It is popular to see many British expats and Canadians that have transferred pensions to SIPPs and get asked a lot about the options of transferring a pension to Canada. With most looking to roll into an RRSP.
Although, the reality of transferring your pension to Canada is not as simple and comes with a number of factors in relation to eligibility and taxes to consider. It is still a desirable option for many as many expats would like the fact of holding assets in one country where they are residing with a simple tax structure and no currency fluctuation to their financial planning needs.
However, being able to transfer does depend on residency, your pension plan and unfortunately for most U.K expats rolling over into RRSP is difficult. You will need to be a Canadian resident for a start. The second factor is the pension plan, I will cover this in more detail later. Some state pensions like county council, government, armed forces are not acceptable to transfer.
For example, a U.K pension being transferred to Canada that is not listed on the ROPS present scheme list by HMRC will incur a tax penalty. So, you want to be aware of the term’s and conditions before this is met and it would be wise to seek financial advice prior to making such a decision as well as being fully aware of the current situation.
Most people that have resided in Canada with a foreign pension would be looking to roll it over into an RRSP and again this will depend on the pension scheme. An IFA can tell you if there any tax implications when rolling over. If you are eligible you will be able to make a special RRSP contribution. Thus, not requiring you to have an available RRSP contribution space for being able to profit.
You can still transfer if your pension is not eligible, but you won’t be able to profit from a special RRSP contribution and double taxation may also be subject depending on the case. Also, you might have specific pension clauses that prevent you from rolling over.
Taxes
Taxes, you need to also consider the tax implication in regards to rolling over. Taxes that are applied are foreign taxes at the time of withdrawal and the credit of foreign taxes paid that can mitigate some taxes and income taxes. These are dependent on the country and for U.K citizens I would use the DTA (double taxation agreement), between Canada and the U.K.
This can get quite complex in using foreign tax credits. For rolling over into Qrops/Rops and SIPPs I will go into detail about this later.
Finally, I want to look at other factors such as costs, set-up fees and ongoing costs.
Transferring UK Pensions to Canada
Just to go through the basics in private pensions, you have DB pensions, which is also referred to as final salary and based on the number of years you contribute and the salary from your employer.
They give an income for life and the FCA perception is that you shouldn’t transfer these types of pensions out.
These are very rare these days and mostly only seen in the public sector.
It is not possible to transfer a DB pension directly to Canada, but the payments of your DB pension when you come to withdraw can be paid directly into a Canadian bank.
Also, you can transfer to a ROPs as stated below by taking CETV and transferring it into a listed ROPs scheme.
You can cash your DB pension, this can be done by requesting CETV which you are legally allowed to have once a year and some schemes may allow two for free. This gives you the present 3 months cash value that you will get for transferring out of the present scheme.
The payment value is based on actuary and will vary with gilt rates and not a specific fund value like DC pensions. Also, it is worth noting is that transferring out may lose benefits that might be attached with the specific scheme.
If you do transfer out and take a cash value this can be then transferred into an RRSP that is under the ROPs current listing without incurring any additional tax charges if structured right in coordination with the present ROPs guidelines.
But, again I would like to reiterate that the FCA ruling is not to take this out. And to transfer into an RRSP would not be so beneficial under most circumstances. If you do have any questions seek an IFA about this, a fee-based advisor is best for this kind of circumstances.
A DC Scheme can be transferred into RRSP but only specific schemes. As of Oct 2021, here is a list of the pensions schemes that are presently available. Again, speak to an IFA about the specific implications for tax, platform fees and fund options. This will need to be factored in and it is essential that you are fully aware of this situation.
Note, if you are looking to transfer to ROPs, make sure it is on the present HMRC list as not going into a listed scheme will classify as transferring out and will incur tax penalties of up to 40%.
Some reasons for transferring across include but are not specifically or limited to over the current LTA, currency stability, tax reasoning and combining specific pensions into one pot.
Again please seek specific advice prior to ensure you are fully aware of the ramifications before making any decision.
For both DB and DC schemes, here is a current list (2021 Oct), for the schemes available.
https://www.gov.uk/guidance/check-the-recognised-overseas-pension-schemes-notification-list
You can transfer to QROPs/ROPS (now known as since April 2017), if you have a pension over the value, of 30,000 GBP. I have written a number of articles on QROPS and SIPPs so please see my other blogs on them.
With regards to the taxation of QROPs, withholding taxes are applicable on withdrawal and is due on the income tax for that fiscal year when withdrawn. The same as with most U.K and QROPS/ROPs schemes, 25% can be withdrawn tax-free on reaching your 55th birthday.
Although, check with the QROPS/ROPs provider as some may have some specific rules and vary on the location and scheme of the QROPS/ROPs provider.
If you transferred before 6th April 2017, you would have had to be a non-U.K resident for at least 5 years before you could withdraw the funds, for those who have transferred after the 6th April 2017, it is 10 years. While, those who have transferred after the 6th April 2017, will still be subject to U.K tax laws from 5 years after the transfer date.
Additionally changing your resident within 5 years of transferring the ROPs will incur tax charges.
For specific information regards to taxation on speak to IFA.
Other types of pensions or drawdowns that can’t be transferred are annuity’s in the U.K.
U.K State pension
This can’t be transferred to Canada, although you are still able to claim in Canada and due to the DTA will increase with the triple lock inflation. this will all be done at the same rates and ages as the U.K legislation not Canadian.
Private Pensions
Other options for private pensions, if you do have a U.K workplace pension and you are a resident of Canada you can simply transfer to a SIPPs this will still be subject to U.K rules but will allow you to take control of the investments if in DC scheme.
U.K platforms, that currently accept Canadian residents are A.J Bell, while with others you will have to look at offshore and the cheapest one is Novia 0.45%-0.1% depending on the amount and a trustee cost of 180 GBP.
If you do have any questions in relation to transferring your pension or just looking at the options feel free to drop a message below or email me at info@investmentsforexpats.com
