Did you know that you may be able to transfer your UK Private Pension to Canada without tax consequences?
From April 2006, the UK Government has allowed UK Expats to transfer pension benefits from the UK into a QROPS schemes (Qualifying Registered Overseas Pension Scheme). A few Canadian investment companies can manage QROPS.
There are several advantage of this plan:
- The transfer is tax-free.
When you transfer your pension plan to Canada, 30% can be invested into a Registered Retirement Savings Plan (RRSP). You have full access to funds held in an RRSP at any time and any age. You could even use the funds to purchase a first home under the Canadian HomeBuyer plan program. The rest of the funds are deposited in a Locked-In Retirement Account (LIRA).
- There is no requirement to purchase an annuity under this program.
- In the case of a Defined Benefit Plan, you would now have the flexibility of drawing more or less during retirement instead of a fixed pension,
- You are no longer subject to currency fluctuation once the pension is transferred to Canada,
- In the event of your death, your surviving spouse receives the full benefit of the asset and ,
- your remaining asset gets transfered to the second generation. This are indeed huge benefits not available under a pension plan.
The main drawback are
- the risks of investing versus a guaranteed pension
- the risk of drawing too fast.
- Also, indexing needs to be part of the comparison.
- Of course, nothing is really guaranteed 100%. The pension is only safer if fully funded. Many employer pension plans are not and may have to reduce future benefits or indexing.
To evaluate your options and compare whether it is best for you to leave your pension in the UK or transfer it to Canada, we need the value of the transfer and the pension benefits estimates at various ages. With this information, we will do a calculation to compare the indexed income derived from the lump sum to the pension benefit and determine the breakeven point of the rate of return needed to meet or beat the pension. If the breakeven point is too high, like 6% or more, we usually do not recommend a transfer unless you value more the currency stability, estate transfer advantages or if the pension funding is an issue.
It is never going to be black and white. Our role will be to outline each option with advantages and drawbacks to help you make an informed decision. It is important to go through these options carefully before making such an important decision which you will have to live with for the rest of your retired life.
We are priviledged to have a UK Financial Planner associate in London familiar with QROPS & UK Pension rules to help us coordinate the transfer. Please find links to his website and brochure on the subject below.
Please contact us to review your personal situation.