QROPS – UK Pension Transfers to Canada
If you a UK pensioner looking for information on transferring your pension to Canada, you’ve come to the right spot! Future Financial Planning Group is an Ottawa based financial planning firm and can facilitate the transfer of your non-government UK pension to a Canadian RRSP. If you are a resident in Ontario, Quebec, Alberta, British Columbia, New Brunswick or Nova Scotia, we can facilitate the transfer of your UK pension.
A QROPS is a Qualified Recognized Overseas Pension Scheme and the ONLY vehicle for which a UK Pension should be transferred into Canada. In October 2019, just two companies (IA Clarington and IAG) in Canada were approved by the UK Government as able to open and maintain QROPS accounts. A third company, Cidel Alternate Retirement Plan (CARP) was added in January 2020. The availability of QROPS’ is of considerable importance if you already living in Canada or if you are considering moving here and want to access your UK Pension. Note: A transfer to a ROPS that is not qualified, is an unauthorized payment and may be levied up to a 40% tax charge.
- Consolidate your investments into your home country
- Lock in the exchange rate of your pension assets
- Solves the issue of Lifetime allowance limits
- Known income stream and potential for higher income
- Flexibility as the funds are within a regular RRSP and not locked in
- Greater investment choices
- Ease of Estate administration
Who are QROPS for?
- Anyone that holds a UK pension scheme who is a Canadian resident taxpayer and intends to live in Canada for a minimum of 5 years
- You must be 55 years of age or older to open a QROPS account
- Defined Benefit (final salary) pensions greater than £30,000 and Defined Contribution (money purchase) pensions greater than £30,000 with a guarantee about what you’ll be paid when you retire require an FCA approved, qualified UK financial adviser to complete a full analysis of your UK pension scheme and provide you with a Certificate of Advice. *There are a limited number of UK firms who have the right qualifications and specialize in these types of valuations. After a lengthy search and much due diligence both for our clients and from this firm on our services, we have a referral arrangement in place.*
- Public Sector (including National Health Service, Teachers, Civil Service) pensions may NOT be transferred outside of the UK
What is required to initiate a QROPS transfer?
- Clients must initiate the process by notifying their former UK pension company they wish to transfer funds to Canada and obtain the necessary transfer forms. Note: do not request the Cash Equivalent Transfer Value (CETV) until you are 100% ready to proceed and if required, you have retained the services of an approved UK financial adviser. There is a guarantee date of 3 months after which you must re-start the process.
- The receiving institution (and/or the chosen UK pension advisory firm) will require the following documents:
- Original termination/transfer forms from UK Pension administrator signed by the client (these documents vary among each pension administrator and should be obtained directly from them)
- HM Revenue & Customs QROPS Member Information APSS263 form
- UK Pension transfer application form
- UK Pension Plan client statements
- Certificate of Advice (from UK financial adviser if required)
- QROPS Investment application form(s)
- Once all the forms in good order, they will be sent to the UK pension provider to initiate the transfer
Important information regarding QROPS transfers
- Mutual and Segregated funds are currently the only available option
- A QROPS can only be set up as RRSP accounts; client must be 55 years of age or older to open a QROPS account **NEW RULE since these have been allowed again in Canada**
- The UK minimum pension age of 55 applies before benefits can be taken, however, QROPS arrangements can offer considerably more flexibility, greater income potential and more investment freedom than a UK pension
- Funds for these transfers will likely be received in British Pounds; if this is the case, the receiving institution will convert the money to Canadian dollars using the exchange rate on the day the funds are deposited
- Funds will normally be sent via cheque, however, certain pension plans may request to send the funds via an electronic wire; this is permissible
- Funds received from multiple UK pension providers can be deposited to the same QROPS account – there is no need to open multiple QROPS accounts
- Defined Benefit transfers can take up to 3-6 months to arrive as they are more complex
- Defined Contribution transfers, not requiring advice can occur quite quickly, often with a few weeks
Important Information on Taxation
- While non-UK residents can likely access the 25% tax free lump sum (pension commencement lump sum), the entire amount would be taxable* in Canada.
- All withdrawals made within 10 years of the original transfer date are reported back to HMRC (UK tax year end is April 5th)
- Withdrawals made by clients within 5 years of them ceasing to be a UK resident may be subject to UK taxation
- If you leave Canada within 5 years of the transfer, the QROPS plan would not be a recognized transfer and a 40% tax charge could be levied
- As with any RRSP, Canadian withholding taxes are applied when money is withdrawn from the account and the withdrawal amount is added to the client’s income for that year
- If payments in the reporting period are considered “unauthorized payments,” they would be subject to U.K. tax charges and possible penalties. HMRC will review the nature of the transfer and/or withdrawal and determine whether a 40% unauthorized payments charge and possible additional 15% surcharge will apply.
Example: A client in 2019 who has resided in Canada since 2017 withdraws $5,000 from their account. This withdrawal would be considered an unauthorized payment, as it occurred within the five year reporting period.
Please note: Had the same withdrawal been made by a client who has been away from the U.K. for more than five U.K. tax years, the withdrawal must be reported, but it would not incur tax charges from the HMRC.
- Transfers to QROPS will be taxed at a rate of 25% unless both the individual and the QROPS are in the same country after the transfer
- UK tax charges of 25% will apply to a tax-free transfer if, within five tax years, an individual becomes resident in another country so that the exemptions would not have applied to the transfer
Example: Mary is resident in Canada and transfers her pension savings under a registered pension scheme to a Canadian QROPS. Mary asked her scheme administrator to make the transfer on November 5th 2019 and the transfer was made to the Canadian scheme on December 11th 2019. At the time of the transfer it is not subject to the overseas transfer charge as Mary is resident in the same country as that in which the QROPS is established. The relevant period for this transfer runs until April 5 2025 (December 11 2019 to April 5 2020, plus April 6 2020 to April 5 2025). In May 2021 Mary becomes resident in Australia and ceases to be Canadian resident. As she is no longer resident in the same country as the QROPS, the overseas transfer charge now arises on her transfer.
This is a fantastic opportunity to get a hold of your hard earned assets and it may not last. Careful planning must be taken to ensure that the transfer does not give rise to unintended tax consequences, bad financial advice and even scams.
QROPS transfers to Canada were cancelled in 2016 and there is always the chance that the program could be cancelled again. Let’s discuss your specific pension and how we can bring it to Canada for you. Contact Julie by email or give the office a call (613-728-0589). We are licenced in Ontario, Quebec, Alberta, British Columbia, New Brunswick and Nova Scotia.
For more information visit https://www.gov.uk/topic/business-tax/pension-scheme-administration
*The Canada-U.K. Income Tax Convention (the “Treaty”) does not prevent Canada from taxing pension receipts. Paragraph 1 of Article 17 of the Treaty provides that periodic pension payments arising in the UK and paid to a resident of Canada shall be taxable only in Canada. Paragraph 3 of Article 17 broadly defines the term “pension” to include any payment under a superannuation, pension or retirement plan, as well as any payment made under the social security legislation in the UK.