The savings industry in New Zealand has been caught on the back foot after the UK regulators poorly implemented a series of changes around QROP transfers.

The UK tax department HMRC decided, on April 4, that UK pensions could no longer be transferred to KiwiSaver funds.
It said KiwiSaver funds didn't qualify for QROPS transfers as members could withdraw funds before they reached 55. This can be allowed in the case of severe hardship, or for withdrawal for a first home.

However, fund managers and others in New Zealand only found out about the changes 11 days later.

AMP general counsel, Elaine Campbell says the changes happened without any consultation and came as a bit of a surprise.

They were now caught up in "a very undesirable position."

Since then Inland Revenue, the FMA and Workplace Savings have been working on getting changes to the April 4 ruling.

Last week they won some changes.

A key issue was people that people who were already in the transfer process when this rule change was discovered would have been subject to additional tax payments.

Under the latest changes New Zealand residents whose UK pensions were transferred into a KiwiSaver provider that qualified as a QROPS before the rules change on April 6 will not be taxed by the HMRC as long as the transfer was completed before June 17, IRD says

“We’ve managed to protect almost everything for those people who were in the process of transferring their UK pensions to New Zealand,” Workplace Savings executive director Bruce Kerr says.

It is thought that there were about 500 people in the process when HMRC made its decision.

“It’s a great win for investors who were in the pipeline,” he says.

However one of the bigger problems is that no KiwiSaver scheme now qualifies for QROP transfers.

"Due to the rule change there are no longer any KiwiSaver providers that qualify as QROPS – this means that KiwiSaver members with UK funds that are subject to QROPS may be liable for additional tax charges if they transfer their funds from one KiwiSaver provider to another,” IRD says.

Kerr says these people are essentially “trapped” in their current scheme.

He says it’s “unpalatable to leave (this situation) it unchallenged.”

Campbell says the need for advice for these people is  even more critical.

He says Workplace Savings has engaged law firm Chapman Tripp to do some work on finding a solution to the problem.

It is unknown how many people have transferred their UK pensions to KiwiSaver schemes, however it is a significant number and was expected to grow as an increasing number of Kiwi expats were looking to return to New Zealand.

Inland Revenue says it will report to Ministers on next steps and how KiwiSaver providers could become eligible QROPS funds again.

Kerr says this could include changes to the UK rules by HMRC and it could included changes to the KiwiSaver legislation.

Campbell says AMP is looking to see if there is an alternative offering it can take to market, other than a KiwiSaver scheme, for people who want to transfer their UK pensions to New Zealand.

Inland Revenue says New Zealand residents whose UK pensions were transferred into a non-KiwiSaver QROPS should check with their fund manager to confirm their status.