What is pension transfer tax?
The movement of pension funds can trigger a taxable event, though the possibility of this depends on the rules of the country where the scheme is held. Distinct from a pension or annuity, an interest in a foreign superannuation scheme can be transferred between schemes or withdrawn either partially or in full.
Pension transfers are not necessarily taxed, it depends where they are transferred to.
If they are transferred within an overseas scheme they are not taxable. If they are transferred to a bank account, which is not a pension scheme, they are liable to tax. Or if they are transferred to a super fund in New Zealand, then they are subject to tax.
In practice, the transfer of superannuation schemes between New Zealand and Australia is generally not taxable.
When is pension transfer tax charged?
- Overseas pension schemes which are either transferred to New Zealand or had funds withdrawn should be considered for tax.
- A taxable pension transfer on arrival in New Zealand is taxed as a lump sum even if you are not drawing income.
- Any lump sum transferred from an overseas super fund to either a New Zealand superannuation fund or a bank account is taxed as income using one of two methods – formula or schedule.
- The exception is for new migrants who are allowed a four-year window to transfer their pension without incurring tax.
Does pension transfer tax apply to me?
Have you received any lump sum payments since you moved to live in New Zealand or since your transitional residency expired? If yes, it probably applies to you.
An example of pension transfer tax in use
- A new migrant transferring their overseas pension to be invested in New Zealand.
- A New Zealander who has lived and worked overseas – when they return if they want to transfer their pension to a New Zealand bank account, it’s taxable.
Ways people get pension transfer tax wrong
People transfer a pension thinking there is no tax to pay in New Zealand because in the UK pension contributions are gross (paid in without tax deductions).
Recent changes to pension transfer tax
1 April 2014 the lump sum overseas pension transfers payments rules changed.