Michael Reason, principal of Michael Reason & Partners LLP, was responding to reports that New Zealand financial advisers and pension companies are grouping together to take a stand against perceived abuses of pension rules by those involved in the QROPS market.
London-based Reason, who is a New Zealand barrister and English & Welsh solicitor, said the basic definition of a New Zealand superannuation scheme mirrored that of a UK pension in that they should be used to save for and to provide retirement benefits.
However, he said NZ schemes did allow 100% tax free lump sums to be taken and they also allowed capital and income to be taken in a broader range of circumstances than the UK – such as for people approaching retirement, those with disabilities and people who had lost their incomes but the UK tax consequences must always be considered vis-à-vis residency status, etc .
“But you can’t just pay out the whole sum because a member wants it,” said Reason, who has advised clients on the creation of New Zealand QROPS.
“The way regulators monitor this is to regularly review product marketing material. If that says ‘you can cash in your pension’ – and the regulators are not yet onto it, it is inevitable that they will be.”
New Zealand is trying to establish itself as a regional, even global, financial centre, and authorities there are reportedly keen to ensure it has a strong reputation for probity. Scrutiny over it being seen as soft-touch for pensions busting is therefore unwelcome.
“I am concerned about New Zealand’s future as a QROPS jurisdiction when advisers allow members to be seen to have the sole intention of accessing cash in a single payment prior to retirement age. Such a basis for using NZ QROPS schemes is unlikely to be viable.
“The interaction of investment, legal and tax systems and visa issues creates complexities without the added threat of the scheme or jurisdiction being ‘de-recognised”.
International Adviser carried a report last month about how advisers and schemes promoting New Zealand internationally as a place where 100% pension commutation is allowed were to be reported to regulators by other financial service providers concerned by their behavior.
