Workplace Savings NZ has become aware that the UK Regulator (HM Revenue & Customs – “HMRC”) has invoked a regulatory change that negatively impacts KiwiSaver scheme providers that have been granted QROPS status.

The change, which took effect from 6 April 2015, prohibits withdrawals from a qualifying QROPS unless the scheme meets a new “Pension Age Test”.  Under the “Pension Age Test” benefits from balances that have received UK tax relief may not be paid (after having been transferred from a UK pension scheme) before a member reaches age 55, unless the member has retired due to ill-health.  Those KiwiSaver schemes which are QROPS will all have received a letter from HMRC explaining this change.

It appears there was no consultation with NZ regulators on extending this restriction to KiwiSaver schemes. 

As matters stand, KiwiSaver schemes:

• cannot continue accepting UK pension transfers; and
• are prevented by the KiwiSaver Scheme Rules (under which money transferred from UK pension schemes cannot be ‘ring-fenced’ in permitted early withdrawal terms) from confirming to HMRC by a 17 June 2015 reply-by date that they comply with the new Pension Age Test.

We have contacted Inland Revenue’s Policy Advice Division on this issue, and they are seeking to correspond urgently with HMRC to find out more – for example:

• did HMRC deliberately intend that the change should capture balances transferred to KiwiSaver schemes in New Zealand?; and
• will transfers made prior to 6 April 2015 continue to be covered by the old rules, given the affected members’ already legislatively hardwired early withdrawal rights?

It does seem clear that HMRC intended KiwiSaver schemes to be caught by the new restrictions.

On the latter question though:

• the new rules are aimed at schemes that wish to and are able to retain their QROPS status so as to continue accepting UK pension transfers; and
•  the UK legislation makes clear that if QROPS status is surrendered, existing withdrawal entitlements can be preserved (though of course potential UK tax and HMRC reporting requirements continue applying).

What is unclear at first blush is whether the existing more liberal withdrawal rules can be ‘grandfathered’ with respect to prior transfers, if:

• a way is found for KiwiSaver schemes to retain their QROPS status and continue receiving UK pension transfers; and
• a KiwiSaver scheme chooses to remain a QROPS.

It seems (as matters stand) that to enable the affected KiwiSaver schemes to retain their QROPS status it would be necessary to amend the KiwiSaver Scheme Rules to prohibit UK transfer moneys being withdrawn before age 55 other than for Serious Illness or death.

We will keep members updated as we find out more about this change.

Kind regards,

Bruce Kerr  |  Executive Director  |  Workplace Savings NZ
T: + 64 4 472 2260 |  M: + 64 27 284 0481
E: bruce.kerr@workplacesavings.org.nz