In the past when you transferred a foreign pension (including UK pensions) to New Zealand you needed to determine the taxable income on the transfer. The income would flow through to your individual IR3 tax return, this would push up your income, and therefore tax. This system is called “Individual Pays” as you need to pay the tax directly to the Inland Revenue. As the income on transferring a lump sum could often be quite high (tens or hundreds of thousand) the “Individual Pays” system put lots of people off transferring their pensions to New Zealand, as it would often be taxed at a high rate (33% or 39%), required you to have the funds available to pay the tax, and could affect your benefits and tax credits in New Zealand (like working for families).
But that all changed on 1 April 2026 when the new “Scheme Pays” system was introduced. Under “Scheme Pays” a single flat Transfer Scheme Withholding Tax (TSWT) is deducted at a flat rate of 28%. Even better the NZ Scheme that you transferred into can pay the tax out of the transferred funds. And finally, because the income is not going through your IR3 there is no impact on any benefits or tax credits that you might be receiving.
Scheme Pays: The game changer
Under Scheme Pays, the key attraction is simplicity. The receiving scheme pays the tax directly from the transferred funds, at a flat 28%. That can make scheme pays very attractive for:
- people earning over $53,500 a year (giving a marginal tax rate of 30%, 33% or 39%)
- people who want to avoid a separate cash tax bill
- families receiving or expecting to receive Working for Families or people with Student Loans
- people who want a cleaner compliance outcome.
Individual Pays: Still has it’s place
Individual Pays may be better where the person has:
- a lower marginal tax rate than 28%
- available losses or deductions that may reduce their taxable income under the normal tax rules
- you want the amount dealt with through your ordinary return rather than withheld at source
Get prepared: The window for action is small
The biggest fishhook on “Scheme Pays” is time. You have only 10 working days from when the transfer arrives in the NZ scheme to declare the taxable income, known as the Assessable Withdrawal Amount (AWA). Help is usually needed because the AWA is not simply the transfer amount.
To start there is more than one method to calculate your AWA, the good news is you can use whichever one is lowest – and the differences can be appreciable, we have seen examples where the methods can differ by tens or hundreds of thousands of dollars.
To get the AWA right, usually means getting a complete picture of your tax residency timings, historic pension values, an analysis of contributions and withdrawals and more. This all needs to be done before your transfer arrives so you’re in a position to give the NZ Scheme all the information that they need within 10 days. If you don’t get them the information then you are back to “Individual Pays” and all the potential consequences.
The bottom line
The new “Scheme Pays” rules have opened the door for many people who previously held off transferring their UK pensions—but the benefit comes down to preparation, not just eligibility.
For most, the 28% flat TSWT and removal of IR3 impacts will make Scheme Pays the clear winner. But it’s not automatic. You need your AWA calculated before the transfer lands, and you need to act within a very tight 10-day window.
Get it right, and you can significantly reduce tax, avoid cashflow pressure, and protect your entitlements.
Get it wrong – or leave it too late – and you fall back into Individual Pays, with higher tax, more complexity, and potential unintended consequences.
The opportunity is real, but it heavily favours those who plan ahead.
