Linda Sanders: catch your overseas windfall

by Linda Sanders / 05 December, 2013
Time is running out on a special offshore pension deal offered by the IRD.
If you’ve ever worked in the United Kingdom or elsewhere overseas, you could be in for a windfall worth thousands.

The money comes from what you paid into a superannuation fund and its increase in value since. But there’s also a catch: you’re meant to have paid tax on its growth in value every year – and most people don’t.

Thinkstock


Anyone who paid into a super scheme while they lived overseas is required to include their overseas pension in their tax returns each year. But because it relates to an increase in value, not cash in hand, and needs professional accounting to calculate, people have turned a deaf ear to the requirement. Others just don’t know about their liability.

The situation is best explained by an example given by Simon Swallow of Charter Square, which specialises in overseas pension transfers. A teacher who moved here in 2000 and had worked in the UK for 13 years on an average salary of £30,000 could expect a pension of £8800 a year. The transfer value of her super – the amount the British fund would pay out to a New Zealand scheme – was £146,000.

The topic is being highlighted now because the tax rules are changing next year (they’re at the select commission stage) for those with overseas pensions. The Inland Revenue Department is offering people a special deal until April, so if they transfer their pension to New Zealand they’ll pay tax on only 15% rather than up to 100% of what it’s worth. Our example teacher will save more than $32,000 in tax by transferring now.

At the core is the difference between our tax rules and those of other countries. We pay tax when we pay into a scheme, and on its growth in value over the years, but none when we withdraw the proceeds. Savers in most countries don’t pay tax on deposits or growth, but pay when they withdraw.

Swallow reckons the new rules affect more than 250,000 Brits, plus perhaps 150,000 Kiwis who’ve worked overseas. He says the issue is as big as the transtasman portability of Australian superannuation owned by Kiwis – and wonders why there’s not more noise about it.

The longer you leave your pension overseas, the more tax you’ll pay when you eventually bring those funds to New Zealand, either as income or to a superannuation scheme.

Under the new rules, if you’ve been in New Zealand for more than seven years you must declare 18.6% of its value as income, and the amount climbs by about 4% each year. By transferring a $100,000 pension now you’d save $1188 in tax at the proposed rate if you’ve been in New Zealand seven years, $12,359 in tax if you’ve been here 15 years and $28,050 if you’ve been here 29 years.

People will be surprised at the value of their pension; on average the cash equivalent transfer value is 15-20 times the value of the annual benefits.

What’s most amazing is if every pension, including those held by returning Kiwis, was transferred here, it would be a $10 billion inflow, Swallow estimates. And that’s just a drop in the ocean of the estimated £750 billion (NZ$1500 billion) total in unclaimed British pensions expected to accumulate by 2050.

Swallow advises people to transfer funds into a Qualifying Recognised Overseas Pension Scheme (QROPS) in New Zealand. The process takes three to six months, so time is running out. Getting good advice is important, though – with some schemes you may be better off keeping the money overseas.

As an aside, he believes the IRD should use the opportunity to promote inward investment by having a 0% amnesty, on the basis that once here, that $10 billion would potentially generate $100 million-plus in tax and give a big boost to the funds management industry. But the IRD says that would be unfair to those who’ve paid the tax in the past.

To find out if you have money in a UK pension fund, click here. To find out more about the legislation and its impact, click here.

Follow the Listener on Twitter or Facebook.

Latest

How to enhance your dining experience – with water
103174 2019-03-22 00:00:00Z Dining

How to enhance your dining experience – with water…

by Metro

A stunning dining experience isn’t just about food and wine. Water plays a big part too.

Read more
Facebook won't give up its insidious practices without a fight
103856 2019-03-22 00:00:00Z Tech

Facebook won't give up its insidious practices wit…

by Peter Griffin

Facebook came under fire for its response to the live-streaming of the Christchurch terror attack, but it's digital nudging that's also concerning.

Read more
In photos: The world unites in solidarity with Christchurch
103800 2019-03-21 15:36:46Z World

In photos: The world unites in solidarity with Chr…

by Lauren Buckeridge

Countries around the world have put on a show of solidarity for the victims of the Christchurch terror attack.

Read more
The tangled path to terrorism
103777 2019-03-21 09:59:55Z Psychology

The tangled path to terrorism

by Marc Wilson

The path that leads people to commit atrocities such as that in Christchurch is twisting and unpredictable, but the journey often begins in childhood.

Read more
If 'This is not New Zealand', let us show it
103768 2019-03-21 09:31:27Z Social issues

If 'This is not New Zealand', let us show it

by The Listener

The little signs among the banks of flowers said, “This is not New Zealand.” They meant, “We thought we were better than this.” We were wrong.

Read more
Extremism is not a mental illness
103785 2019-03-21 00:00:00Z Crime

Extremism is not a mental illness

by The Mental Health Foundation of NZ

Shooting people is not a symptom of a mental illness. White supremacy is not a mental illness.

Read more
PM announces ban on all military-style semi-automatic weapons and assault rifles
103805 2019-03-21 00:00:00Z Crime

PM announces ban on all military-style semi-automa…

by RNZ

Ms Ardern pledged the day after the terrorist massacre that "gun laws will change" and would be announced within 10 days of the attack.

Read more
No mention of right-wing extremist threats in 10 years of GCSB & SIS public docs
103770 2019-03-21 00:00:00Z Politics

No mention of right-wing extremist threats in 10 y…

by Jane Patterson

There is not one specific mention of the threat posed by white supremacists or right-wing nationalism in 10 years of security agency documents.

Read more