A SIPP is a type of Defined Contribution (DC) pension scheme giving individuals greater choice of where their pension fund is invested, rather than entrusting their money to one insurance company or fund manager. The funds are held in the UK and not in NZ. However, it is not this broad investment choice that makes a SIPP attractive to many, but its relaxed benefit payment rules that were introduced by the UK government in April 2015.
If a client requires immediate access to their funds, Tony acknowledges that transferring a UK pension to a SIPP does involve more paperwork – for the adviser, at least – and can therefore be a slightly more lengthy process than a conventional NZ QROPS transfer. This should be factored into a client’s financial planning.
In order to help determine whether a SIPP could be the better choice than a NZ QROPS, Tony urges anyone who is thinking of transferring their UK pension to carefully consider the following factors:
- Your age – are you close to 55?
- How long have you been in New Zealand?
- If you transferred your UK scheme to a NZ QROPS today, would you have any surplus funds with which to pay any potential NZ tax liability?
- Are you 100% positive that you will retire in New Zealand?
- Are you prepared to lock up 70% of your transferred funds for life?
Additionally, Tony strongly recommends that clients seek the advice of a tax specialist who has comprehensive knowledge of both the UK and NZ systems. (GBPensions’ advisers regularly work with such individuals for the benefit of clients.)
As a final point, Tony highlights an important rule change scheduled for later this year. “NZ legislation which comes into force on 1st December will seriously affect how much a client can access from their NZ QROPS and when,” says Tony. “If you are ready to transfer a UK pension scheme, this should also be taken into consideration when deciding what product is most appropriate. In my opinion, the revised regulations could further strengthen the case for a SIPP for many clients.”
Original blog posted 29th May 2016. Updated for content 4th July 2016.