Migration is a costly business, but transferring your pension to NZ could seriously damage your wealth

Are you a British migrant who made the poor decision to transfer your pension fund to New Zealand, despite knowing the country’s propensity for parting migrants from their cash? or perhaps you’re just about to make the worst decision of your life by putting all your retirement eggs in one basket… read on.

In 2005 British migrant Alison Gordon arrived in New Zealand. She has just been clobbered with an $11,000 tax bill for transferring her UK pension into a New Zealand fund. She is also facing unemployment and having to support her family on her own…

The Hawke’s Bay resident did not give the transfer much more thought until December, when she received a letter from Inland Revenue telling her she had to pay $11,000 in tax.

She started to ask for help, from her local MP and tax agents, and discovered that hers was not an isolated case. Inland Revenue is approaching many migrants who it believes did not pay accurate tax on their pension transfers when they moved to New Zealand.

The tax rules for pension transfer were updated in 2014 because there were concerns that many people had not been applying them correctly. Pension transfers are tax-free if they are made within four years of coming to New Zealand. But outside of that time frame, they are now taxable on a sliding scale when money is received or when a pension is transferred to a New Zealand scheme. But in general, people cannot tap into those savings to pay the bill because access is restricted until they hit retirement age.

In 2008, Gordon used her $100,000 pension money to buy a section and build a house. She is a solo parent to two teenage boys. She said she had been told the fact she qualified for Working for Families tax credits in the past had added to the tax bill she had to pay.

But she said she could not understand why she was never told about the potential tax bill, either by the tax agent who transferred her pension, or the Inland Revenue itself when she dealt with it each year.

“I’ve paid my taxes all my life and have no problem with that. But every year when I went to update my details for Working for Families, why did no one tell me about this?” Her contract with the local council is not being renewed so Gordon will be out of a job in July. She cannot get any equity out of her home to pay for the tax until she has employment again. She does not meet the hardship criteria to withdraw money from KiwiSaver. She said it did not seem fair that no one was being held accountable… source

New Zealand has recently been shamed for being a tax haven, somewhere where gun merchants and criminals can launder money any where rich people can get out of paying tax. It is also a place where hard working, honest, migrants are reduced to penury, while their financial advisors give them poor advice and the state creams thousands off their pension funds. It’s great to see where New Zealand’s true priorities lie.

It is interesting to consider the role emigration forums play in leading people into making unwise decisions about their pension transfers, advice is often well intended but can miss out crucial information. This appeared on a British migrants’ forum in Jan 2016, the tax issue is one that often gets overlooked and the problem may be more widespread than people realise:

We have a tax issue with a NHS pension that we transferred back in 2011, but due to the slowness of the NHS we missed the tax exclusion widow by a few weeks. The IRD are now looking to obtain their share of the taxes on this pension.

We transferred our pension from the UK to NZ and placed it in a QROPS scheme.
The IRD have retrospectively taxed us for this transfer $19,000  which the IRD want yesterday, they will charge us 9.2% per annum if we do not pay them.  We are trying to access this money for the Westpac Retirement Plan that we transferred our UK pension into.

We are 52 and 50 years of age so not entitled to this pension at this time!
If the Westpac Retirement Plan give us the money to pay the IRD, will we be taxed by the UK government for breaking into the retirement plan.
All we keep getting told is that this is very muddy waters and both governments have changed their laws.
But I really would like to know if I will get stung by the UK government as well!

Can anyone recommend a pensions / tax expert in the Auckland region. As we need someone to guide us, so we do not step into any further booby traps. Westpac did not alert us to any of these issues when we transferred our pension to them, they were just happy for the business. But we do not have the $$$$$ that the IRD potentially want, so we also need to find the best way to pay them when the bill comes in, using either our pension or KiwiSaver, whichever is best.

Just wanted to say that if you have transferred your NHS pension, and the IRD are after you for the tax related to the transfer. I tried to obtain my date of residency figures from the NHS just two figures required, and the NHS wanted £405 for that. Which I was astonished at especially as the first chap I spoke to found the details in a matter of minutes.

I was trying to obtain these figures in order to pay just 5% tax rather than 15%. But it was not worth it in the end, and be warned, you will need all of these figures if the IRD audit your tax claim, and they probably will as they are looking to reclaim as much money as they can from the small people. As the IRD does not seem to have the appetite or balls to go after the big tax dodgers.

I know it is a complex situation
What I would say to everyone, is be careful with what you do in relation to this, it is very complex and very few people seem to really have a handle on the situation.

Update
We ended up paying $1600 to a tax consultant and ended up no better informed, on reflection I could have used this money to reduce our bills to the IRD.
Don’t be fooled into thinking you can use your QROP retirement plan to pay your IRD Bill either, as there are whispers that if you do this the UK government could issue you with a tax bill, especially if you are not old enough to be breaking into your retirement plan!
Hoping the rest of you have a much smoother and easier journey than we did down the pot hole infested road.

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