It is essential that you have a good understanding of your tax obligations. The basic points are:
- If you transfer your pension within the first four years that you become a New Zealand tax resident, you will not have a tax liability.
- If you leave New Zealand within five years of transferring your pension funds, an Overseas Tax Charge (OTC) of 25% will be applied to your funds.
The IRD Tax Increments Table (found here) shows that your tax liability will increase every year (after the first four ‘free’ years). The increases start at 4.76% in the first year and increase to 100% in year 26. If you are planning to transfer your pension, it’s best to do so within the first four years.
Tax in the UK is based on contributions into a pension scheme are Exempt, growth on the scheme is Exempt, the pension is Taxable. This is referred to as EET.
In New Zealand, it’s the reverse. Contributions are made from Taxed income, investment growth is Taxable, income in retirement is Exempt. This is referred to as TTE.