Pensions Simplification: The effect on pension transfers

Charter Square (November 2006)

The Pension Simplification regulations introduced in April 2006 sought to, and indeed did, simplify pensions transfers by removing some of the previous restrictions around making pension transfers, such as the requirement to be living and working in the New Zealand before you make the transfer.  This has had the effect of removing some of the paperwork burden involved with pension transfers.  However, the industry in the United Kingdom is a cumbersome beast that moves very slowly and many of the smaller providers and some of the larger ones as well have yet to adjust to the new regulations over one year on.  This is often just a function of man power.

Before we jump to quickly into espousing the virtues of Her Majesty's Revenue and Customs in pensions simplification, we note that they given with one hand and taken with the other.   A number of new restrictions were introduced as well mainly around the type of overseas funds your UK pensions can be transferred to without incurring financial penalties.  And thus was born the Qualifying Registered Overseas Pension Scheme (QROPS).

The QROPS is essentially as overseas scheme that has promised the HMRC to act and behave like a good UK pension provider would.  For promising this they are allowed to receive your pension transfer and you will not incur any tax charges in transferring to them.  But be aware as should you not transfer to a QROPS scheme then you will have a 55% tax levied before your fund leaves the UK.  We have already come across a number of people who have found themselves in this position transferring to larger providers in New Zealand who were not QROPS registered.

To become QROPS registered New Zealand superannuation schemes must apply to Her Majesty's Revenue and Customs who have sole discretion in granting QROPS status. For the scheme to be conferred QROPS status it must undertake to provide certain information to the UK tax authorities as well as provide certain benefits to members.

The most significant reporting requirement is that a New Zealand QROPS scheme must inform the UK tax authorities of any withdrawals made by a member who has transferred their pension from the UK to the New Zealand fund. The scheme must provide details of the members name and address and the amount of the withdrawal.

Once, however, you have been outside of the UK for 5 tax years the New Zealand QROPS scheme is no longer required to report any of your withdrawal information to the UK tax authorities.

Simon Swallow, Director, Charter Square Services

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