KiwiSaver schemes have lost their QROPS status, meaning savers who transfer British pensions to them face a hefty tax bill.

Residents whose pensions were transferred into a KiwiSaver provider that qualified as a QROPS before the rules changed will not be taxed as long as the transfer was done by June 17.

The IRD is to report to Ministers on the next steps and how KiwiSaver providers could become eligible QROPS funds again.

It had been hoped that HMRC would make exemptions for KiwiSaver schemes but that has not happened.

The problem is that KiwiSaver schemes breach many of the new QROPS rules, which came in as part of British pension reforms in April.

KiwiSaver allows members to withdraw their funds before age 55 in situations such as to buy a first home or in cases of financial hardship. QROPS savers are not allowed early access to their money and must convert into an income product, not withdraw it as a lump sum.

One solution that has been suggested in the absence of a concession from the British Government is that the transferred funds could be ringfenced within a KiwiSaver account.

But that is likely to be tricky and would require a law change in New Zealand.

Money transferred from Australian pension schemes is also required to be ringfenced but the KiwiSaver Act was amended in time to allow that. Because the QROPS changes were implemented without consultation, the KiwiSaver Act has not been altered to allow for QROPS ringfencing.

"Whilst we can ring fence money wherever its source the law currently obliges us to release a QROPS transfer into KiwiSaver for first home withdrawals for example, for Australian superannuation transfers a member the law enables a member to access deposits made since they transferred to NZ but they cannot touch the money transferred.  This is permitted by the KiwiSaver rules," Campbell said.

Campbell said it would be a challenge to separate the QROPS funds within a KiwiSaver scheme. But she said it should be possible for KiwiSaver providers to develop other, non-KiwiSaver, products that would meet the HMRC QROPS requirements, in the same way many non-KiwiSaver QROPS provider schemes already do. “I’m not concerned that products can’t be produced that meet HMRC QROPS criteria.”

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