New Zealand financial advisers are warning Kiwisaver pensions and Qualifying Recognised Overseas Pension Schemes (QROPS) to choose their funds carefully because of a fees and benefits rules trap.
Around 100,000 offshore savers are reckoned to have locked their pensions into Kiwisavers – and most are QROPS schemes.
The rest are from countries like Australia and South Africa.
Kiwisaver rules offer more generous tax breaks than QROPS, and some spending allowed by the New Zealand schemes is rated as breaking pension rules by HM Revenue & Customs (HMRC) and can result in hefty fines for the unwary.
For example, says the web site, New Zealand taxpayers can access their pension savings for help with a deposit for a first home.
However, HMRC views this as an ‘unauthorised withdrawal’ and hits the fund holder with a 55% fine on the value of the drawdown.
Financial web site interest.co.nz warns undisclosed fees on pension transfers into a Kiwisaver QROPS are another issue for retirement savers.
The web site is putting together a list of Kiwisaver funds and charges – and is calling on QROPS members to update the table with a list of charges they pay.
Fees from around 40 Kiwisaver QROPS out of 55 schemes on the current HMRC QROPS List are included so far.
Most have a range of fees – from a transfer fee generally set at zero, to entry fees, exit fees, annual management charges, fees for switching funds and other fees.
Other fees include Kiwisaver membership fees, trustee and auditor charges.
Frustration with high fees
The range of charges for QROPS Kiwisaver entry fees can vary from nothing to 5% of the fund value, while trustee fees can start at zero and rise to NZ$6,000 a year.
“We have found some of these fee structures lead to uneasiness and frustration with Kiwisaver QROPS members,” said a spokesman for the web site.
“To try to help people transferring into a Kiwisaver QROPS, we are running a survey of fees and have found a lot of strange and surprising charges.
“One problem with switching pensions is many people cannot see all the fees before picking a fund or provider and sometimes find they are hit with financial surprises once they have joined and switched their money.”