Transferring British Pension to Canada – Q & A
When you decide to move to Canada from another country you will be thinking of many things including finding a new house, schools for the kids, employment for you and moving your home contents, but many of us forget the things that are probably more important – what to do with our money. We think to transfer our bank accounts, we try to get good exchange rates for our fund transfers but have you thought about your pension?
When you decide to move to Canada from another country you will be thinking of many things including finding a new house, schools for the kids, employment for you and moving your home contents, but many of us forget the things that are probably more important – what to do with our money.
We think to transfer our bank accounts, we try to get good exchange rates for our fund transfers but have you thought about your pension? Probably not, because after all it is sitting in an account of one sort or another, just idling away waiting for you to retire and use it. But did you know you can transfer your British pensions to Canada?
There are many things to consider when undertaking moving a pension of any sort, so good financial advice should always be sought, but here we hope to answer some of the more obvious questions and put you on the path to deciding what is the best option for you.
We spoke with our Investors Group Financial Services Inc experts who have moved many UK pensions to Canada for their clients and shares some advice with our readers.
Can anyone move any pension to Canada?
Any Canadian permanent resident or citizen can move any occupational or private pension to Canada as long as you have not started to receive payment from it already.
Your pension benefits can only be transferred to a plan which is recognized by HMRC (the UK equivalent of the Canada Revenue Agency) as a qualifying recognized overseas pension scheme (QROPS). A financial institution must apply to have QROPS status, and therefore only a few financial institutions in Canada are currently authorized to make the transfer.
What are the advantages of moving a pension?
Probably the most important advantage is flexibility in accessing money . At age 55, you are able to start to receive regular payments, which can be any amount subject to the minimum required annual payment for a RRIF. Once these payouts start, you are able to receive up to 25% of the assets as a lump sum payment. The money is invested according to your personal risk tolerance and objectives, and you can make changes anytime; increased estate value surviving spouse receives 100% of value, and if there is no surviving spouse, your kids or other beneficiaries receive the full after-tax value.
If you kept your money in the UK pension, your surviving spouse would typically only receive 50% or less of your pension, and your kids typically wouldn’t receive anything) financial planning advice when your money is invested with a financial planner here in Canada, you have access to their advice on all areas of your personal finances; consolidation you may have more than one private pension in the UK. When you transfer them, they can all go into the same RRSP, which will simplify keeping track of your personal finances. Even if a married couple only had one pension each, it would be much simpler dealing with one financial institution here in Canada, than two pension administrators overseas.
How about disadvantages?
Your UK pension might guarantee you a certain income upon retirement, whereas the return on your investments after you transfer them might be variable.
You mentioned earlier that 25% can be accessed after age 55. What does this mean?
When you transfer a pension to Canada, HMRC stipulates that at least 75% of the pension assets are to be used to provide you with a regular income for life. These payments can start as early as age 55.However, once these payments start, you are able to withdraw up to 25% of your account in the form of a lump sum payment. . You should note that any money withdrawn from an RRSP or a RRIF is subject to income tax being withheld at source. The withholding tax amounts vary depending upon the amount withdrawn as detailed below. The withholding tax that you pay is a credit towards the overall tax bill on the withdrawal, not in addition to it. This prevents you from receiving a nasty tax bill at the end of the year as you will have already paid this amount toward it.
|Amount withdrawn from RRSP||All provinces except Quebec||Quebec|
|Up to and including $5,000||10%||21%|
|$5,000.01 to $15,000||20%||26%|
|More than $15,000||30%||31%|
Is there any way to access this money, say in the case of an emergency?
You cannot collect from this fund until your chosen retirement age as indicated previously. However, there are rules that will allow you to receive payments before age 55, , for medical reasons.
What are the tax implications?
There are no tax implications on either the UK or Canadian side, to do the transfer. However, when you withdraw money from the pension, either from the RRSP or the RRIF, you will have to pay income taxes in Canada based on your marginal tax bracket. Withdrawal from an RRSP or RRIF will also be subject to the withholding taxes mentioned before.
What does it cost to transfer a pension?
There are no costs associated with transferring a pension from the UK to Canada.
What is involved in transferring a pension?
Your financial advisor will contact the UK pension company to obtain the paperwork required for transfer. This will then need to be completed by the pension holder and the advisor and returned to the UK company. They then approve the transfer and make arrangements for the funds to be moved. Once the funds are received in Canada they are invested as per the agreement between yourself and your advisor.
How long does the process take?
This largely depends on the UK pension company providing the information required in a timely manner. Some transfers take as little as a few weeks, some can take several months.
Can I add money to the accounts once they are set up?
Because of the restrictions on withdrawals from the RRSP or RRIF as noted in the preceding questions, the UK pension transfer assets should be held in a new RRSP account such that your RRSP contributions are made to your “regular” RRSP.
What is RRSP contribution room?
The maximum RRSP contribution amount that can be deducted is called the “RRSP deduction limit”, and is also known as “contribution room” or “deduction room”. Your deduction limit is found on your annual Notice of Assessment or Notice of Reassessment from Canada Revenue Agency. These limits are subject to change. Check the Canada Revenue Agency website for details.
How does my pension transfer affect my contribution room?
The pension transfer from the UK does not use up any of your RRSP contribution room. You do not have to have any RRSP room available. You should consult your financial advisor or an accountant who has experience in this area, for advice with respect to filing your Canadian tax return in the year of transfer. Warning: many tax preparers are not familiar with how this is done, so make sure you consult someone who is familiar with UK pension transfers.
If I decide to transfer my pension where do I start?
First you must consult a licensed financial advisor. You must be sure that the company you use is registered as a qualified overseas pension scheme (QROPS) provider. Discuss with your advisor all the implications relating your particular circumstance, and from there you should be in a position to decide if this is the right thing to do for you.
Can I start the process before moving to Canada?
No, you have to be a resident of Canada to implement the transfer.
If I transfer my pension to Canada then move to another country can I transfer it again?
If you transfer the pension to Canada, then later want to transfer the money to another financial institution within Canada, the new institution would have to have a QROPS for the UK pension assets to be moved into. If you move to another country, the locked-in account would still need to be moved into another QROPS. There are a number of countries in which the UK has approved QROPS. If the country you are moving to does not have any QROPS, then the investments would have to stay in Canada and be paid to you as international income.
I live in Canada and have an overseas pension, but not from the UK, can I still transfer my pension?
There are countries other than the UK that have agreements with Canada to do pension transfers. Every country will have their own set of rules for how the money needs to be invested, what the tax treatment is, etc.
Commissions, fees and expenses may be associated with mutual fund investments. Read the prospectus before investing. Mutual funds are not guaranteed, values change frequently and past performance may not be repeated. This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities.About the Author: Jorge Aragon is a Certified Financial Planner at Investors Group