Revised September 28, 2015
Are you, or someone you know, a UK Ex-Pat with a company or private Pension Plan? Do you wonder whether you should transfer your pensions to Canada?
Any Canadian permanent resident or citizen can move any UK “retained pension benefits” to Canada. By “retained pension benefits” I mean, Defined Benefit Pension Plans, Private Company Schemes, Personal Pensions, Stakeholder Pensions and Contracted out SERPS. I am NOT referring to the British State Pension. The State pension is not funded and cannot be transferred out but your British Pension can be collected while living in Canada.
Your private pensions can only be transferred tax-free to a registered plan which is recognized by HMRC as a qualifying recognized overseas pension scheme (QROPS). A Canadian financial institution must apply to have QROPS status. QROPS Status is granted and is constantly under review. There are significant differences between Canadian QROPS and specialist expertise is required to recommend the best QROPS for you.
There are several reasons why you should consider a transfer:
Canadian pensions offer a greater degree of flexibility than their British counterparts; Canadian Registered Retirement Savings Plans (RRSPs) allow clients more flexibility with withdrawals although strict rules apply to ensure that you meet the new “Pension Age Test”. Please see below the rules regarding withdrawals from QROPS.
2. Reduce Currency Market Risk and currency exchange fees
For your retirement income in Canada you will need Canadian Dollars. Transferring your pension to Canada will enable you to have your retirement benefit invested in Canadian Dollars. You will no longer be exposed to currency fluctuations. You will also avoid ongoing currency exchange fees.
3. Organization and Planning
You may have more than one pension plan in the UK. When you transfer them they can all go into the same QROPS. Having all your resources in Canada will help simplify your cash flow and help you manage your retirement funds more effectively.
4. Protect Beneficiaries
The Canadian pension system is very different from the UK and can offer substantial advantages to protect your beneficiaries. In Canada your surviving spouse receives 100% of your transferred retirement fund and if there is no surviving spouse, your children or other beneficiaries receive the full after-tax value. In the UK death benefits vary and depend on the type of pension you have.
5. The UK Government may eliminate QROPS in the future
Prime Minister David Cameron quietly said that he is concerned about the rate of “outflows” of money from the UK. This may be an indication that QROPS arrangements may be on his Government agenda.
QROPS – Qualifying Recognized Overseas Pension Scheme rules
It is imperative that you know the rules surrounding QROPS specifically regarding the withdrawals of these funds. The QROPS manager has an obligation to report withdrawals within 10 years of the transfer. The new rules are meant to ensure that the funds are used for retirement purposes for the most part, as intended in the first place.
Redemptions within 5 years
If funds are withdrawn WITHIN 5 complete UK tax years of being a tax resident, the withdrawals would be considered an Unauthorized Payment (UP) and subject to a 55% UP charge.
- we have been advised that this is the case even if the tax payer is 55 or older,
- tax payment or UP charges to the UK would be a credit against Canadian taxes as part of the tax treaty between our two countries.
Redemptions after 5 years
If funds are withdrawn AFTER 5 complete UK tax years of being a tax resident,
- you are permitted to take 30% in cash tax free (still subject to Canadian tax) if you meet the new “Pension Age Test” usually age 55. The new test ensures that the benefit is payable no earlier than they would be if the pension had remained in the UK. (Read article here about potential penalties)
- 70% must remain in the plan to provide an income for life at retirement.
- The funds being transferred will still need to meet the lifetime allowance under the UK rules, which is £1.5 million for 2012/2013. Anything over this will be taxed at 25 per cent. You will pay UK tax on your payments from a QROPS for up to five years after you leave the UK.
If you transfer your pension to a scheme which does not qualify as a QROPS, you will face a tax charge of 40 per cent on the amount transferred, and you may face an additional surcharge of 15 per cent in some circumstances.
Here is more information about it and an article from the Telegraph on the subject of QROPS:
We are very fortunate to have teamed up with a UK based Financial Planner who specialized in UK pension transfers. With both Canadian and UK presence we are best suited to help you make sense of your pension options and handle your transfer. Do not hesitate to contact us for any questions regarding your UK pension.