by Craig Simpson
With Australia finally signing the Trans-Tasman Retirement Savings Portability (TTRSP) arrangement, the question on everyone’s lips is, what should I be doing with my retirement savings?
While there is no simple answer we have found some practical examples outlining various situations which should help making a decision easier.
The main benefit for both New Zealanders and Australians is the ability to consolidate their current retirement savings balance into one account and save on paying two sets of fees.
The main disadvantages are for Australians or Kiwis who have self-managed superannuation schemes established in Australia as there is no directly comparable scheme available in New Zealand.
For those concerned with diversification, having all your savings in one pot and with one manager may not be the most desirable outcome, no matter how good the manager or the returns may be in the short-term.
One of the big considerations for readers will be the tax implications on retirement savings. Australia has a flat rate of 15% on earnings. The New Zealand tax rate on superannuation earnings ranges from 10.5% to 30% (or 45% where no IRD number is notified).
Keep in mind that a comparison between the two tax regimes is not straightforward due to factors such as capital gains tax. Australia taxes capital gains on equities whereas New Zealand does not tax capital gains on Australasian equities.
These examples are not intended to be used as advice and we recommend seeking the advice of a tax expert for those readers who have more complicated personal circumstances or considerations.
Example 1 - a New Zealander emigrating to Australia
Anna, aged 35, lives in New Zealand and has accumulated NZ$200,000 in her KiwiSaver scheme account. Anna decides to move to Australia indefinitely and transfer her KiwiSaver scheme savings to an Australian complying superannuation fund.
Anna’s KiwiSaver contributions into her Australian fund are treated as a non-concessional contribution and are subject to the current Australian annual non-concessional contribution cap of AU$150,000. However, the Australian rules allow Anna to bring forward the next two years’ worth of contributions, allowing a maximum transfer of A$450,000. This allows Anna to transfer all her KiwiSaver scheme savings into Australia’s superannuation system.
Anna’s KiwiSaver scheme savings are not taxed on their entry into the Australian superannuation system and form part of the tax free component of her interest in her Australian superannuation fund. They are tagged within her account as being New-Zealand-sourced.
Tax and withdrawing funds
Anna’s New Zealand-sourced savings in her Australian superannuation fund savings are subject to Australian taxation rates. Earnings on the New Zealand-sourced savings are included with her Australian-sourced amounts (for example, superannuation guarantee contributions from her employer) and form part of the taxable component of her interest.
Her New Zealand-sourced savings are, for the most part, also subject to Australian superannuation rules, although specified New Zealand source country rules apply.
A key source country rule is that Anna is not able to access her New Zealand-sourced savings until she reaches the KiwiSaver retirement age of 65 years. This is later than the preservation age (between 55 and 60) and retirement age (60) in Australia.
Anna is also unable to use her New Zealand-sourced savings to purchase a first home while they are held in her Australian superannuation fund, or to transfer her New Zealand-sourced savings to a self-managed superannuation fund or to a third country.
Returning to New Zealand?
After ten years in Australia, Anna considers moving back to New Zealand. She would be able to transfer all her accumulated savings to a KiwiSaver scheme account. The trustee of her transferring Australian fund would provide the receiving KiwiSaver scheme provider, and Anna, with a statement about the transferred benefits, including information about her contributions (concessional or non-concessional) and the components (tax free or taxable).
Upon their transfer to the KiwiSaver scheme, Anna’s Australian superannuation benefits would be tagged within her account as being Australian-sourced.
Staying in Australia?
Anna remains in Australia, reaches her Australian preservation age of 60 and decides to retire. She can only access her Australian-sourced savings upon her retirement, as her New Zealand-sourced savings must remain preserved in the fund until the higher KiwiSaver age of retirement - i.e. age 65.
Example 2 – an Australian citizen living in New Zealand
Rebecca, aged 35, is an Australian citizen currently living in New Zealand. During her working life in Australia she accumulated A$20,000 in her Australian complying superannuation fund. Rebecca has no intention of returning to Australia and would like to transfer her Australian superannuation benefits into her KiwiSaver scheme account in New Zealand.
The trustee of Rebecca’s transferring Australian fund provides the receiving KiwiSaver scheme provider, and Rebecca, with a statement about the transferred benefits, including information about her contributions (concessional or non-concessional) and the components (tax free or taxable).
Upon their transfer to the KiwiSaver scheme, the savings are tagged within Rebecca’s account as being Australian-sourced.
Tax and withdrawing funds
Rebecca’s Australian-sourced savings are subject to New Zealand taxation rates, and are for the most part subject to New Zealand superannuation rules, although several specified Australian source country rules apply.
A key source country rule is that Rebecca may access her Australian-sourced savings on retirement at or after age 60. This is currently earlier than the KiwiSaver age of retirement of 65 years.
Rebecca is unable to use her Australian-sourced savings to purchase a first home while the savings are held in a KiwiSaver scheme, or to transfer her Australian-sourced savings to a third country.
Returning to Australia?
After fifteen years in New Zealand, Rebecca decides to return to Australia and transfer all her accumulated savings to an Australian complying superannuation fund.
Rebecca is able to provide the receiving Australian trustee with the statement from her previous Australian superannuation fund to confirm that part of her Australian-sourced savings were previously counted towards the non-concessional contributions cap. This amount is not counted again towards the non-concessional contributions cap. Rebecca’s New Zealand-sourced savings, and the balance of her Australian-sourced savings, are subject to the non-concessional contributions cap.
The statement also confirms that part of Rebecca’s Australian-sourced savings was included in the tax free component of her former interest. This amount is included in the contributions segment (and the tax free component) of her new Australian interest, along with her New Zealand-sourced savings. The balance of her Australian-sourced savings is included in the taxable component of her new interest.
Remaining in New Zealand?
If Rebecca had remained in New Zealand and retired on reaching age 60, she could only access her Australian-sourced savings. Rebecca’s New Zealand sourced savings must remain preserved in the scheme until the higher KiwiSaver age of retirement of 65 years.
Tax - There are differences in the rate of tax on earnings between Australia and New Zealand. Australia has a flat rate of 15% on earnings. The New Zealand tax rate on superannuation earnings changed and now ranges from 10.5% to 30% (or 45% where no IRD number notified). It is also not straightforward to make a comparison between the two tax regimes because of other factors. For example, Australia also taxes capital gains on equities whereas New Zealand does not tax capital gains on Australasian equities.
Self managed super schemes - One disadvantage for Australian’s emigrating or ex-pats coming home who have established their own self-managed super scheme is they will lose this flexibility. Funds coming from Australia must go into KiwiSaver schemes. As yet there is no self-managed equivalent to what is operating in Australia, although some managers do offer the ability to put together your own asset allocation but you must invest into the managers “approved” investments or portfolios.