Having spent your entire adult life building up your funds, you deserve to enjoy them, however, and wherever, you’d like. But this is a major financial step and one that deserves careful consideration before it is taken.

From Brits who have settled in NZ, to Kiwis who have returned home after working in the UK, many have found that the pros of transferring their UK pensions over to New Zealand outweigh the cons.

To help you make a fully informed decision, and avoid any unexpected hiccups, in this article we’ll work to clarify the process and outline the most important considerations.

What should I consider before transferring my UK pension to NZ?

Before deciding to move your funds from the UK to New Zealand, ask yourself the following questions:

• What benefits might I lose by moving the money to NZ?
• What (if any) fees will I be charged?
• What are the tax implications?
• Will there be a change to the age at which I can access my pension?
• Should I hire a financial adviser to help with the transfer, and who should I choose?

You should also familiarise yourself with Qualifying Recognised Overseas Pension Schemes, otherwise known as QROPS. In short, these are annuity-based funds, based in offshore financial centres, that can help you to transfer your UK pension to New Zealand in a quick, easy and tax-effective manner.

What are the pros and cons of transferring my UK pension to NZ?

Let’s start with the good news: there are a number of benefits that can come with transferring your UK pension to New Zealand, including:

• More control over your funds (and in turn, your life.)
• Some NZ pension schemes offer more investment options than UK private pensions.
• UK-based administrators and former employers can no longer reduce your benefits if they face deficits.
• There’s no cap on the level of income you take (though be aware that amounts withdrawn over your Lifetime Allowance may be taxed.)
• No reduction if you choose to retire early (many UK schemes apply a reduction for every year you retire early.)
• Eliminate ongoing exchange rate fluctuations and international bank transfer charges.
• Consolidate personal and occupational pensions into a single NZ scheme.

There are however some potential drawbacks that come with transferring your UK pension to New Zealand, including:

• Losing your UK pension scheme and any associated benefits.
• Losing any income guarantees that may be built into your pension.
• Losing any associated spouse or dependent pensions.
• Losing annual increases and inflation-linked increases that may be built into your UK pension scheme.

Will my UK pension get taxed in NZ?

Your pension can be taken as either tax-paid income or a potentially tax-paid lump sum. If you leave your pension in the UK, you will be liable to pay NZ taxes on any income you take from it. If you bring your pension to NZ, there will be no NZ taxes to pay if it is transferred as a lump sum, provided:

• You transfer within four years of your move to NZ.
• You are registered as a tax resident.

Pension transfers and lump sum withdrawals from UK pensions are taxable in NZ beyond that four-year period. Depending on your residency and financial position, your tax liability is based on either the ‘schedule method’ or the ‘formula method’. The mathematics of this can quickly become complex, so at this point, it’s best to seek professional financial advice.

In terms of ongoing tax, NZ pension scheme growth and earnings are generally taxed at New Zealand's standard income tax rates which are dependent on your total income. Earnings on UK-based pension schemes and investments may also be liable for NZ’s Fair Dividend Rate tax. UK personal pensions, meanwhile, can grow almost tax-free (up to the Lifetime Allowance limit.)

Ultimately the control and opportunity that you gain from moving your funds over to NZ can make these higher taxes worth it, but you should carefully weigh up the consequences of such a move.

Ultimately the control and opportunity that you gain from moving your funds over to NZ can make these higher taxes worth it, but you should carefully weigh up the consequences of such a move.

Final thoughts

Retirement planning by itself is complicated enough, and that’s before the complexity and red tape of international finance is added to the mix. Nevertheless, bringing your pension over to NZ could represent a wise move that pays real dividends, both in terms of growth and control.

The combination of importance, opportunity and complexity make this a task worthy of professional assistance. It’s wise to speak with a financial adviser who specialises in these matters to ensure you’re not only doing things the right way, but in the way that is most beneficial to you.

In situations that deal with such large sums, a professional financial adviser will inevitably pay for themselves many times over.

For more information, visit https://www.myfutureplan.co.nz/. 

While many of these efforts have proven successful, with the UK economy now growing at the fastest rate in 80 years according to some estimates, efforts to restimulate the market have come as something of a double-edged sword for investors. 

Right now, inflationary pressures are becoming apparent on both sides of the pond, as the release of data in June showed that US consumer prices increased by 5% in the year up until May. At the beginning of August, inflation had overshot the Bank of England’s (BoE) forecasts for three successive months, and although it seems like some respite is on the horizon, ex-BoE chief economist Andy Haldane has voiced his doubts over the central bank’s actions to keep inflation in check. In the face of dovish thinking, Haldane was the only member of the monetary policy committee to vote in favour of tighter policy, in order to head off the threat to price stability. The BoE has suggested that UK inflation will top 4% by the end of the year, well above its original estimates. As such, some might wonder whether we are in for an era of much higher inflation, and potentially even a wage-price spiral. Whatever your position on monetary policy, traders and investors will naturally be concerned about how they should act in response to these developments. Here are some considerations to bear in mind.

Keeping an eye on inflation

First thing’s first, traders and investors should keep a close eye on central bank statements before taking any drastic action. For example, any dissenting views from key figures, or signals that the bank is set to raise interest rates and tighten monetary policy, can offer insight into the bigger picture, and the general outlook for inflation going forward. But beyond reading between the lines of these statements, there are some regularly reported measures of inflation that investors should be monitoring.

In the US, the Consumer Price Index (CPI), which reflects retail prices of goods and services, including housing costs, transportation, and healthcare, is the most widely followed indicator. That said, it is important to note that the Federal Reserve also emphasises the Personal Consumption Expenditures Price Index (PCE), which covers a wider range of expenditures. Meanwhile, in the UK, the official measure of inflation is its own Consumer Price Index (CPI), or the Harmonised Index of Consumer Prices (HCIP). 

Wherever you are in the world, central banks will have their own target rate of inflation. As such, traders and investors would do well to bear this in mind, given that protracted periods of high inflation pose a stealth threat to investment returns. Rising inflation in New Zealand, for example, has been enough for the Reserve Bank of New Zealand to project an interest rate hike this year and four hikes in 2022. This was when inflation spiked above the 1-3% target hitting 3.3% year on year. 

Investment options as a hedge against inflation

If investors do not protect their portfolios accordingly, inflation can be detrimental to fixed income returns, such as bonds. However, the effects of inflation can vary across sectors.For starters, the merits of gold, commodities and property must be carefully considered in an inflationary environment. While none of these assets are a perfect antidote to the inflation conundrum, they do offer a degree of portfolio protection.

In terms of commodities and precious metals, historically, the mantra that ‘gold is a hedge against inflation’ needs some careful consideration – if this were the case, then surely its price should hardly ever fall. Because gold gives no interest in holding it, investors tend to sell gold in order to buy riskier assets at the first sign of stronger global growth, and this is something to bear in mind. But so long as interest rates remain low, this is good for gold. 

By contrast, assets like growth stocks, including big tech and value stocks, might be less attractive. This is because higher inflation tends to impact the future profitability of these companies. As growth stocks have much of their earnings expectations in the future, this means that when rates rise, this damages these expectations.

On the contrary, inflation can actually be beneficial to some asset classes. As mild inflation is often a sign that the economy is growing, this means that businesses can raise prices, which in turn can stimulate job growth. For instance, a look at the S&P 500 returns historically and adjusting for inflation shows that an inflation rate of 2% or 3% is often a sweet spot, offering the highest real returns.

With this in mind, it is important to add that value stocks, which have a higher intrinsic value than their current trading price, will often outperform growth and income stocks. Value stocks frequently constitute mature and well-established companies with strong current free cash flows that may diminish over time, but this will largely depend on whether the investor in question is taking a long- or short-term view of the market. 

For those taking a short-term view of the market, some evidence suggests that higher inflation also tends to lead to increased stock market volatility – consequently, this creates fresh opportunities for either buying or short-selling stocks. Yet, it is vital to remember that the stock market is cyclical – while the bad times may hit investors hard, they will not last forever, and there is much to be gained from staying invested for the long haul.

Although central banks remain defiant that inflationary pressures are transitory, the bottom line is that inflation has arrived. Traders and investors will need to weigh their options carefully when determining their activities.

High Risk Investment Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. For more information, please refer to HYCM’s Risk Disclosure. 

About the author: Giles Coghlan is Chief Currency Analyst, HYCM – an online provider of forex and Contracts for Difference (CFDs) trading services for both retail and institutional traders. HYCM is regulated by the internationally recognized financial regulator FCA. HYCM is backed by the Henyep Capital Markets Group established in 1977 with investments in property, financial services, charity, and education. The Group via its relevant subsidiaries have representations in Hong Kong, United Kingdom, Dubai, and Cyprus. 

The next Thought Leader that we spoke to is a professional that frequently updates Finance Monthly and our readers on all things tax in New Zealand. Here Richard Ashby, who has been dealing with New Zealand taxation for over 29 years, introduces us to recent developments in the sector and shares his predictions for the year ahead.

What have been the hottest topics being discussed in New Zealand in relation to tax since we last spoke in September?

For the past few months there have been two separate taxation Bills, making their way through Parliament. Both Bills contain some fairly significant changes that will mostly impact the SME market (in a positive way thankfully), with one of the Bills also providing the required legislation to facilitate NZ’s commitment as a signatory to the Automatic Exchange of Information project, and the introduction of new disclosure rules with respect to NZ’s foreign trust regime. The latter has been the NZ government’s response to the release of the Panama Papers, which suggested NZ was being used as a tax haven by wealthy non-resident individuals. One of the Bills was passed last week and the other is expected to pass pre-31 March (NZ’s tax year end).

There has also been continual discussion concerning BEPS and where NZ is positioned with respect to the various Action Plan’s issued. Most of the commentary coming out of Inland Revenue in this regard, is that NZ already has appropriate legislation in place to apply OECD recommendations.

What do you anticipate for the sector in 2017? Do you believe that there is potential for any significant legislative developments in the next twelve months?

2017 is an election year for NZ, and with an expected budget surplus in May, the present Government is already hinting that there will be personal tax rate reductions, targeted at lower to middle income earners.  There are also likely to be further modifications to the present tax system, aimed at making it easier for taxpayers to comply with their obligations, thereby lowering the cost of compliance (which Inland Revenue has an ongoing project to continually reduce), although I would not expect to see any significant changes over the coming twelve months, bearing in mind the myriad of changes included in the recent two Bills.

As a thought leader in this segment, how are you developing new strategies and ways to help your clients?

 Listening to your clients and fully understanding their needs is essential to providing good, sound tax advice. You have to continually ask questions and ensure you obtain all relevant facts. Once the detail is obtained however, the key to developing new strategies and ways to help you clients, is knowledge of the legislation and keeping abreast of any changes, the opportunities that lie within it to assist your client in obtaining their desired result, and most importantly, the ability to maintain an open mind and constantly question how the rules relevant to your client’s scenario, can be applied to produce the best result.

When you first joined Gilligan Sheppard, what were your goals in driving change within the company?

 Actually, when I joined Gilligan Sheppard (just over 20 years ago), I had basically just completed an eight-year stint with Inland Revenue, and the first day on the job, I discovered I still had so much to learn. What was clear however, was that I now had an ingrained passion for dealing with NZ taxation. This connection had also transformed into a desire to spend as much of my time as I could, assisting clients with their tax issues, particularly as a problem solver, with a goal to obtaining the best outcome when dealing with whatever situation they had got themselves into.

Since becoming a partner of Gilligan Sheppard in 2005, my goal has been to develop a sustainable tax practice within the firm, which has started to become a reality in the past three years, when we decided to separate the practice into three separate business units, one being a dedicated tax team.

How would you evaluate your role and its impact over the last year or so?

In the past twelve months, we have started to promote a tax advisory service to other accounting firms who may not have their own internal tax resource. This has certainly been a learning curve as the nature of the advisory has changed from one of dealing with clients of Gilligan Sheppard who you have a natural relationship of trust with, to dealing with other accounting firms whom you are effectively in competition with for business services work, and the consequent need therefore to build a different type of trust relationship.

Do you have a mantra or motto you live by when it comes to helping your clients with audits and tax-related matters?

Communication is the key – never be afraid to ask a question, be an active listener and never be in a hurry to give advice just for the sake of giving it. When it comes to the Inland Revenue, always be pro-active in your dealings with them, and emotive reactions can be very costly, so always ensure your client focuses on the economics of any Inland Revenue dispute, and does not get caught up in the emotions of having to win.