieve it.

You just need to follow instructions and fill out forms to do so - see www.ato.gov.au/super.

The reason the Australian government blocks payouts to New Zealanders is because Kiwis retain the right to retire in Australia and claim a pension there.

But unlike New Zealand, the Australian pension is means-tested so that opens up another can of worms.

As the money must stay in Australia, one way to help preserve it is to consolidate the savings into one fund if you had more than one employer.

To do that, choose one fund and contact the others to transfer the savings into your chosen entity. That will make the savings easier to track and you'll save on multiple administration fees.

Of course, the management fees alone will deplete your savings over time if they are not being topped up, so don't count on a retirement windfall unless you worked in Australia for some time.

If your Australian scheme involves a pension or annuity, New Zealand authorities will deduct it when calculating your local super payment.

For those doing some OE in the United States, the news is more positive.

The US requires no compulsory retirement saving, but some employers offer a staff pension scheme as part of a remuneration package, mainly through defined contribution plans in which you have an individual account.

The main type is called a 401(k) plan in which workers can elect to defer receiving a portion of their salary, which is instead contributed, before taxes, to the pension fund.

Sometimes the employer may match the contributions. Contributions can be as much as US$11,000 each year.

US Department of Labour figures show that about 70 per cent of US workers who participate in retirement plans are covered by a 401(k) plan.

In 2002, more than 300,000 of these plans were in existence, covering 42 million people and with combined assets of about US$1.8 trillion at that time.

Kiwis may be permitted access to money in a 401(k) plan before retirement as some plans allow withdrawal on terminating employment with a company.

The crucial information on whether you can withdraw your money can be found in the pension scheme's summary plan description, which sets out the rules for obtaining distribution and how long the application process should take.

Some plans do not allow permit payouts until you reach a specified age; others require you to wait until you have been separated from employment for a certain period of time.

Wellington expatriate tax specialist Richard McKechnie says the system varies from company to company, so whether people who have worked in the US can get some or all of their savings out of the country depends on each individual case.

One client was able to draw a fifteenth of his savings each year for 15 years, and others were able to withdraw a lump sum.

Financial sector schemes are often linked to a company's shares, so the employer doesn't encourage large-scale payouts as they could push down their share price.

Cashing in your American pension plan can expose you to an extra income tax bill as in most cases the savings were made from pre-tax contributions.

Also, a lump sum may be classed as income if the investment has grown.

McKechnie advises people to check the tax implications of withdrawing the funds from the US, to avoid a timing mismatch between the two countries' tax regimes and the possibility of paying double tax.

There's more good news for people who spent their OE in Britain.

The British superannuation system is kind to those leaving the country, allowing qualifying people to transfer their savings to New Zealand and in some cases to withdraw the cash.

This means workers who had an industry superannuation fund might have a windfall.

Again, investors are usually liable for income tax on the money withdrawn from a savings scheme, so it's worth seeking some advice on how best to manage the process.

New Zealand teachers and nurses are likely to have been members of industry schemes, but there are many thousands of occupational pension funds to which New Zealanders working in Britain may have contributed.

They are a tax-free savings plan, typically involving 5 per cent of a worker's pay. Employers usually top up the savings with a matched amount or sometimes even more than the employee contributes.

As well, the State Earnings Related Pension Scheme (SERPS) portion of National Insurance contributions is automatically diverted to the industry fund too.

For those not in an occupational pension fund, another feature of the British system is the flexibility it allows visiting Kiwis to opt out of that mainstream savings scheme - SERPS - and put the money into a private fund. The private fund can then be transferred back to a New Zealand fund after departure.

When you are working in Britain, Inland Revenue calculates how much of the National Insurance contribution you paid is SERPS and diverts that amount into your private pension. How much that is depends on how much you earn and how old you are.

The rest of the National Insurance tax deductions cover contributions to British social services such as the medical system.

Like ACC contributions here, you pay whether you are using the system or not.

The crucial point is that opting out is something you need to do it when you start working in Britain - so tell your friends and family who are planning their OE.

Opting out is simply a matter of contacting a major private insurance company in Britain and asking for assistance - there shouldn't be a fee.

When you're back in New Zealand it's a simple procedure to transfer your money. You need your national insurance number and a record of your industry fund company or private fund.

Financial planners can organise the transfer for you or specialist company Britannia Financial Services can do the paperwork.

It's a free service if you have more than £200 to transfer.

Britannia co-owner Alun Rees-Williams says many people are unaware they can transfer the British funds back home.

Some people ask about transferring the money before they leave and are put off by a negative reply, he says.

There's no loss in trying again once you get back on familiar soil.

Other OE workers simply forget about their money or leave the savings in the British fund.

So overall anyone who did their OE and might have paid into a pension fund should look into the possibility of getting the money.

Tax and foreign exchange issues have to be borne in mind, but the investigation may be to an investor's financial advantage.