The government has moved to allow UK pension money currently stranded in KiwiSaver schemes to escape in new tax legislation tabled last week.
Under the proposed omnibus law, qualifying recognised overseas pension scheme (QROPS) transfers will also be much easier via new provisions enabling local providers to manage immigrant member tax payments.
Simon Watts, Revenue Minister, told parliament that a 2015 UK law change left some QROPS money stuck in KiwiSaver schemes.
Before the 2015 legal move in the UK, KiwiSaver schemes were able to receive QROPS transfers. However, KiwiSaver early withdrawal options breached the updated UK rules for QROPS.
“Some migrants who transferred their pensions from the UK to KiwiSaver schemes in New Zealand prior to that change cannot now transfer them from KiwiSaver to another scheme without incurring UK tax charges—this locks the funds into those KiwiSaver schemes,” Watts said. “To simplify this, this bill proposes to allow KiwiSaver providers and individuals to be able to move locked-in funds from their scheme into one that meets the UK criteria, meaning that there will be no ongoing UK tax implications.”
At the same time, the mooted legislation will free up QROPS and other offshore pensions to move quickly to approved NZ providers under a new ‘scheme pays’ tax reform.
The Revenue Minister noted that such overseas pension transfers can trigger NZ tax bills, creating a problem for migrants who are not yet able to pay tax here.
“If they can withdraw these funds from their scheme, this can also result in tax charges from their home country,” Watts said. “This Government wants future Kiwis to invest here, which is why we are proposing a ‘schemes pay’ option. This would allow a migrant to elect for their New Zealand provider to pay the New Zealand tax due on the transfer at a flat rate of 28 percent directly to Inland Revenue.”
Among other proposed amendments, the draft tax legislation will also open the way for those aged under 16 to join KiwiSaver with the consent of just one parent or guardian.
Currently, under-16s require the written agreement from all parents or guardians to sign up to KiwiSaver
“This means that a sole parent wishing to enrol a child under the age of 16 in KiwiSaver may face difficulty getting agreement from a former partner,” the Minister said. “In today’s society, there are many more sole parents than there were when the scheme was introduced in 2007, and our tax system must reflect the modern reality of our country. We are proposing that people under the age of 16 be allowed to enrol in KiwiSaver with the agreement of just one parent or guardian.”
Furthermore, the government will formalise global cryptocurrency tax-reporting obligations in a measure included in the draft bill.
Watts told parliament up to 10 per cent of New Zealanders might be holding crypto with most transactions carried out on offshore exchanges that often evade tax scrutiny.
“The OECD therefore developed a reporting framework to address this data gap, ensuring an automatic exchange of this tax relevant information on crypto-assets between countries,” he said. “This bill will incorporate the OECD’s framework proposal into New Zealand law and be effective from the 2026-27 tax year. This is a sensible measure, as it supports the integrity of our tax system; people must pay their fair share of tax even as they invest and grow their wealth.”
The bill is now before a select committee after passing its first reading last week. Public submissions are due by October 9 with a final committee report due on February 28 next year.