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UK PENSION TRANSFER- Transfer Traps
Transferring your pension from the UK can give a worthwhile end result, but there are a number of traps for the unwary. Many operations and advisors do not point out these traps because they are more interested in the fees they generate rather than giving you advice that benefits you.
Frequently the best advice may be to leave your pension in the UK until you are ready to retire.
SPECIAL REPORT
If you wish to find out what I recommend for pension transfer CLICK HERE to send me your details and get a special report I have written about the process.
PENSION TRANSFER TRAP ONE - Use a QROPS Fund
From 1 April 2006 pensions from the UK must be transferred into a Qualifying Recognised Overseas Pension Scheme (QROPS). If you transfer your pension into something that is not a QROPS you will have to pay a hefty penalty tax in the UK. (up to 55%).
You should not deal with any NZ advisor who cannot provide you with documented evidence from HM Revenue and Customs that the scheme they are proposing is a QROPS.
Double check by going HERE to the HM Customs & Revenue list on their website.
PENSION TRANSFER TRAP TWO-withdrawal
The withdrawal trap! If you withdraw money from a QROPS before 6 years are up you may be up for an unauthorised payment charge. This is a UK Tax charge and can be up to 55% of the amount withdrawn. To qualify as a QROPS the NZ pension scheme must notify the UK authorities of any withdrawals.
PENSION TRANSFER TRAP THREE- savings
The Savings trap! Once your pension funds have been transferred into a NZ Superannuation Scheme you may wish to continue contributing in NZ Dollars.
DO NOT DO THIS!
If you wish to withdraw some of your NZ$ savings any withdrawal made before expiry of a six year period will be treated as withdrawing the UK portion first. You could be liable for a tax charge of up to 55% of the amount withdrawn.
CLICK HERE to find out what I think is the best way to save in NZ.
PENSION TRANSFER TRAP FOUR-fees
Beware of the fees! Some unscrupulous advisory companies will charge you up to 5% of the amount transferred for advice, plus entry or brokerage to the receiving fund, plus a contribution fee on any ongoing savings, plus they will get a trailing commission from the Superannuation fund selected. This can add up to a hefty cut from your money for not all that much work.
CLICK HERE to learn about simple low cost fees for pension transfer.
PENSION TRANSFER TRAP FIVE-nz fund performance
Poor Performance of NZ Super Funds. New Zealand based superannuation funds are taxed at 30% on income and capital gains before any returns are credited to an investors account. Many also carry very high fees and expense loads and to compound the situation are poorly run.
Information about the returns from NZ Based Superannuation funds funds can be found at the Fundsource site. I looked at two types. Firstly the Diversified Balanced Superannuation funds returned on average (Counting the top 10) 4.48%per year over a seven year period. (to end Sept 06) (after tax and fees).
Over a seven year time period you would expect a growth fund to do better, but no. The average of the top 10 Diversified Growth Superannuation funds is worse at 4.21%pa. (after tax and fees).
To put these returns in perspective and highlight how poor they are the Risk Free rate of Return in NZ (90 day bank bill rate 2/11/06) is 7.58% and you can get 7.35%pa (before tax) on call from an AAA rated bank.
Think very carefully before placing your UK pension money into any of these NZ Superannuation Funds. In many cases your UK Pension is in a tax effective fund and given the current strength of the NZ Dollar it may be better to leave it there.
SPECIAL REPORT
If you wish to find out what I recommend for pension transfer CLICK HERE to send me your details and get a special report I have written about the process.
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"Experts in helping immigrants to New Zealand transfer their UK pension funds for the best possible outcome."