UK Pensions In Canada | How Do They Work?
LEARNING OBJECTIVES
We’re passionate about providing high quality, relevant and up-to-date retirement advice to British Expats in Canada.
IN THIS ARTICLE, YOU WILL LEARN THE FOLLOWING:
How the different types of UK pensions work abroad
Rules for accessing your UK pension in Canada
The options available for transferring your account to Canada
Best retirement strategies for Expats
Over 550,000 British expats currently live in Canada, as well as a large amount of Canadian citizens who have returned home.
If you are one of them and have lived and worked in the United Kingdom, you will have built up a UK pension fund. Upon changing your country of residence, how best to manage and access your UK pension scheme becomes increasingly important.
This article provides a comprehensive guide to understanding and navigating UK pensions in the Canadian context.
Understanding Your UK Pensions In Canada
Before delving into the key considerations for UK pensions in Canada, let us define the types of UK pensions available. The two primary types are the State Pension and Private Pensions.
UK State Pension
The State Pension is provided by the UK government and is based on an individual's National Insurance contributions.
The amount received depends on the number of qualifying years of contributions.
UK residents usually receive the State Pension automatically, but for expatriates, it may require additional steps.
UK Private Pensions
Private pensions in the UK include workplace pensions and personal pensions.
Workplace pensions involve contributions from both employers and employees, while personal pensions are self-funded.
Defined contribution and Defined Benefit pensions are the two main categories.
Defined Contribution
A defined contribution (DC) pension scheme, also known as a money purchase pension, is a retirement plan in which the contributions are made my the member. This can be either in isolation or matched by an employer.
The final pension pot depends on factors such as the total contributions made, the investment performance of those contributions, and other variables. A SIPP is a type of defined contribution scheme.
Defined Benefit
A defined benefit pension scheme, often referred to as a defined benefit (DB) pension, is a type of retirement plan that promises a specific and predetermined benefit to employees upon reaching retirement age.
A defined benefit pension provides a guaranteed income based on a formula and is, in essence, a company version of an annuity.
This article will focus on defined contribution schemes.
Frozen UK Pensions
A frozen pension refers to a former workplace pension to which you are no longer making contributions. If you worked at several companies when tax resident in the UK, you will have various frozen pensions.
While the rules and regulations for all pension schemes remain consistent, specific factors can influence what is permitted or prohibited within the scheme.
These include the policy start date, the pension legislation in effect at that time, and the provider's policies.
Accessing UK Pension From Abroad
Whether or not you can access your UK private pension will depend on several factors. To begin with, you will need to be age 55 or over (57 from 2028)
Your existing pension scheme will need to offer flexible access. This means you can take UK pension income as a lump sum payment, regular payment, or a combination.
Thanks to the tax treaty treaty between the UK and Canada, you can make withdrawals free of UK tax but will need to obtain an NT code first.
Managing Your UK Pension In Canada
As you are no longer resident in the UK, you will not be able to receive advice from a UK based adviser.
Furthermore, the majority of UK pension schemes do not allow non-UK residents to make alterations to their investments.
As a result, your pension can have investments that do not align with your aims and objectives. For example, holding riskier investments such as global equities when retired and want to preserve your money or generate an income.
If you can't manage or access your UK pension fund in the manner you wish, there are two options available.
Transfer UK Pension to Canada RRSP
The first choice is to transfer to a Recognised Overseas Pension Scheme, also known as a QROPS (Qualifying Recognised Overseas Pension Scheme).
This involves removing your pension from the UK and transferring to a Canadian scheme that is recognised by HMRC. There are currently three RRSP providers in Canada that meet the criteria.
We have previously taken a deep dive on this which can be found here.
Transfer to International SIPP
The more common option is to transfer your UK pension to an International SIPP.
This means you can transfer your pension pot to another UK pension specifically designed for expatriates. This gives you full flexibility in retirement, allowing you to take your pension pot as and when you wish. There are also other notable benefits of this type of pension.
A detailed look into an International SIPP including the benefits and main considerations can be found here.
Expat Financial Advice In Canada
If you're a British expat in Canada, it's important to know your pension options as part of your financial planning. Foreign pension planning can play a significant role in providing for your retirement.
Understanding UK pensions in Canada involves knowing both pension systems and rules for cross-border financial transactions. Mitigating tax liability when taking pension income whilst factoring in the exchange rate for Canadian dollars are further areas of note.
If you have one or more UK pension schemes we recommend taking professional regulated advice.
The Wealth Genesis are cross-border pension transfer specialists, with an advice team devoted to assisting British Expats in Canada.
We assist Canadian residents with their UK pensions and all other assets, focusing on product suitability and fund allocation.
Our team can help you align your pension with your financial goals, whether your aiming for tax-efficient draw-down or long-term capital growth.
To schedule an initial consultation, get started using the button below.
FAQs
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Yes, pension income is taxable in Canada. Via an NT code you can avoid being taxed in the UK first and having to claim the money back from HMRC.
We recommend taking specialist tax advice from a regulated tax adviser for your position before making any withdrawals. -
Yes, however as as above, via an NT code you can avoid being taxed twice.
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Most financial advisers will charge a percentage between 1% and 5% of the total value of your pensions being transferred.We charge a flat fee of £3000 for the initial advice and 0.85% ongoing management fee.
