The UK's tax department Her Majesty's Revenue and Customs (HMRC) has proposed big changes to the Qualifying Recognised Overseas Pension Schemes (QROPS), which are used by expatriate Britons who want to transfer their UK pensions over to their new country.

There are roughly 3000 QROPS schemes in nearly 50 jurisdictions worldwide, including about 60 in New Zealand.

As well as introducing new rules around the tax treatment of QROPS, the HMRC is looking to ensure pensions transferred to other countries are actually used for retirement.

The draft rules say that pension schemes established in New Zealand "have been used to allow individuals to take their pension savings as a lump sum."

To nip this in the bud, regulations have been introduced "so that 70% of the funds transferred to certain pension schemes in New Zealand have to be used to provide an income in retirement."

In other words, when the specified age of eligibility is reached, investors will only be able to pull out 30% of their money initially.

And New Zealand QROPS providers will have only until April to make sure they comply with the new requirements.

Britannia Financial Services director David Milner, an adviser who helps arrange pension transfers from the UK to New Zealand, said the draft legislation had "come down hard on New Zealand" as a result of the QROPS system not being used as intended.

"We've got a situation where the only major inflow of money into non-KiwiSaver schemes has been UK pension transfers, but there's been a lot of skulduggery going on in the industry," he said.

"Money that was supposed to be held for retirement purposes was to a large degree being released at an earlier date."

He said it was possible transferred UK pension money could end up in KiwiSaver, which has been exempted from the new regime.