Game-changer for your clients: UK pension transfers just got easier

New 'scheme pays' option removes major barrier – and Garrison Bridge is making it even simpler for advisers.

The challenge you've been facing

For years, advising clients on UK pension transfers has been complicated by one major obstacle: cash flow.

Unless your client qualified as a transitional resident (a new or returning NZ tax resident with a temporary 48-month exemption from tax on foreign income), the Transfer Scheme Withholding Tax (TSWT) had to be paid upfront, out of pocket – often making transfers financially prohibitive, even when they made strategic sense.

This barrier has likely prevented many of your clients from consolidating their retirement savings and simplifying their financial affairs.

Budget 2025: The 'scheme pays' solution

Effective 1 April 2026, a new option fundamentally changes the landscape for pension transfers.

What is 'scheme pays'?

Under this approach, the New Zealand receiving pension scheme can deduct the tax due and pay it directly to Inland Revenue from the transferred pension funds themselves – eliminating the need for clients to fund the tax separately.

Key benefits for your clients:

• No upfront cash required – tax is paid from the transfer proceeds.
• Flat 28% tax rate when using scheme pays, versus potentially 39% at marginal rates under the traditional approach.
• Simplified cash flow – clients don't need to liquidate other assets to fund the tax.
• More transfers become viable – removes the primary barrier that's been stopping clients from consolidating UK pensions.

Important parameters:

• Applies to transfers to NZ schemes (not direct lump sum withdrawals to individuals).
• Available for UK pensions and potentially others, depending on the receiving scheme's capabilities.
• Only relevant for clients who've been NZ tax residents for more than four years.

How the tax calculation works

There are a number of specialist QROPS advisers in NZ we can refer you to if this is helpful. Following is a high-level executive summary of how scheme pays works. 

Step 1: Determine tax liability status

Is the pension holder outside their transitional resident period? Transitional residents (new or returning NZ tax residents with a temporary 48-month exemption from tax on foreign income) are generally exempt from TSWT on pension transfers.

If the pension holder is outside this 48-month window, they will likely owe TSWT on the transfer.

Step 2: Calculate the Assessable Withdrawal Amount (AWA)

The AWA is based on the time between when the pension holder became a NZ tax resident and when they transfer their pension. The longer they've been resident, the larger the assessable amount.

This calculation is complex and critical – errors can result in significant tax implications for your clients. Professional QROPS advice is important. 

Step 3: Apply the tax rate

• Scheme pays option: Flat 28% TSWT on the AWA, deducted from transfer proceeds
• Individual pays option: AWA included in tax return, taxed at marginal rate (up to 39%)

Considerations when determining the appropriate method, Scheme pays or Individual pays

• The pension holders:
  - Marginal tax rate, 
  - Their cash flow situation, 
  - Overall retirement strategy.
  - Other income sources.

Garrison Bridge and a professional QROPS adviser can help.

Lifetime Asset Management manages the Garrison Bridge Superannuation Scheme, a recognised Qualifying Recognised Overseas Pension Scheme (QROPS) in both New Zealand and Australia.

• Under the pension holder's delegation, we can estimate the tax cost initially and re estimate in $NZD when the pension transfer value is known. 
• With the pension holders approval, we will pay the tax in accordance with the scheme pays rules. 

Working with Garrison Bridge and a QROPS specialist can unlock the benefits of the new scheme pay rules for whole new cohort of foreign pension holders.

Get in touch

Get in touch with Chelsea Devlin if you would like to learn more about Garrison Bridge.