Fidelity Life UK Pension Transfers. UKPT 21 May 2013

Transcription

1 Fidelity Life UK Pension Transfers UKPT 21 May 2013

2 Contents Page Who can undertake a UK pension transfer? What is a QROPS? Why Transfer? The Downside Developments in How does it work? Before the transfer After the transfer At retirement Income for Life The Fidelity UK pension transfer process

3 1 Who can undertake a UK pension transfer? If someone has contributed to a UK pension scheme (usually as a UK resident or citizen but also New Zealanders who have spent time working in the UK) then they are generally able to transfer it to a Qualifying Recognised Overseas Pension Scheme (QROPS) in another country. There are many types of UK pensions, almost all of which are eligible to be transferred; however a person typically would only consider a pension transfer if they were permanently immigrating to another country, like New Zealand, and planning to retire there. For example, British citizens who have moved to New Zealand may want to transfer their UK pension rights, normally the value of their pension fund, to a local superannuation scheme. There can be some benefits to doing this (see below), but there are also some stringent conditions that must be satisfied at the point of transfer, as well as restrictions on accessing the fund afterwards or else tax charges may apply. For example, transfers to an overseas pension scheme that is not a QROPS are treated as 'unauthorised payments' and may be subject to significant tax charges. It is important to remember that UK pensions are primarily designed to provide income in retirement and they benefit from some significant tax benefits on contributions. What is a QROPS? A Qualifying Recognised Overseas Pension Scheme (QROPS) is a non-uk domiciled superannuation scheme approved by Her Majesty's Revenue & Customs (HMRC) that is eligible to receive a transfer of retirement savings from a UK registered pension scheme without the member incurring tax charges. HMRC requires a QROPS to broadly mirror the UK lock-in requirements, which currently means that funds are locked in until 55 years of age. This means that if someone transfers their pension fund to a QROPS they can still receive a lump sum and pension when they retire, much as they would expect if they had kept their pension savings in a UK registered pension scheme. This is subject to any local laws and tax treatment in the country where the QROPS is established or the country where they become resident. Why transfer? People often prefer to keep their retirement savings close to home as it provides greater control and flexibility. Dealing with UK pension scheme providers on the other side of the world can be time-consuming and complicated. Local QROPS providers should be easier to contact and can often provide more timely and relevant information. Generally, once a transferee reaches the minimum pension age of 1 55 they can access the portion of the portfolio that has not been designated for providing income during retirement (see the Income for Life section for more information about the retirement income provisions). By using a Fidelity Life QROPS pension payments made at 2 retirement won't be subject to exchange rate fluctuations. In NZ there is no requirement to purchase an annuity, although the Income for Life provisions will apply (unless the transfer is to a QROPS compliant KiwiSaver scheme). Unlike the UK, there are currently no death duties in New Zealand, so upon death the entire savings balance (less any applicable 3 fees) is paid to the estate. The Downside Anyone considered to have breached the UK Government regulations regarding QROPS may be subject to severe tax penalties of up to 55% of the pension fund for an unauthorised pension transfer. If transferring to a New Zealand KiwiSaver product funds are generally locked in until age 65 (provided that they have been in the KiwiSaver fund for at least five years). The standard KiwiSaver early withdrawal exceptions will apply; however these may be subject to UK tax penalties. The existing UK pension fund may include valuable benefits such as guaranteed annuity rates at retirement, which may outweigh any benefit of transferring. It may be inconvenient if the transferees eventually re-emigrate; for example, move back to the UK to look after ill parents. Pension transfer companies and financial advisers typically charge a commission to facilitate the pension transfer; however they can also provide an invaluable service and take a lot of the hassle and frustration out of the process. Developments in 2012 The UK Government published regulations on 21 March 2012 that changed the QROPS tax rules with effect from 6 April As a result of these changes, New Zealand superannuation schemes now have to meet certain conditions to remain a QROPS. Retirement savings are locked-in until 55 (unless certain health conditions are met) and an Income for Life provision has been introduced for all non-kiwisaver QROPS. Any withdrawal from a QROPS (including any early withdrawals from a QROPS compliant KiwiSaver scheme) must be reported to HMRC until the later of when you have been a UK non-tax resident for five clear and complete UK tax years or 10 years from date of transfer Unless certain ill health condition (in terms of the Finance Act (UK)) are met. The minimum pension age is 65 if funds are transferred into a QROPS compliant KiwiSaver scheme (provided that they have been in the scheme for at least five years). Income for Life payments made from a Fidelity QROPS will be in New Zealand dollars. In some circumstances tax may be payable in the UK on the balance of the member's account upon the death of the member. We strongly recommend that you seek specialist tax advice relating to your individual circumstances.

4 2 How does it work? Before the transfer of a UK pension to New Zealand Talk to Fidelity Life, we are experienced at facilitating UK pension transfers and will keep you and your adviser informed throughout the process. You must give certain information to the scheme administrator of the UK scheme before the transfer can be made. You can use form APSS263 Qualifying Recognised Overseas Pension Schemes Member information to give this information to the scheme administrator, or provide the same information in a letter or declaration. As a signature is required, a phone call or to the UK scheme administrator is not sufficient. This information is needed to enable HMRC to closely monitor transfers to QROPS. Transfers should be made for genuine reasons consistent with providing pension benefits when people retire. HMRC expects people to be aware of, and have fully considered, the possible tax charges that may arise from a transfer. This is why you will be asked to sign an acknowledgement confirming you understand that a transfer overseas may result in having to pay unauthorised payment tax charges to HMRC after the transfer is made. You should be aware that such charges can still arise long after the transfer is completed. Pounds Sterling account The Sterling portfolio is available for people wanting to keep their transferred balance in pounds sterling for a certain period of time. You may wish to do this if you believe that the UK Pound will appreciate against the New Zealand dollar or if you want to wait before making an investment decision. The Income for Life calculation will be made once the pension funds are transferred into the Sterling portfolio. In addition, any transfer or payment from the Sterling portfolio will be made in NZ dollars. See the Super-Super Number 3 investment statement for additional detail about the Sterling Portfolio. We strongly recommend that you get financial and tax advice from an appropriately qualified adviser before the transfer of a UK pension to a New Zealand QROPS. After the transfer UK tax charges can still apply even after you have transferred your pension fund value to a QROPS. Certain payments made out of the QROPS may be subject to UK tax charges, for example transfers to a non-qrops scheme or a withdrawal made before you become a non-uk tax resident. The same charges apply to similar payments made out of a UK pension so you will not avoid tax simply by transferring your pension fund value to a QROPS. The general rule is that UK tax charges will continue to apply in respect of payments you receive from the QROPS so long as you remain in the UK and for up to five tax years after the tax year in which you leave the UK. At retirement If in a KiwiSaver scheme: At age 65 (provided that you have been a member for at least five years) 100% of the account balance is available to be withdrawn as a lump sum. Alternatively, it can remain invested and simply drawn down as required, or you can withdraw from the KiwiSaver scheme and use those funds to purchase an annuity. There is no Income for Life requirement, although you can purchase an annuity if you choose to. Any withdrawals of transferred UK pension funds from the NZ QROPS scheme may be subject to UK tax if you have not been a non-resident for UK tax purposes for five complete UK tax years. Funds can be transferred but only to other QROPS including KiwiSaver schemes that are QROPS approved. Lifetime allowance: The lifetime allowance is the maximum value someone can build up in UK registered pension schemes without incurring tax charges. At the point of transfer the value of a UK registered pension scheme needs to be tested against the lifetime allowance which is currently 1.5 million for the 2012/13 tax year. If the amount transferred is more than the lifetime allowance the excess will be taxed at 25% by HMRC. Fidelity Life is required to report to HMRC all withdrawals from QROPS until when you become a UK non-tax resident for five clear and complete UK tax years or 10 years from date of transfer, whichever is the later. This includes withdrawals from UK pension transfers received prior to, as well as after, the April 2012 changes.

5 3 If in a non-kiwisaver QROPS: Once the transfer has been completed a calculation is made to determine 70% of the transferred amount, which will be designated for Income for Life purposes once you reach 55 (or later if specified by you or the UK scheme provider). Once you reach the age of eligibility you have the option to remain invested, or you can initiate the Income for Life payment provisions at any time. The remaining balance of the transferred amount, plus/less any gains/losses made on the funds in the meantime, is available to be withdrawn as a lump sum, at your discretion. Fidelity Life calculates the Income for Life annual payment in accordance with the UK Government Actuary s Department (GAD) tables revised to reflect the New Zealand 10 year Government Bond rate (see examples below). Funds can be transferred but only to other QROPS including KiwiSaver schemes that are QROPS approved. Fidelity Life is required to report to HMRC all withdrawals from QROPS made until when you have become a UK non-tax resident for five clear and complete UK tax years or 10 years from date of transfer, whichever is the later. This includes withdrawals from UK pension transfers received prior to, as well as after, the April 2012 changes. Income for Life Income for Life is designed to provide you with a regular (although fluctuating) income in retirement. It is calculated using the UK Government Actuary's Department (GAD) tables. Fidelity has replaced UK pounds with New Zealand dollars and the 10 year UK Gilt with the 10 year New Zealand Government Bond rate. These tables give a value per NZ$1,000 that is payable per annum. This amount varies depending on gender, age and the current 10 year New Zealand Government Bond rate. The current rate of return for the 10 year NZ Government Bond is around 3.5% and is reviewed regularly by Fidelity Life. The Income for Life payments can be made monthly or you can elect to receive a single annual payment. Payments are recalculated every three years for each member up until the age of 75 after which the review is annual. Example: The initial transfer Transfer from UK Pension Scheme.. 50,000 NZ exchange rate (example) NZ dollar equivalent $100,000 Income for Life designation % Income for Life balance $70,000 Therefore, if the Transferee transfers their UK pension worth 50,000 and immediately converts to NZD the Income for Life value is locked in at $70,000. If the Transferee decides to remain in GBP, then again the Income for Life value is locked in at $70,000 even if at a later date the Transferee were to convert to NZD at a different rate. Example: Lump sum payment Scenario 1: The Transferee immediately converts to NZD. Annual Income for Life payments would be calculated on $70,000. The funds are then invested in a NZD Fidelity Life investment portfolio. The lump sum available at age 55 years is the value of the investment at the time the lump sum is to be withdrawn (less any applicable fees and taxes) less the $70,000 i.e. if the investment had grown to $150,000 (net), the lump sum payment would be $80,000 and $70,000 would be retained to provide the Income for Life. If the investment had declined in value to $85,000, the lump sum payment would be $15,000. continued...

6 4 Income for Life (continued) Scenario 2: The Transferee decides to leave the funds in GBP and invest in the Sterling Portfolio. The lump sum available at age 55 years is the value of the GBP converted to NZD at the date the lump sum is to be withdrawn (less any applicable fees and taxes) less the $70,000 i.e. the Transferee has foregone any investment return in the hope of making a gain on the currency movement. Example: Income for Life Using the latest GAD table and the above figure of $70,000 to determine the Income for Life then: A 55 year old male would receive $51 per $1,000. This would mean that based on $70,000 the annual payment would be ($70,000 $1,000) x $51 = $3,570 p.a. A 55 year old female would receive $49 per $1,000. : This would mean that based on $70,000 the annual payment would be ($70,000 $1,000) x $49 = $3,430 p.a. : If we assume that in three years' time at the age of 58 the value of the original $70,000 is now $60,000 (taking account of a small amount of growth offset by the three years' worth of the Income for Life drawdown) then the Transferee will have drawn down three lots of around $3,570 p.a. for a male ($10,710 in total) and $3,430 p.a. for a female ($10,290 in total). The calculation would be (based on the same rate of return): At 58 a male would receive $54 per $1,000. This would mean for $60,000 the annual payment would be ($60,000 $1,000) x $54 = $3,240 p.a. : At 58 a female would receive $51 per $1,000. This would mean for $60,000 the annual payment would be ($60,000 $1,000) x $51 = $3,060 p.a. : The above examples should not be relied upon and no payment is guaranteed. You should seek financial and legal advice from an appropriately qualified adviser before transferring a UK pension to a New Zealand QROPS.

7 5 The Fidelity UK pension transfer process Fidelity Life offers two QROPS compliant superannuation products; Fidelity KiwiSaver Scheme, and Fidelity Super-Super Plan, Number 3 Information about each of these products can be found in the relevant investment statement which is available from Fidelity Life or your Authorised Financial Adviser. Authorised Financial Advisers can assist anyone wanting to transfer their UK pensions to complete the necessary forms. You will need to make a decision about which investment product best suits your retirement needs; the Fidelity KiwiSaver Scheme or the Fidelity Life Super-Super Plan, Number 3. You will also need to determine what funds within those products you want invest in. You will then need to complete the Application Form and Declaration contained in the relevant investment statement and send them in to: Fidelity Life Assurance Company Limited Attention: Pension Transfer Services PO Box , Parnell Auckland 1151, New Zealand Once the application has been received Fidelity Life will work with you and your UK pension transfer adviser to complete the transfer process as quickly and efficiently as possible. Our experience has shown that UK pension transfers can take anywhere from one to eighteen months, with the average transfer being around six months.

8 May 2013 The provisions set out prevail at the time this brochure is issued, but may be changed without notice if economic, taxation or other circumstances impacting on the plan or scheme change. Fidelity Life Assurance Company Limited Auckland - Head Office Fidelity House, 81 Carlton Gore Road, Newmarket, Auckland 1023 PO Box , Parnell, Auckland 1151 Telephone: or Facsimile: