New Zealand plans could block Qrops
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The New Zealand government is proposing restricting use of the country’s pension schemes to residents and those working for the government in a move which could stop its growing Qrops market in its tracks.
Last week, the NZ ministry for economic development published a draft financial markets conduct bill for consultation. As well as the restriction on who can use a pension scheme in the country, it proposes all pensions must be used to provide “retirement benefits”.
HM Revenue and Customs’ Qrops rules state 70 per cent of a fund must be used for retirement income for the first five years of non-residency. After this period, local rules apply.
Monfort International managing director Geraint Davies says the move is a reaction to people using New Zealand schemes to cash out pensions rather than planning for retirement.He says: “After five years resident outside the UK, clients can choose to take local rules and in NZ that allows access to 100 per cent of their fund. The NZ government is acting because HMRC never expected the rule to be used to cash out pensions and it saw a risk to its reputation as an offshore centre.”
Amendments could be made, allowing for genuine use of the schemes but this is a lesson in what the government there wants. Advisers and NZ trust schemes doing this must stop. They are giving ammunition to the legislature and if they do not stop, this will become law.”
The consultation ends on September 6.
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Readers' comments (4)
Stephen Ward | 18 Aug 2011 3:21 pm
The proposals as they stand fly in the face of the upcoming tax free treatment of New Zealand superannuation funds for non New Zealand residents which has just passed through the NZ Parliament (last night).
So we could have a highly attractive jurisdiction for long term pension fund investment which attracts many members into superannuation schemes registered as QROPS whilst on the other hand the draft Financial Markets Conduct Bill will not permit further membership once enacted as the draft currently stands.
This is clearly a dilemma that the legislators will need to resolve. Perhaps by creating a specific exemption associated with schemes which are, or become, registered as QROPS.
Lobbying to change the draft Bill is already under way. A New Zealand industry source we know said “there’s a general uproar here with these proposals”.
Fortunately there is plenty of time to seek and achieve change.
The timescale that is likely with regard to the Bill is :
1.The consultation period lasts until 6 September.
2.The Government then want to introduce the Bill to Parliament before the New Zealand general election at the end of November. This will allow only a first reading of the Bill as time cannot possibly permit more than that.
3.The Bill will then be further considered when the newly elected Parliament sits from January 2012.
4.The Bill will then be subject to several months of scrutiny in particular through the committee stage.
5.Implementation of the Bill will require subsequent regulations and transitional provisions, which are largely absent in the draft.
Sources in New Zealand do not expect the Bill to pass into law for at least 12 months and probably much longer than that.
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David Trenner - Intelligent Pensions | 18 Aug 2011 5:17 pm
So, Stephen, are you saying 'buy now while stocks last?
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Anonymous | 19 Aug 2011 6:40 am
@ David,
I have not yet seen the draft proposals to this new bill. I am assuming that there will be a lot of New Zealand QROPS clients that will transfer to the QROPS before the new rules kick in- assuming there are no changes to this residency rule.
In the UK, those that "beat" such a deadline are normally able to benefit from the previous regime or, in some cases, opt for the new regime ( as in pre 1987/post 89 regimes).
Is it yet clear what would happen to those that transfer to a New Zealand QROPs who will not have completed 5 years non - UK residency by the time the new rules apply?
If it is not clear, isn't there a danger ( however remote) that these people may be treated differently? Any word on this?
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Stephen Ward | 19 Aug 2011 5:24 pm
two points
Re David Trenners question - the answer is "possibly".
Re @David - all we know is (with confirmation in writing from the FMA) is that existing NZ scheme members who are not NZ resident at the date of implementation will be able to remain as scheme members.
In terms of pre and post implementation date benefit structures I agree entirely and certainly this will form a part of our comments on the draft legislation - which you can access at http://www.med.govt.nz/investment
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