Linda Sanders: Full scheme aheadby Linda Sanders
When transferring a foreign pension, choosing the wrong plan can be costly.
The change means anyone wanting to transfer an overseas pension to New Zealand just has to have kicked off the process to qualify for a discounted tax rate. The amnesty allows anyone who moves his or her foreign pension to declare 15% of its value as income. Based on top tax rates, the tax would be a maximum of 5% of the fund’s total value, rather than much higher amounts. So a $100,000 fund would have tax applied on $15,000.
What do you need to do to benefit? You need independent verification you’ve initiated the pension transfer process, including receiving a statement of transfer value and pension transfer forms.
The new time frame has also enabled the Government to pass the Taxation (Annual Rates, Foreign Superannuation and Remedial Matters) Act. This introduces the 15% option for those who withdrew a lump sum or made a transfer from their foreign superannuation scheme and didn’t comply with the rules at the time.
The 15% rate is a way of fixing the problem that most people with overseas pensions haven’t been meeting certain obligations to pay tax here – either through ignorance or because they don’t have the cash. Some people have also delayed transferring their funds because they can’t afford the tax and generally can’t take the cash out of their pension when it arrives.
Pensions get particularly complicated when you’re dealing with the various tax rules of different jurisdictions. In New Zealand you’re required to pay tax on the money you put into a fund, and on the interest earned and investment gains, but once you cash up it’s tax free.
In many overseas funds, however, your savings are tax-exempt but taxable when you cash up.
Foreign pensions are a minefield. A friend who emigrated from Canada – and worked here for many years before retiring – remains grumpy her Canadian pension is offset against her New Zealand superannuation, despite it being a non-state pension. She agrees one state pension should offset another but Inland Revenue tells her the pension is caught because the Canadian Government administers it – even though it has never put a dollar towards it. She wonders how many former compatriots evade the rules by not declaring their pension, or by leaving it in their home country to use when they visit.
Simon Swallow from Charter Square, who’s helped with a number of reader enquiries, warns people to be careful choosing the scheme to which they transfer their overseas pension.
He says although some KiwiSaver funds are Qualifying Recognised Overseas Pension Schemes (QROPS), they don’t necessarily provide all the benefits of transferring to a non-KiwiSaver QROPS. This includes access to your pension at age 55.
He deals with a lot of people who’ve received advice from accountants or advisers who think they know the rules but don’t, and who have been given wrong guidance. He says people should beware – the rules are complex, and getting poor advice can come at a high price, including paying more tax than you need to or missing out on all your entitlements.
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