AndrewE

Hi, I'm been very impressed with the knowledge about UK / Canadian pensions on this site and was hoping you could help me with a question.

I'm a Canadian tax resident with a reasonable UK 'defined contribution' pension pot built up while I was living and working in the UK. I'm coming up to retirement and am now getting my pension-ducks in a row, so I contacted Aegon to see how I could take my pension (which they hold for me under a Group Pension Plan arrangement). Aegon have a 'TargetPlan' website that lets you move money between funds and setup monthly flexi-drawdown payments. Unfortunately though, as I'm resident in Canada I can't use this flexi-drawdown mode and instead have to fill in a form twice a year to trigger a UFPLS (Uncrystallized Funds Pension Lump Sum) transfer. I fill in a PDF, request the amount I need (say GBP15k every 6 months) and they deposit it into my UK bank account (tax free provided I get my P85 in) from where I transfer it to my Canadian bank account.
This is not ideal but it's workable. I haven't taken the 25% tax free from this or any other UK pension so essentially I would just be pulling funds from the pot using their UFPLS process. My question are
a) Will HMRC charge tax on these withdrawals or will a P85 lodged with them set a tax code of 0% in the UK?
b) Will CRA view these UFPLS payments as 'pension income' and so allow me to split them with my wife and us to get the 2k tax credit? Alternatively will CRA simply regard them as lump sum payments which deserve no special tax treatment and tax me on the whole amount?

I'm sure I'm not the only one in this position and this seems like quite a detailed tax question. However the 'cost of tax' adds up over time so it would be good to know beforehand!. Has anyone had experience of this before? Any help or guidance you can provide would be much appreciated.

Hurlabrick

You need more than the P85 to get pension income paid free of UK tax. You need to fill out and get CRA to sign and stamp the HMRC dual taxation form (ill post a link kater), then send it to HMRC. Tell HMRC about your UK pension and they should issue you an NT tax code (non taxable). I did this for my own UK Income Drawdown payments and it works a treat. AND I take a monthly income and can and do pension split this tax wise with my wife in Canada.

You wont be entitled to 25% tax free lump sum (well they will happily process it that way 8n the UK, but you would have to declare it to CRA and WILL be taxed in Canada (not tgat you can have the 25% if you take UFPLS anyway).

I recently asked my UK financial adviser about options for my wifes UK personal pension which she can take in 4 years. He tells me that as long as she signs the paper application for an IDD on one of our trips to the UK AND has the income paid to a UK bank account, she can still go the IDD route. So that is what we will do. Dont know about pension sharing and the UFPLS route, might not work.....

Have a good read of the wiki here https://britishexpats.com/wiki/Trans...ions_to_Canada

HMRC Double Taxation form here: https://assets.publishing.service.go...individual.pdf

Hurlabrick

This is an extract from an email from my UK IFA as regards taking out an Income Drawdown plan for my Wife from the proceeds of a DC pension:

Following on from our last conversation, I’m glad to confirm it is possible to set drawdown policy up for XXXXXX providing benefits are being paid into a UK bank account.

As with XXXXX’s current arrangements its then up to you to sort out tax codes, sort tax and transfer money to Canada.

That said we do need wet signatures and from an advice point of view that needs to delivered here in the UK, so unless I can change our in-house compliance view, I think when we first set up the drawdown account we’ll have to tie in with one of your visits.


Alternatively, of course once you are age 55 (current Canadian ROPS providers will only accept transfers if you are 55 or older), you could always transfer your UK DC pension funds to a Canadian RRSP via the ROPS system (see link to wiki in my earlier response), then take an RRIF etc. from, there........ There is a big advert for one such company that can arrange the transfer for you on this site!

AndrewE

Many thanks for the comments. Is the pension arrangement you're referring to with Aegon? They told me they couldn't arrange a regular payment (like you're referring to) as I was in Canada. It seems ridiculous these days but the front office said they had rules. Maybe I should try to speak to the organ grinder!

I have thought about transferring to a RSP/RIF (I'm over 55) but the annual minimum withdrawal amounts put me off. I would prefer to maintain flexibility and not have to take a larger chunk of pension than I need with the taxman then getting a chunk of what would otherwise be my tax-free savings!

My real concern with the Aegon UFPLS is that the CRA will classify the UFPLS payments as 'one-offs' rather than regular pension income that conforms to their definition of the type of payments that can be pension split and which quality for the additional tax relief. I'm working on a large XLS which will tell me the cost of this but it feels significant.

Of course I could go back to the UK, take my 25%, setup a DD and then come back.......!! That would be the best of all worlds!

Hurlabrick

My wifes personal pensions and my income drawdown are all with Nucleus and our UK adviser works for Ermin Fosse in Cirencester. It is perfectly normal and common for UK pension providers to pay regular payments generated by either annuities or income drawdown plans direct to most countries overseas bank accounts, which they normally do using the SWIFT network. I personally have mine paid monthly direct to my UK bank account which I have retained for this purpose, I then move the money across when I am ready using TransferWise to my Canadian account. I do not know about UFPLS. If Aegon are saying they can't pay regular monthly payments from an income drawdown to either a UK or Canadian bank account because you are a Canadian taxpayer - then they are idiots (you should escalate to a Pensions Manager or use a proper UK IFA) - but I am really not certain about UFPLS as these were very new when I left the UK and no one was taking them as they were in effect foregoing the 25% PCLS (which is only paid on 'crystallised' funds, an UFPLS comes from 'un-crystallised' funds -hence the name).

I understand.

I don't know for a fact, but I am pretty sure that you are correct that CRA would NOT view this as a pension payment, but as a withdrawal from an investment and tax it accordingly.

Errr.... not really. Bluntly, your '25% tax free lump sum' option has gone now you are a Canadian tax payer (this is well described in the wiki links I sent in an earlier post) - you should have taken this while you were still in the UK (if you could age-wise). They may process it in the UK without reference to your HMRC tax rate, BUT you must disclose the amount as overseas non-taxed pension income to CRA and would be taxed by CRA. Not to disclose it would be tax evasion with serious consequences. The only way would be if you moved back to the UK, became a UK taxpayer again and took the 25% while you were a UK taxpayer!


I would strongly advise you to properly consult and be prepared to pay for financial advice from someone who knows both the Canadian and British systems. Possibly the people that advertise on this forum, or a regular contributor - mjwalker007 who works for sterlingadvisory.com.

AndrewE

Thanks Hurlabrick. Understood about the 25% - I was meaning 'go back to the UK for 2-3 years to become a tax resident, take 25%, then come back to Canada' etc. I know its not a straightforward process with deemed disposition etc., additional costs and I'm sure HMRC/CRA would want to know what's going on. However whenever my wife and I go back to the UK we always think it would be nice to spend more time seeing people rather than rushing around. So maybe being tax resident for a period would give us time to do that. It doesn't appeal at the moment (for obvious reasons) but it might even pay for itself (or some of it) with the tax savings from the 25% tax free and being able to split the remaining drawdown. Maybe I need to put together a business case for it!!

I think you're right about taking professional advice. I'll look out for mjwalker007. Is sterlingadvisor a company? I couldn't find them on Google. Any other recommendations gladly received!

BTW do you pay your advisor in the UK or do they work on commission? The company pension IFA I had has long since disappeared so I'll need to start afresh.

Thanks for your help!

Hurlabrick

Good luck with that approach! I think you are going to need some seriously good tax advice from both Canadian and British tax advisers. I can't help thinking that you should simply 'take it on the chin' - you have moved to Canada and that's it, it's gone.

The mjwalker007 and his company link in this post of his here: UK Pensions to Canada

Commission per se was banned in the UK for investment products several years ago. UK investment products must now be 'factory gate priced' (i.e. no hidden charges to pay for IFA commission, only the charges absolutely required by the product provider and those must be clearly stated) and IFA 'Adviser Charging' - where the IFA tells you how much he wants to charge (you can negotiate) and you sign a specific agreement for this which is then taken by an explicit withdrawal charge against the investment. Personally, we agreed to pay him a percentage of funds under management (IIRC about 1% pa). However, you can also pay out of your own pocket purely on an hourly rate (or similar) for advice (much the same was as you might pay a lawyer).

AndrewE

The IFA 'pricing' is a good move. I never understood how they could get away with being called 'independent' when it was clear that they were entirely dependent on the companies whose products they sold. Looks like things are moving in the right direction. I'll follow up with sterling and an IFA. I didn't push Aegon when they told me they couldn't offer the DD means of paying out my pension but if I can get past their front office, talking to a Pensions Manager may help as well.

BTW - a bit of a sideways question - but I have heard that SIPPs, AVCs etc can be treated differently by CRA. I have a contracted out pension (with Standard Life) as well as a SIPP. Would CRA treat them differently or would there be any issues in transferring them to a Canadian RSP? Would they know or care?! I don't think they should do, but....

Thanks for your help!

Hurlabrick

You need to be careful with your terminology, 'DD' means 'Direct Debit' - which is how a company collect premiums / contributions direct FROM your UK bank account. I think you mean 'Direct Credit' (which is how a company would pay directly into a UK bank account using the BACS network). So if someone took you literally if you asked 'can you pay by direct credit to Canada', the answer would correctly be no (DC is only through BACS to UK bank accounts). BUT, if your question was 'can you make automatic regular payments direct to an overseas bank account' that might be a different answer - they cannot do that via BACS, but they CAN do that via SWIFT. Having said that, any insurance company clerk should be able to interpret what you are asking rather than take it literally I would have hoped! If you get through to someone more senior, I suggest you try explaining in 'plain laymans english' what you are trying to achieve and why.

Your contracted-out pension (AKA DSS Rebate) with Standard Life would be a slight variant of a Personal Pension (called an 'Appropriate Personal Pension' or APP) and treated identically both in the UK and Canada. With a SIPP you can take regular withdrawals, but I am pretty sure (based on what others have posted on earlier threads) that such withdrawals are treated by CRA as an investment withdrawal and not a pension income (much like I believe CRA will treat UFPLS withdrawals). Both your CO pension and SIPP could be transferred to a Canadian 'ROPS approved' RRSP (of which there are now a couple - see the latest ROPS list from the wiki links I provided earlier). That Canadian adviser I referred to will have 'chapter and verse' on this. I know form personal experience (my own!) that both lump sum and regular monthly withdrawals from a UK Income Drawdown plan can have an 'NT' tax code provided to them by HMRC (so no UK tax is deducted at source by the product provider) AND is treated as pension income by CRA (and so can be split with your wife - as I do with mine).


I am sure this thread is intensely boring to anyone reading this other than you and me, so my apologies. It takes me back to my old day job in the UK!!

AndrewE

Hi Hurlabrick - sorry about taking you back to your day job (I'm looking forward to escaping mine) but this is all great info. Although probably only for me!

By DD I actually meant drawdown. Mea culpa, I should have been clearer. The Aegon front office were referring to the part of their website that allows you to automatically setup drawdown payments. They said that they weren't licensed to do this for overseas clients (ie non tax resident). I can see (I think) that Aegon's drawdown activities may only be licensed in the UK but why this should restrict their website activities I don't know. It sounds like 'big company' policies which are worth challenging. I'll pursue it.

I'll also follow up with the advisor and post any new info I get. It maybe useful for anyone else who gets into this rather specialist zone - and save you from your day job!

Enjoy the weekend!

Hurlabrick

Aaaahhh - I see - apologies! So Aegon are telling you that they will not 'crystallise' your DC pension into an Income Drawdown plan then make regular payments!

We (i.e. my wife) will be in a similar situation in 4 years when she is 55 and wants to crystallise her personal pensions into an Income Drawdown and make withdrawals from that. I wasn't at all sure that as she is not a UK resident, whether she could set up an drawdown product. My UK IFA was not sure either and had to take the matter away (and presumably ask an IFA forum much like this one!) and check whether it could be done. He now says, yes, it can be done, but then I am dealing through a UK professional adviser who in turn is working with Nucleus (which is a B2B wrap portal) who host our products and investments. A 'classic' UK pension provider (e.g. Standard Life, Aegon, Prudential etc.), may have different internal rules on this and I suspect it may be this that you are running foul of!

Hurlabrick

OK, a bit of Googling and I suspect here is your 'problem':

https://www.aegon.co.uk/support/faq/...-drawdown.html

In particular just past halfway down where is says:

Who can't access it?

Customers with the following requirements or arrangements:

• Non-UK residents.
• Any form of protection.
• Phasing.
• Requests for income or advice on income withdrawals.
• Request for advice on investments.
• Members of an Occupational Pension Scheme.

That's you I guess! So Aegon have barred non-residents from this version of their Income Drawdown products.

As you also have other 'pension pots' with other providers, I urge you to get proper independent financial advice! I used to work in the industry (albeit in a back-office capacity) and I would not attempt what you are trying without proper advice that I gladly paid for.

AndrewE

That's it! It's not just Googling - it's knowing where to Google!

Aegon won't let me convert (crystallize) my pension into a drawdown scheme. I suspect (have heard) Standard Life may be the same. I'm planning to contact them this week and find out what their options are. (Time difference in Vancouver is a real pain in these situations!)

Hargreaves Lansdown (who host my SIPP) don't have this problem, though. They'll let me 'crystalline' my SIPP and take it via a drawdown type payment process via their website. Unfortunately they can't transfer in pensions from other UK providers, though, as I'm not a UK tax resident. I had thought I could move the Aegon pension to them but this route seems blocked at the moment too. I can't work out if these are company or Government 'rules' and suspect I'll have to push on the door to find out.

But then if I transferred my Aegon or Standard Life pension to Hargreaves Lansdown I imagine they would become SIPPs and then the income from them wouldn't be viewed as pension income and I wouldn't get the tax benefits in Canada that pension income normally do!!! It all feels a bit Catch 22 and I'm smiling as I write this as finding the 'best' solution is becoming quite an intellectual challenge. I'm glad I started a few years earlier than I needed to!

I take your point about discussing with an IFA and plan to do so. I do like to understand what I (and they) will be talking about so am finding out as much as possible first. I'll certainly take (pay for) advice before doing anything with any of the funds. From Aegon's website and from your (and your wife's) experience it may be that going through the 'right' IFA could unlock Aegon's (and Standard Life's - if they exist) crystallization and drawdown rules. That would let me take the pensions as if I was in the UK (without the 25% tax free of course). So maybe a few phone calls to UK IFAs are next on the list too.

All good info so far - many thanks for your help.