capwn

Hi, wondering if anyone has any experience or knowledge regarding pensions. I've been paying contributions towards my UK state pension but it's starting to dawn on me that it may be silly to be paying pensions for both UK and Canada. My budget is tight as it is!

So I probably have about 8 years of stamps for my UK pension. I've lived in Canada for about 3 years now, I have a permanent residency and am certain I'll live in Canada forever as I have no reason to go back to the UK.

I feel like I'm shooting myself in the foot by paying UK pensions and I'll probably be charged with transfer fees every week when that time comes (in about 30 years). If I just continue paying Canadian pension (CPP) I worry that I'll not have enough pension (I'm paying 112 every fortnight) as I'll only have about 30 years of stamps. So I'm thinking of paying my UK pension (about 45 CAD a fortnight) into a private Canadian pension instead?

I'm a bit lost, any thoughts please?

Aviator

You don't have a choice about paying into CPP if you live in Canada. Who knows what UK pensions will do in years to come, I stopped paying into the UK one when I left the UK. You can also pay into an RRSP in Canada when you have the room, based on your past years earnings. Best to pay in in years when you have the highest income to get the highest refund and withdraw in years of low income.

christmasoompa

Why are you paying so much? To get a full UK pension you only need to pay Class 2 NIC's, and that's £2.75 a week.

Steve_

If you're employed, you pay Class 2 NI, which is only £145 a year, how can you not afford that? Given that it pays out £7,500 a year when you hit retirement age, it's a really good deal.

There's no way with any sort of private pension you will ever find a defined benefit plan that's as good as you will get by paying Class 2 NI. Does not exist. Are you sure you're actually paying Class 2 and not Class 3? I just don't get the comment that you can't afford it, it's like £12 a month. I don't get how come to $90 unless you've made a mistake. You should be paying Class 2, not Class 3, have a read of this: http://www.hmrc.gov.uk/pdfs/nico/ni38.pdf

To get the full CPP payout is next to impossible, and it's only about $12,800 a year anyway, to get it you would have to pay in the maximum amount for 40 years which almost nobody does. 7,500 x 1.6 = 12,000 so I would stay carry on with your NI contributions. You would get OAS as well though, but everyone who has been resident for at least 10 years does.

$112 x 26 = 2,912 which is above the maximum CPP contribution, are you including EI?

Steve_

Yes you do, but it's stupid to do it. What you can do if you're self-employed and earning less than the CPP ceiling is to incorporate, pay yourself a dividend, then claim the dividend tax credit. Which is the reason they reduced the dividend tax credit a couple of years ago on eligible dividends because it was possible to pay slightly less tax doing it that way as it overcompensated for the CCPC corporation tax.

So if you do it that way now, you pay the same amount of tax (or within a few dollars of it) but get no CPP, so the idea is to get people to pay CPP because it's obviously stupid to pay out the same amount of tax and not pay into CPP as you will be in poverty in retirement.

But people are scared of paperwork, easier to pay a dividend than do payroll. I suspect some unscrupulous accountants were spinning this to their clients as well, because I find it hard to believe someone on $50,000 a year would have the time to figure out they could save a few bucks doing it.

Edo

How do you register for Class 2 NI? Do you have to inform HMRC that you have moved out of UK and are permanently living abroad (never to return)? And how do you pay into your state pension if you don't have any income in the UK anymore?

Steve_

Just fill in the form at the back of the HMRC document I linked to, it's all in there. As far as informing them of your emigration, that's form P85. You should file form R105 with any UK financial institutions you have accounts with as well.

capwn

Wow thanks for the great feedback everyone. Yeah, I was told to pay class 3 contributions to HMRC when I left and just kept doing so. I didn't realize that I could pay the much lower sum of class 2! I'll look at those forms soon but I'm now curious what happens with all this extra money I've been paying? I should technically have been getting 5+ years of stamps every year? or was I just paying the wrong class and they will now keep it?

Also, no I pay EI too but just my CPP is about 112 CAD a fortnight. Is that abnormal? (I'm on around 60k per year).

nimrta21sharma

<snipped>

You don't have a choice about paying into CPP if you live in Canada. Who knows what UK pensions will do in years to come, I stopped paying into the UK one when I left the UK. You can also pay into an RRSP in Canada when you have the room, based on your past years earnings. Best to pay in in years when you have the highest income to get the highest refund and withdraw in years of low income.

Dashie

Yes, as long as you're employed, it's class 2 and worth doing. I'm at home with the kids, we can't afford class 3.

Also, we would never have thought we'd want to leave Canada 3 years in. Now if I got the chance, I'd take it in a heartbeat (destination within reason).

capwn

"Subject to certain exceptions, these contributions have to be paid in
respect of each week in which you are self-employed."

I always thought self employed meant you're own company/business? does it also count as someone who is employed by a company?

Also this makes it sound like all my payments have gone to waste; "Although the payment of Class 3 NICs is voluntary, they cannot be automatically refunded to you at a later date"