Moving home for the school year? Plan your pension now

Introduction

Many families time their return to New Zealand around the start of the school year. If you hold a pension overseas, the decisions that protect it are best made before you arrive, not after.

Picture a couple we will call Emma and Tom. They left Wellington in their twenties, newly married, for what was meant to be two years in London. Two children and a decade later, London is where their children were born, and where Tom has paid into a workplace pension since his first job there. Now the family is coming home. The reason is simple. They want their children to start school in New Zealand and to grow up with the summers, the space and the friendships they remember from their own childhoods.

Emma and Tom are not unusual. Each year, as the New Zealand summer arrives, families plan their return around the start of the school year in early February. It is a sensible deadline to work back from. The part many people leave too late is the money, and in particular the pension built up overseas.

The short version

• The clock that matters starts the day you become a New Zealand tax resident, not the day you decide to move.
• For the first four years of New Zealand tax residence, transferring your overseas pension is generally free of New Zealand tax, based on the Transitional Tax rules.
• Tax on a fund transfer made after that window closes is calculated on the Schedular basis, and included in your personal marginal tax rate which could be 39%.
• On the UK side, getting the timing and residency right is what keeps you clear of a 25% charge.

Why the timing of your move matters

You become a New Zealand tax resident in one of two ways. The Day Test and your Permanent Place of Abode test.

This includes you being in the country for more than 183 days in any rolling 12-month period, or you having a permanent place of abode. Your connection to the country. Inland Revenue’s transitional taxpayer exemption period then runs for 48 months.

That date sets everything in motion. Wait until you have arrived and settled before you look at your pension, and you have already started the clock without a plan.

The four-year window that protects your transfer

Since 2014, Inland Revenue has taxed transfers from foreign pension schemes into New Zealand under a separate set of rules. If you acquired the pension while you were living overseas as a non-resident, a lump sum transferred during your exemption period is exempt from New Zealand tax. This applies to returning New Zealanders and new migrants alike.

For Emma and Tom, that is the difference that counts. Transfer Tom’s pension, worth around NZ$100,000 once converted, within the four years, and there is no New Zealand tax on it. Leave it until later, and Inland Revenue’s “Schedule Method” treats a share of the transfer as taxable income. The longer you have been resident, the larger that share becomes, from 4.76% to 100%.

The “scheme pays” flat 28% option from 1 April 2026

If a transfer falls outside the window, there is now an option to pay the taxes. From 1 April 2026, some New Zealand retirement fund schemes, can access your transferred funds to pay the New Zealand tax directly. This is called “scheme pays”. The rate is a flat 28%. To be clear, the 28% applies to the assessable withdrawal amount (the taxable portion), not the whole transfer

For higher earners, that matters. On every $10,000 of a transfer that becomes subject to tax, the flat rate of the “scheme pays “is $2,800. At the top marginal rate of tax for individuals of 39%, the same $10,000 could be subject to taxes of $3,900. The amount of tax you pay must be worked out using the schedule (or formula) method explained earlier.

The flat rate helps. It does not beat moving within the window, when the taxable amount is nil.

The UK side matters just as much

Bringing a UK pension across is not only a New Zealand question. HMRC applies its own charge. A transfer to a scheme that is not a Qualifying Recognised Overseas Pension Scheme is treated as an unauthorised payment and taxed at a minimum of 40%, and can reach 55%, with a possible 15% surcharge. A transfer to a QROPS can still attract a 25% overseas transfer charge.

That charge is avoided where two things are true at the time of transfer: you are resident in New Zealand, and the QROPS is based in New Zealand.

HMRC now requires proof of same-country residence, and the exemption must be claimed on Form APSS263 within 60 days of the transfer request — miss it and the transfer defaults to the 25% charge.

The amount also needs to sit within the overseas transfer allowance, which is usually £1,073,100, so a pension of this size is well within it. One point to watch closely: if you leave New Zealand within five full UK tax years of the transfer, HMRC can reclaim the 25%.

Why you should not wait until you have arrived

Put the two sides together and a sequencing puzzle appears. To avoid the UK charge, you need to be a New Zealand tax resident when you transfer. To stay free of New Zealand tax, you want to be inside your four-year window. There is a clear path through, but it is far easier to map before you move than to repair afterwards.

There are other moving parts too:

• The pound-to-dollar rate decides how much actually lands in New Zealand dollars, so the timing of the conversion matters.
• A transfer is usually a one-way door. You cannot rejoin the UK scheme you left.
• Moving out of a defined benefit pension can mean giving up guarantees, such as a spouse’s pension or inflation-linked increases.
• Your receiving scheme has to be on HMRC’s recognised list. Not every New Zealand scheme qualifies, so this is one of the first things to check.

None of this is a reason to rush. It is a reason to start early. Six months ahead of the school year is a comfortable runway. It gives you time to weigh up whether to transfer at all, choose the right scheme, and line up the New Zealand and UK steps in the right order.

For Emma and Tom, starting now means the pension is settled before the boxes are packed, rather than added to the list once the children are already in their new classrooms.

Common questions

When does the four-year transitional rule start?

The start backdates to day 1 of the 183 days; the end is 4 years after the end of the month you qualified, or you have a permanent place of abode available to you. It then runs for 48 months.

Does this apply to returning New Zealanders or only new migrants?

Both. The foreign-super lump-sum exemption is open to returning New Zealanders and new migrants alike, as long as you acquired the pension while you were living overseas as a non-resident.

Can I transfer a UK pension into any New Zealand scheme?

No. The receiving scheme must be on HMRC’s list of recognised overseas pension schemes, known as a QROPS. Not every New Zealand fund qualifies, so checking this is one of the first steps.

Talk to us before you move

If you are planning your return to New Zealand, the best time to look at your overseas pension is now, while you still have choices on both sides of the world. We start with a conversation, not a sales pitch. We will look at your situation, explain your options in plain language and help you decide what makes sense for your family.

Book a conversation with Moore Markhams Financial Services team, Marc Nel or Michelle Chen, today.

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