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bringing over pension

bringing over pension

Old Feb 3rd 2015, 2:34 am
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Default bringing over pension

I know this has probably been discussed several times already .

I have a 14 year military pension, I know all the great reasons as to why I should bring it over to Canada through QROPS, I'm wondering what the reasons are for not bringing it over.

My reluctance is due to it being a pretty safe pension where it is - guaranteed amount each month etc..and bringing it over I feel would be a risk, value could go down, the firm / bank could go bust, I may retire back in the UK or else where.

Ive also been informed the deadline is April, is this correct?

Am I crazy for not bringing it over or is my hesitation justified?
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Old Feb 3rd 2015, 3:56 am
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Default Re: bringing over pension

Originally Posted by japper
I know this has probably been discussed several times already .

I have a 14 year military pension, I know all the great reasons as to why I should bring it over to Canada through QROPS, I'm wondering what the reasons are for not bringing it over.

My reluctance is due to it being a pretty safe pension where it is - guaranteed amount each month etc..and bringing it over I feel would be a risk, value could go down, the firm / bank could go bust, I may retire back in the UK or else where.

Ive also been informed the deadline is April, is this correct?

Am I crazy for not bringing it over or is my hesitation justified?

I cannot comment on the benefits of not bringing your pension over to Canada if any. But I am currently in the process of transferring mine over and the agent who is working on my behalf to do the paperwork has told me that the UK govt is working on making it harder to transfer the pension over post April 2015.
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Old Feb 3rd 2015, 8:09 am
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Default Re: bringing over pension

You really need to speak to a financial adviser. If you are talking about a UK military pension, this is almost certainly what is normally described as a 'defined benefit' or a 'final salary' pension.

I am not a financial adviser, but I work in UK Pensions and have done so for a few decades now.

It is not normally considered to be a good idea to take the cash value of a final salary pension and transfer it to a defined contribution scheme - be that in the UK or Canada. When you become pensionable under the mkilitary scheme, they can pay direct to a Canadian account with the exchange rate being whatever is current when each payment is made (so yes, some exchange rate risk).

If you have any personal pension or 'money purchase' pension savings schemes in the UK, that is another matter. These can be transferred through QROPS. But UK pensions are undergoing a huge change at the moment that comes into effect from April 2015. This will affect QROPS, but no one knows how yet as the government have not worked out the detail - likely to do so by mid-2015 is the latest smoke signals.
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Old Feb 3rd 2015, 4:04 pm
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Default Re: bringing over pension

I decided not to bring my final salary pension over for the reasons given by the op - it's guaranteed safe, increases with (UK) inflation, etc. Apart from the exchange rate risk I haven't found any disadvantages at all. It gets paid into my UK bank every month (free of UK tax) and I convert it to CAD whenever my Canadian bank account needs a boost (or the exchange rate looks particularly good). The disadvantages of a defined benefit scheme - primarily that the pension you get isn't guaranteed, but depends on stock market performance - made this a no-brainer as far as I was concerned, though of course some financial advisors are keen to encourage you you to shift it over because it makes them money.
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Old Feb 3rd 2015, 6:20 pm
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Default Re: bringing over pension

Originally Posted by Collie
I decided not to bring my final salary pension over for the reasons given by the op - it's guaranteed safe, increases with (UK) inflation, etc. Apart from the exchange rate risk I haven't found any disadvantages at all. It gets paid into my UK bank every month (free of UK tax) and I convert it to CAD whenever my Canadian bank account needs a boost (or the exchange rate looks particularly good). The disadvantages of a defined benefit scheme - primarily that the pension you get isn't guaranteed, but depends on stock market performance - made this a no-brainer as far as I was concerned, though of course some financial advisors are keen to encourage you you to shift it over because it makes them money.
Having to declare it to CRA each year takes some of the shine off it
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Old Feb 3rd 2015, 7:18 pm
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Default Re: bringing over pension

Plus you will lose half the fund when u die and then all of it after your dependent spouse dies assuming you have that built in upon taking the pension
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Old Feb 3rd 2015, 8:05 pm
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Default Re: bringing over pension

Originally Posted by Collie
I decided not to bring my final salary pension over for the reasons given by the op - it's guaranteed safe, increases with (UK) inflation, etc. Apart from the exchange rate risk I haven't found any disadvantages at all. It gets paid into my UK bank every month (free of UK tax) and I convert it to CAD whenever my Canadian bank account needs a boost (or the exchange rate looks particularly good). The disadvantages of a defined benefit scheme - primarily that the pension you get isn't guaranteed, but depends on stock market performance - made this a no-brainer as far as I was concerned, though of course some financial advisors are keen to encourage you you to shift it over because it makes them money.

I think it important to look at the risks on both sides........and generally if your aims are to stay within Canada, there are more disadvantages for leaving the pension funds in the UK than bringing them to Canada.

1) exchange rate risk - to me this is a massive issue........how can you rely on a pension into old age if you will have no idea on the amount that you will be receiving every month ! The idea of a pension is to receive a stable regular income into retirement, something that cannot be achieved if you are at the mercy of exchange rates !! It can work in your favour if rates are on the up.........but ask most people over the last 7 years what has happened to their income if they have been receiving it from a UK pension and it wont be a rosy picture ! Again, if you are not reliant on the income, you may leave it in a UK account and convert ad hoc, however if the pension is going to form a major part of your income that just isn't feasible

2) to clarify on the comment above.........you will not receive TAX FREE INCOME from a UK pension.............any pension income will need to be declared on your Canadian tax return and you will be taxed accordingly.

3)With most defined benefit schemes into retirement, your dependants could lose up to 1/2 of the pension overnight on your death. Again, to me, this is a massive risk, to have saved into something that your Spouses will lose half of on your death. Yes this type of pension may offer a guaranteed income.....but what about if you die one month into taking that income ...........your dependants stand to lose half of the pension overnight.....to me that just doesn't seem a great trade off. If these funds were within an RRSP within Canada, on death, the FULL VALUE of the pension funds would pass TAX FREE to your Spouse.
When investing pension funds it is not necessary to invest in stock market funds or feel that your pension is at the mercy of stock markets. There are plenty of alternative options for your funds to be invested in Canada that are not connected to the markets, offer guarantees or low risk options.

There will always be differing views on whether it is better to leave a pension in the uk or not so it is important that people can make an informed choice which is right for them, based on the facts.

Unfortunately with the rule changes that the UK Govt are introducing from April 2015. many people will not have the luxury of having a choice, their pension will have to stay in the UK.

For the obvious comments that will follow in regards to " its your job, its in your interests for people to switch their pensions Canada"......it is my job and obviously it is my living........but ultimately people need advice and need options.............How many Ex Pats in Canada will not even know the rules are changing from April and potentially could be disadvantaged for the rest of their retirement with a pension stuck in the UK ?

Again some people will want to keep their pensions in the UK, and that is their choice, but many wont, and its for these people that the rule changes will have a massive effect on. Ultimately this is something that I have done for myself and my family, and I can honestly say as we aim to stop within Canada, it was the right thing for us to do as I felt the risk for leaving my defined benefit plans in the UK and my wife's NHS pension, far outweighed transferring these pensions to Canada.
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Old Feb 3rd 2015, 9:17 pm
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Default Re: bringing over pension

Well I very much beg to differ with respect to the previous poster's comments!

(a) Exchange rate: yes, this is a concern. But it is not necessarily a reason for moving your pension away from the UK! Suppose you move your pension pot now, and the exchange rate goes up to $2.50 (like it was in 2002) and stays there. Moving your pension to Canada will result in a large capital loss. Keeping your pension in the UK and drip feeding the income over to Canada each month or two will end up giving you the average exchange rate over the period when you draw the pension: you don't have to spend every last dollar you bring over, and so any surplus you make when the exchange rate is good can be used to bolster your income when rates are less favourable! To me this seems no worse than exchanging your whole pension pot at one rate.

(b) Of course you won't receive tax free income. My point was that you just pay Canadian tax - no messing about with double taxation treaties, claiming tax back etc.

(c) As one person can arguably live somewhat cheaper than two, the cut in pension on the death of the first person seems eminently sensible. Not a 'massive risk' at all, because you know it is going to happen!

And why no mention by the previous poster of what would happen to a defined contribution pension if there is a long-term worldwide recession or depression? It seems to me that this is at least as much of a threat as exchange-rate fluctuations. Plus the miserable returns from annuities (especially if inflation-linked) which will affect those opting for a fixed income might protect against the effect of stock market stagnation...

Also transferring money into a RRSP assumes you have enough contribution room. If you're close to retirement when you emigrate, that isn't much use to you.

Of course it makes sense to get IMPARTIAL advice. I think that this may be harder than it sounds, though.
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Old Feb 3rd 2015, 10:06 pm
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Default Re: bringing over pension

Originally Posted by Collie
Well I very much beg to differ with respect to the previous poster's comments!

(a) Exchange rate: yes, this is a concern. But it is not necessarily a reason for moving your pension away from the UK! Suppose you move your pension pot now, and the exchange rate goes up to $2.50 (like it was in 2002) and stays there. Moving your pension to Canada will result in a large capital loss. Keeping your pension in the UK and drip feeding the income over to Canada each month or two will end up giving you the average exchange rate over the period when you draw the pension: you don't have to spend every last dollar you bring over, and so any surplus you make when the exchange rate is good can be used to bolster your income when rates are less favourable! To me this seems no worse than exchanging your whole pension pot at one rate.

(b) Of course you won't receive tax free income. My point was that you just pay Canadian tax - no messing about with double taxation treaties, claiming tax back etc.

(c) As one person can arguably live somewhat cheaper than two, the cut in pension on the death of the first person seems eminently sensible. Not a 'massive risk' at all, because you know it is going to happen!

And why no mention by the previous poster of what would happen to a defined contribution pension if there is a long-term worldwide recession or depression? It seems to me that this is at least as much of a threat as exchange-rate fluctuations. Plus the miserable returns from annuities (especially if inflation-linked) which will affect those opting for a fixed income might protect against the effect of stock market stagnation...

Also transferring money into a RRSP assumes you have enough contribution room. If you're close to retirement when you emigrate, that isn't much use to you.

Of course it makes sense to get IMPARTIAL advice. I think that this may be harder than it sounds, though.

but you are talking in if's and but's.........

A) ...............you have mentioned an exchange rate at 2.50 in 2002.............that was 13 years ago !!! It is FACT that anybody that has been receiving a regular pension from the UK, that now lives in Canada over the last 8 years has seen a reduction in the amount they have received in Canadian dollars which has in turn affected their retirement !! As pointed out by yourself, this could be nullified by drip feeding the pension over when rates are favourable, but this means two things, you have to keep a bank account in the UK and you are not relying on that pension income every month to facilitate your retirement..........you personally may be in a position where that income is not needed on a regular basis but somebody else may be totally reliant on that regular income.................that is why what may work for you, may not work for somebody else !!!

B) If the money was in an RRSP within Canada this simplifies tax issues as opposed to receiving an income from a pension based in a different country and having to declare this.

C)If you are happy for the pension provider to keep half of YOUR pension on death as opposed to this money passing to your spouse or dependants, then this this is a valid comment........personally I would want as much of my pension funds as possible passing to my family as opposed to the pension company on my death !!

Unfortunately defined benefit plans can be as much at risk in a recession as any other type of pension...........where do you think the trustees of defined benefit plans invest their company pension funds ?? they don't keep the money under the floorboards !!.....It has become a problem over recent years of defined benefit plans being underfunded which poses a risk for future beneficiaries of these pensions. Defined benefit plans are not immune from economic or worldwide recessions.

Lastly, why impartial advice is important ( and you fear is so hard to find) is for the very reason of your last statement.

You state that somebody would need enough contribution room within an RRSP to facilitate the transfer of a UK pension, so therefore may not be much use to somebody nearing retirement......................this is incorrect !!! The transfer of a UK pension into a Canadian RRSP classes as just that....a transfer ! so therefore falls outside of your normal contribution limits for the year !!

I see no point in getting into an argument over whether it is the right thing to do or not , because ultimately there isn't a right or wrong answer........what might be right for you may not be right for somebody else and vice versa..........but I feel it necessary that people are informed and have all of the points at hand when making a decision to leave their pension in the uk, especially when the decision will soon be taken out of their hands, and to put right any incorrect information that is put into the public domain that may be affect somebody's decision making.
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Old Feb 3rd 2015, 10:25 pm
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Default Re: bringing over pension

You guys sound far more knowledgeable than me about pensions, but from what I understand, the rules that are changing as of April 6, 2015 mean that public sector pensions (Example: Police, Fire, NHS, Teachers) will no longer be allowed to transfer from the UK.
Those of us with pensions from working in the private sector won't be affected by these changes, AFAIK.
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Old Feb 3rd 2015, 10:41 pm
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Default Re: bringing over pension

Originally Posted by Bucks_Family
You guys sound far more knowledgeable than me about pensions, but from what I understand, the rules that are changing as of April 6, 2015 mean that public sector pensions (Example: Police, Fire, NHS, Teachers) will no longer be allowed to transfer from the UK.
Those of us with pensions from working in the private sector won't be affected by these changes, AFAIK.
Public sector pensions of the type you have mentioned above as from April will no longer be able to be transferred to Canada , however all defined benefit pensions from April will also fall under new rules which effectively prohibit the transfer of these types of pensions to Canada.

Personal pension plans will not be affected.
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Old Feb 4th 2015, 1:37 am
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Default Re: bringing over pension

thanks for all the comments

i think i'll stick with my inital thoughts, a final salary pension is best left untouched
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Old Feb 4th 2015, 10:44 am
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Default Re: bringing over pension

Originally Posted by mjwalker007
Public sector pensions of the type you have mentioned above as from April will no longer be able to be transferred to Canada , however all defined benefit pensions from April will also fall under new rules which effectively prohibit the transfer of these types of pensions to Canada.

Personal pension plans will not be affected.
What rule would stop a DB scheme ( with the exception of unfunded public sector schemes ) from transferring to Canada?
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Old Feb 4th 2015, 11:20 am
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Default Re: bringing over pension

Originally Posted by mjwalker007
Public sector pensions of the type you have mentioned above as from April will no longer be able to be transferred to Canada , however all defined benefit pensions from April will also fall under new rules which effectively prohibit the transfer of these types of pensions to Canada.

Personal pension plans will not be affected.
What does "transferred" mean in this case? Is it the entitlement converted to C$ and the resulting DB pension stream shielded from Canadian tax?

Collie - if you pay an IFA on a fee basis (not let his fee be paid through commissions) you will get impartial advice.
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Old Feb 4th 2015, 3:04 pm
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Default Re: bringing over pension

Originally Posted by Shard
What does "transferred" mean in this case? Is it the entitlement converted to C$ and the resulting DB pension stream shielded from Canadian tax?

Collie - if you pay an IFA on a fee basis (not let his fee be paid through commissions) you will get impartial advice.
Transferred in this case relates to moving the full value ( transfer value ) of the UK pension into a Canadian RRSP and then at retirement this income would be received in Canadian dollars.
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