Retirement Planning in Canada – Canada RRSP
Moving abroad can be equally as daunting as it may be exciting. Whilst moving abroad has several perks, maintaining a coherent financial plan is not one of them. Retirement planning is increasingly become more complex in the UK and the rest of Europe. This only becomes more confusing when planning to move abroad, as the multitude of investment options present themselves. For British expats moving abroad to Canada, the idea of leaving their UK pensions sat in the UK can be stressful. Not only can it be hard to track investment growth and fund selections, but there is also the additional currency risk of leaving your retirement provisions in a currency that has been increasingly volatile over the past year or so. Furthermore, the situation can become even more confusing when taking into account dual-taxation agreements.
HMRC has cut all Canadian Qualifying Recognised Overseas Pension Schemes (QROPS)
As of February 2017, HMRC made the decision to cut all Canadian QROPS from the Recognised Overseas Pension List, due to a contrast in UK and Canadian pension legislation. Unlike the UK, Canadian retirement plans allow the policy holder to use their pension as collateral when buying a house as well as having no age restrictions. This means in theory the policy holder can cash-in their pension, regardless of age. Conversely, UK regulations forbid a UK pension (which would have received tax relief on the way in) to be as collateral for a residential property purchase or to used as a loan. This contrasting legislation between Canada and the UK led HMRC to cutting Canada from the list of QROPS.
Can I Transfer my UK Pension to a Canada Registered Retirement Savings Plan (RRSP)?
An RRSP is essentially a retirement savings plan that is established in Canada, to which yourself of your spouse can contribute. Generally speaking, deductible RRSP contributions can be used to reduce your income tax liability if working in Canada. Similar to the UK, any income earned with the RRSP is exempt from tax. Again, like the UK, you would normally pay tax when you begin to take an income from the plan (providing the level of income is over any tax free personal allowances).
Unfortunately, HMRC doesn’t allow transferring a UK pension to a Canadian RRSP. This is for the same reasons that Canadian QROPS are no longer recognized. They follow rules that differ from pension savings requirement legislation in the UK.
What does this all mean?
Ultimately, transferring a company pension to a RRSP is not an option. The differing rules for the treatment of your pension plan aren’t compatible.
What can I do, if I can’t transfer my UK pension to a QROPS or a RRSP?
Despite these 2 options being ruled out for legal reasons, there are still options available for UK expats looking to bring their retirement provisions into Canada. Most notably, the International Self-Invest Personal Pension (SIPP). This route allows you to transfer and draw down your pension in Canada without facing huge tax liabilities, overseas transfer charges and draw-down fees.
What is an International SIPP?
An International SIPP allows for the transfer and consolidation of one or multiple UK pensions (defined contribution or defined benefit) to a single personal pension structure. An international SIPP allows the owner to access their UK pension overseas, whilst remaining under UK protection and regulation (something not provided by a QROPS).
The key features of an International SIPP include:
Tax-free lump sum: you are still entitled to your 25% pension commencement lump sum, as per UK pension rules
Low-cost charging structure: International SIPPs are far cheaper than a QROPS equivalent (up to 5x more cost-effective)
Full flexi access draw-down: you can elect to take income as and when you please, at whatever level. Alternatively, you can leave the funds to grow, or maybe look to pass onto a beneficiary
Take control of your investments: rather than leaving your pension in the UK, where you have minimal to zero visibility, with the SIPP you can choose and monitor your own funds 24/7
UK Protection: whilst the International SIPP is built for expats, the underlying assets still fall within UK regulation (the global benchmark of financial security). You would also be fully covered by the Financial Services Compensation Scheme
Multi-currency: assets can be held in all major currencies, including Canadian Dollars. This can give you peace of mind when entering draw-down that your income levels would not be subjected or impacted by exchange rate volatility, something that has been prominent with Brexit and the Sterling over the past year
Tax Efficient: all investments grow free of income and capital gains tax within the SIPP
Transferring to an International SIPP
As well as all of the above benefits, the SIPP is the perfect place to hold your pension during these uncertain times concerning Brexit and the pound.
Our fully qualified and independent financial advisers are here to help. For International SIPP queries, or any other financial needs, contact Harrison Brook today for a free and impartial consultation