You would think that the answer to the above question would be relatively simple, especially when compared to the important decisions you have already made in leaving the U.K. For example, you probably deliberated long over leaving your secure U.K. job, selling your home, and perhaps even considered bringing the in-laws over. So how hard can it be to sort out your pension?
New U.K. Pension Rules
One of the biggest factors which may complicate matters is that pension rules in the U.K. have been subject to significant changes over recent years. Effective April 6, 2011, new rules were introduced making considerable changes. While it could be argued that the new rules are intended to simplify matters, most would agree that the pension area remains complex. Therefore, it is important not to rush deciding your best course of action.
The following highlights some of the major rule changes.
Lifetime Allowance
The lifetime allowance is the maximum amount of pension savings that can benefit from tax relief. As of April 6, 2012, the lifetime allowance will decrease from the current amount of £1.8 million to £1.5 million. If the value of your benefits is greater than £1.5 million and you have not already registered for protection, you have until April 5, 2012 to apply. Any amount withdrawn in excess of the allowance is taxed at 55 per cent.
No Longer Required to Annuitize at Age 75
The requirement to use your pension fund to buy an annuity by age 75 has been removed. As an alternative to buying an annuity, two new forms of drawing income from your pension fund have been introduced:
Capped income drawdown
Flexible income drawdown
Capped income drawdown allows you to draw a maximum income broadly equivalent to a comparable annuity, with no minimum income requirement.
Flexible drawdown will allow a higher amount of income. Provided you can satisfy a minimum income requirement of £20,000 per annum in the form of secured pension income (including state pensions), withdrawals are unlimited.
Death Benefits
In normal circumstances, inheritance tax will no longer apply to death benefits. However, a new recovery tax charge of 55 per cent has been introduced. This tax will apply to lump sum death benefits from capped or flexible income drawdown as well as uncrystallised lump sums on death, payable on or after age 75. The new rules stipulate that inheritance tax may still apply to death benefits paid from non-qualifying overseas pension schemes or non-registered schemes. The tax treatment of death benefits remain one of the most significant advantages of transferring away from the U.K.
In summary, the new rules may improve your position in some areas but not in others. It is important you are aware of the advantages and disadvantages of your existing arrangement in order to have a balanced view of your options.
If you have moved to Canada, you generally have three choices regarding your U.K. pension:
Leave your pension arrangement where it is.
Transfer to a Canadian RRSP that is recognized by HMRC (Her Majesty’s Revenue and Customs) as a QROPS (Qualifying Recognised Overseas Pension Scheme).
Transfer to another overseas jurisdiction.
Although it makes sense for both your pension fund and income to be denominated in Canadian dollars, should you plan to retire here, there are other considerations beyond the currency exchange rate. Your tax advisor should be able to assist you with the following when determining your best course of action.
Capital lump sum at retirement – U.K. pension rules allow a significant lump sum retirement benefit. For personal pensions, this is commonly 25 per cent; for a U.K. occupational arrangement, the lump sum proportion may be even greater. The Canadian pension system has no such lump sum retirement facility.
Investments – Your U.K. arrangement may include more sophisticated investments such as commercial property, shares in your own company, and company loans. Having these arrangements may limit your options since they are not recognised in Canada. Generally, you should ensure that your underlying investments match your individual risk tolerance and objectives.
Taxes – There are major potential tax savings on lump sum death benefits and in certain situations, income tax. Be aware of the rules so you can plan ahead.
Charges – Each option has different cost implications to be taken into account.
The U.K. government introduced QROPS in 2006 as a means of complying with EU rules allowing free movement of trade and services. Since then, there has been an increase in the number of jurisdictions offering QROPS. This in itself brings extra challenges. For example, a jurisdiction recently lost its QROPS status. This left the unfortunate members of the former QROPS vehicle with tax penalties from HMRC of over 50 per cent of their pension funds. The general rule is, if the benefits offered seem too good to be true, they may well be and you need to seek further professional guidance before proceeding.
There is no one solution; individual circumstances and financial objectives vary greatly. The information contained here is for general information purposes only and is not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. Many factors unknown may affect the applicability to your particular circumstances. You should consult directly with your professional advisors before acting on any matter discussed herein.
About the Author: Prior to 2006, Rob Wolfe worked with a leading pension innovator in London, U.K. and is now an Investment Advisor with the independent, full-service investment firm Odlum Brown Limited.
For more information, contact Rob Wolfe, Odlum Brown Limited, Member-Canadian Investor Protection Fund, toll free at 1-877-703-0637 or
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Articles 
You would think that the answer to the above question would be relatively simple, especially when compared to the important decisions you have already made in leaving the U.K. For example, you probably deliberated long over leaving your secure U.K. job, selling your home, and perhaps even considered bringing the in-laws over. So how hard can it be to sort out your pension?