If you have a UK pension and are considering transferring it to New Zealand, there is a new tax option worth understanding.
From 1 April 2026, the Scheme Pays option allows the New Zealand tax arising on some overseas pension transfers to be paid directly from the transferred funds.
This may make the tax side of a transfer easier to manage for some people, particularly where a transfer takes place after the four-year foreign superannuation exemption period.
But it is important to understand what Scheme Pays does, and what it does not do.
What changed from 1 April 2026?
Before Scheme Pays was introduced, someone transferring a UK pension after their New Zealand tax exemption period had generally needed to meet any New Zealand tax liability themselves.
This could create a practical problem. Pension funds can have restrictions on when money can be accessed, while the New Zealand tax still needs to be paid.
For qualifying transfers from 1 April 2026, Scheme Pays allows the receiving New Zealand scheme to pay the tax directly to Inland Revenue from the transferred pension funds.
How does Scheme Pays work?
If you choose Scheme Pays, the taxable portion of the transfer first needs to be calculated. Inland Revenue calls this the assessable withdrawal amount.
You need to calculate this amount and provide it to the receiving scheme within 10 working days of the transfer.
The tax is called Transfer Scheme Withholding Tax (TSWT) and is charged at a flat rate of 28% of the assessable withdrawal amount.
Importantly, this does not mean 28% of your entire pension transfer is paid in tax. The 28% applies only to the assessable withdrawal amount.
How is the accessible withdrawal amount calculated?
The assessable withdrawal amount is the portion of the transfer treated as taxable under New Zealand's foreign superannuation rules.
It can generally be calculated using the schedule method or, where the requirements are met, the formula method.
The schedule method uses a prescribed percentage that varies depending on how long you have been within the relevant taxable period. The formula method instead looks at the actual gains in the pension over the relevant period.
The calculation can be complex, so individual tax advice may be appropriate before completing a transfer.
What about the four-year exemption?
The introduction of Scheme Pays has not removed New Zealand's existing foreign superannuation exemption.
If you qualify for the exemption and complete your transfer within the relevant period, the transfer may not give rise to New Zealand tax obligations. In that situation, there may be no tax to pay through Scheme Pays.
Once the exemption period has ended, however, part of a later transfer may be taxable. Scheme Pays simply provides another way of meeting that tax obligation.
Scheme Pays vs paying the tax yourself?
You do not have to use Scheme Pays.
If you choose it, tax is charged at the flat 28% rate on the assessable withdrawal amount. Provided the correct amount has been calculated and paid, this is treated as final tax.
Alternatively, you can pay the tax personally. In that case, the assessable withdrawal amount is generally included in your taxable income and taxed at your applicable marginal tax rate.
Which method is appropriate will depend on your individual tax position and circumstances.
The tax questions are only one part of the transfer decision
Scheme Pays may make it easier to deal with a New Zealand tax liability, but it does not mean transferring a UK pension is automatically the right choice.
A transfer still needs to be considered alongside factors such as your existing pension benefits, fees, investment options, access rules, currency considerations and longer-term retirement plans.
In other words, how the tax is paid is a separate question from whether your pension should be transferred in the first place.
If you are considering transferring a UK pension to New Zealand, we can help you understand the transfer process and the factors to consider before making a decision. For individual tax advice, we recommend speaking with a qualified tax professional.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
