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Chapter 1: What should Kiwis know about UK pensions after working overseas?
Kia ora, I'm Nadine Higgins and welcome to The Prosperity Project. If you did the classic Kiwi OE to the UK, you might want to listen to this. It is more than likely you have a UK pension. The next question is what to do with it. And there are reasons why you might want to do it sooner rather than later.
Britannia Financial Services has transferred tens of thousands of pensions into New Zealand, so its director, Alan Rees-Williams, knows the ins and outs of the scheme. Welcome to the Prosperity Project, Alan. Thanks for being with us.
Pleasure. Thank you.
If you have gone on an OE and maybe it extended out to five years or ten years, is it fair to assume you probably have some pension in the UK?
It is fair to assume. There's almost invariably you will have something. What you will find with people, particularly Kiwis going to the UK to work, they'll do a number of jobs. They don't tend to sit in one job. So they may even have multiple pensions in the UK.
So kind of easy for them to lose track of?
Very, very easy. We've done a lot of transfers where we've started with one pension for someone and we've ended up with up to 10. Ten? Yeah.
Wow.
So unlike KiwiSaver, where you have effectively one provider, And that's it. And you change providers. With pensions, you can have multiples in the UK.
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Chapter 2: Why is it easy to forget about UK pension schemes?
Defined benefit schemes are where your employees sponsor the scheme and you end up with a defined, like a set amount of money based on your final salary at the end of your, or at your normal retirement age, which is generally around 60 in the UK for those types of schemes.
And so that second version that you mentioned, that's going to give you an amount of money every year in your retirement rather than a lump sum at the beginning.
Yep, and it's guaranteed usually.
Are they less common now?
Much less common. Right. Much less common. The deal with those sort of pensions is they were much more common years ago. A lot of the government agencies still have them, though, but much more common. But they became really cost prohibitive for companies because you've got to think about people living a longer period of time.
You've got a cohort of people coming through now into retirement that were expected to live into their retirement. let's say, 70s, and they're living into their 80s and 90s. And it's not like they've put more money in. They just have to take a longer benefit. So the schemes generally have to find funding for it, right?
So some of the schemes, some of the really big schemes in the UK, government schemes, are unfunded. So it means there's no money sitting in the pot. It's basically people that are paying into it now that are funding the people that are retired.
Which sounds a lot like a Ponzi scheme.
That's a little bit, but they are government backed schemes, so they're not really Ponzi's, but yeah, difficult schemes.
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Chapter 3: How do UK pensions differ from KiwiSaver?
Not. Yeah. One of the things that does differ between the two schemes in terms of KiwiSaver and the defined contribution in the UK is tax, right?
Yep.
So in New Zealand, you pay tax on the way in to KiwiSaver. So when you retire, no tax payable.
Yes.
How does it work in the UK?
So if you think about the two different tax regimes, New Zealand is what we call TTE. So your money's taxed before it goes in. The growth is taxed. and you get a tax-free payment no matter how you take it at the other end. UK works the inverse. So UK is an EET pension. So your money is exempt. It's paid into your pension fund before tax. The growth on it is completely tax-free.
When you retire or start taking it as an income or even a lump sum, you can have 25% of it tax-free, and the balance is taxable at whatever marginal rate that you happen to be on at the time.
Okay, so they're sort of almost diametrically opposite. There is a reason that I bring up tax. We need to take a quick break, but we're going to dive into that after about the argument for bringing it home or not. We'll be right back after this. Welcome back to the Prosperity Project. We're talking about UK pensions.
And I guess once you've figured out that you have got one, the next question is, should I bring it back to New Zealand if that's now where I reside? What are the arguments for and against?
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Chapter 4: What are the types of pension schemes in the UK?
So it's one of those surety things as well, transferring. I know what exchange rate I'm getting. I know my tax treatment when it comes in. I know what I can do with it going forwards. If we go back when we first started transferring pensions out of the UK, rules were very different. So we could transfer.
We started doing this in the 90s, mid-90s, and you could effectively have your tax-free money in the UK. You could be any age you like, come out to New Zealand and transfer it tax-free, as long as you could prove residency and you could prove that you're employed. That's all you needed. went into a fund here as it had to, but you could immediately cash out that fund.
There was no lock-in whatsoever.
Because we didn't have KiwiSaver then.
Didn't have KiwiSaver and there was no UK restriction, realistically. It was just you had to prove employment and you had to prove residency. So you could effectively take advantage of it, bring your money out completely tax-free from one jurisdiction to another, you're still within your four years, and have a tax-free lump sum of money to do what you want to do with.
You mentioned a four-year window. So transferring over and not paying tax on it like you would when you draw it out at retirement age in the UK is only applicable for that period of time.
Yes and no. Tax is complicated in a way.
It always is.
Always is. But what the New Zealand government does is it gives you four years of transitional residency. So effectively the easiest way to think about it is I step off the aeroplane, I've immigrated or returned, it's my first time back into the country or it's my first time entering the country to be a tax resident.
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Chapter 5: How does the tax treatment differ between UK pensions and KiwiSaver?
Yeah.
The issue I think with it was is that neither the New Zealand government nor the UK government probably thought it through completely well, more so the UK government, because you've got people that have now immigrated or returned to New Zealand and they're buying back at a low cost into the UK state pension and getting a full UK state pension.
On top of?
On top of the New Zealand pension, which was never ever the intention of it. Because again, reciprocal deals, we don't want people, no we don't, the New Zealand government and the UK government don't want people living in multiple jurisdictions and picking up a pension from the UK and a pension from New Zealand and a pension from X, Y, Z country as well.
Yeah, I mean, otherwise you could just follow someone around the world and collect a pension in all of the locations.
Sounds like a great plan. Sounds like a great plan. So you could do it. I know some people have done it. Whether that is money that they have wasted in the long term, I don't know. I don't. I wouldn't have encouraged people to do it. If they were returning to the UK, it may have made sense. But it's like a bit of a bet, isn't it? It's going, and is it a good bet? Is it a bad bet?
I'm really not sure. The payout was great for the amount you invested, but in five years, 10 years' time, is that going to have closed retrospectively? Quite possibly. The UK government, again, doesn't want to be paying out money that they don't have to, just like the New Zealand government would.
Yeah, I do know a couple of people who've made that bet, so I know they'll be hoping, and others that might have missed the window closing that are probably rooting for it to change so they don't feel bad about missing it.
And it's one of the things, because New Zealand government would say that anything you've paid voluntarily into a pension, you can have on top of your New Zealand pension. And that was the distinction, because you're paying money into it back into the UK state pension voluntarily. So... Who can tell?
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Chapter 6: What are the arguments for bringing UK pensions back to New Zealand?
It's 999 times out of 1,000 that we can get your pension out here. Some schemes you can't, and we know that before we even start and we'll tell people, like government schemes, NHS, teachers, police, armed forces, that kind of thing. But if we think we can get it, you work with us, we'll get it. And we try and make it easy, but it is a process and sometimes painful.
I think the average transfer, and it sounds a bit odd because if you go to KiwiSaver and you say, I want to transfer my KiwiSaver from this provider to this provider, fill out a form, a few days later it's changed, right? And it seems really simple. UK transfers average between four to six months to complete. So they are laborious transfers.
It's been really interesting to talk to you. Thank you for stepping us through it. Really appreciate your time.
Absolute pleasure.
Thanks for joining us on The Prosperity Project. For more personal finance coverage, visit nzherald.co.nz and just a reminder, this podcast is for informational purposes only and doesn't constitute personal financial advice. Always do your research or talk to a qualified advisor before making decisions about your finances.
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