A fresh clampdown on overseas pension schemes in light of revised pension fund access age rules could see UK ex-pats in a number of jurisdictions facing the prospect of penalty charges and has provoked an angry reaction from one trade body in New Zealand.
Yesterday (5 May), FTAdviser revealed HMRC has backdated regulations brought in following pension access reforms in April. The watchdog has sent letters to schemes requesting they affirm savers are unable to access their fund prior to age 55 unless due to severe ill health.
Experts had told FTAdviser this will pose significant challenges for Australian schemes, which typically comply with national laws allowing early access due to financial hardship and which are unlikely to change their own scheme rules as they often have large domestic membership.
The concern is more widespread. Workplace Savings NZ, a New Zealand-based trade body, has sent an email to members warning the changes will impact ‘Kiwisave’ schemes brought in by the government in 2007 and promoted as a way to transfer UK pension wealth.
The problem is that such schemes, which work like auto-enrolment funds in the UK and include contributions from pay and from employers, also allow early access in cases of financial hardship, or after three years to purchase a home.
If schemes fail to comply with the new registered overseas pension rules, which were introduced retrospectively from 6 April, transfers into the scheme could be hit with 55 per cent penalty charges.
The email states “it appears there was no consultation with NZ regulators on extending this restriction”.
Bruce Kerr, executive director at the Workplace Savings NZ, says in the email it has spoken with New Zealand’s Inland Revenue, which is “seeking to correspond urgently with HMRC to find out more”.
Some of the questions it will be posing to HMRC include whether it deliberately intended that the change should capture balances transferred to Kiwisaver schemes in New Zealand and if transfers made prior to 6 April 2015 continue to be covered by the old rules.
The email adds: “It does seem clear that HMRC intended Kiwisaver schemes to be caught by the new restrictions.”
Mr Kerr states that as matters stand, Kiwisaver schemes “cannot continue accepting UK pension transfers” and that scheme rules do not allow money transferred from UK pension schemes to be ‘ring-fenced’ in “permitted early withdrawal terms”.
Simon Swallow, director at financial advisers Charter Square in New Zealand, warned that the legislation scuppers the New Zealand government’s intention to make Kiwisaver schemes the default transfer option for people moving their UK pensions.
“This dashes the hopes of those that planned to transfer their UK pensions and then withdraw them to buy their first home in New Zealand.
“We had been warning people for years of the dangers of tight Kiwisaver rules conflicting with tight Qrops [qualifying registered overseas pension scheme] rules. That has finally come home to roost for those who have transferred their UK pension into Kiwisaver in the past as they are now forever stuck in that scheme.
“Why? Because they can only transfer to another Kiwisaver scheme under Kiwisaver rules, and another Qrops under Qrops rules. But there are no more Kiwisaver Qrops, so no transfer can ever be made.”
James McLeod, head of pensions at AES International, said that as with Australian schemes, New Zealand Kiwisaver schemes now fall foul of the new age 55 rules. He said the cases showed that overseas pension transfers have always been a complex business requiring specialist advice.
“While clients and transferring trustees of course need to be very careful to ensure they are transferring to a legitimate scheme, advisers will also need to be extra vigilant when recommending a Qrops.
“If the advice a person is given turns out to have been wrong, and the client is subsequently faced with charges of up to 55 per cent from HMRC, it would not be surprising to see clients looking to recoup these losses from their adviser.”
There are currently 56 New Zealand Qrops pension schemes on HMRC’s list of recognised overseas pension schemes.
ruth.gillbe@ft.com
