QROPS – UK Pension Transfers to Canada
**As of July 2021, IA Clarington has approval from HMRC for RRIFs**
If you are a UK pensioner looking for information on transferring your pension to Canada, we have the expertise to help. Future Financial Planning Group is an Ottawa based boutique financial planning firm that has successfully transferred countless non-government UK pensions to Canadian QROPS RRSPs. If you are a resident in Ontario, Quebec, Alberta, British Columbia, New Brunswick or Nova Scotia, contact us to discuss transferring your UK pension.
A QROPS is a Qualifying 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, additionally an unauthorized payment surcharge of 15% may be levied for a total of 55%.
- Consolidate your investments into your home country
- Lock in the exchange rate of your pension assets
- Solves the tax issue on excess Lifetime Allowance (LTA) limits. The LTA is currently at £1,073,100 and further to UK’s March 2021 Budget, frozen until 2026. Tax on the excess is 55% if transferring to a QROPS. How to apply for and check protections from the reductions in lifetime allowance.
- Known income stream and potential for higher income
- Flexibility as the funds are within an RRSP structure and not locked in
- Greater investment choices
- Ease of Estate administration
- Should you transfer your defined benefit/final salary plan?
Who are QROPS for?
- Anyone that holds a UK non-state pension scheme who is a Canadian resident taxpayer and intends to live in Canada for a minimum of 5 years.
- You must be at least 55 years of age 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?
- Contact Julie at Future Financial to discuss particulars and if a transfer may be in your best interest.
- Clients then initiate the process by notifying their 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/window of 3 months after which you must re-start the process and pay for a second CETV if it falls within 12 months after the most recent request.
- The receiving institution 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 a qualified FCA UK financial adviser, if required)
- QROPS Investment application and transfer forms
- ID such as a passport or licence and utility bills with an address to show your residence
- 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 options.
- A QROPS can only be opened through an MFDA licenced advisor (not an IIROC broker).
- A QROPS can only be set up as an RRSP or RRIF account (RRIFs are currently not approved); 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 are sent in British Pounds and the receiving institution will convert the money to Canadian dollars using the exchange rate on the day the funds are deposited.
- Funds will be sent via electronic wire transfer (preferred) and less often by cheque.
- Funds received from multiple UK pension providers can be deposited to the same QROPS – 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 within a few weeks.
- Contact us to discuss transferring a “Delisted” QROPS into Canada.
- The CETV is the cash sum the trustees are willing to transfer to a personal arrangement in exchange for you giving up your pension rights.
Important Information on Taxation
- Like Canadian RRSPs/RRIFs, Canadian withholding taxes are applied when money is withdrawn from a QROPS and the withdrawal amount is added to the client’s taxable income for that year.
- While non-UK residents may be able to access the 25% tax free lump sum (pension commencement lump sum), the entire amount would be taxable* in Canada. Contact your pension provider to see if you can access the 25% prior to a transfer to a QROPS as this may vary.
- The QROPS provider must report all transfers or withdrawals made out of a QROPS during the first 10 years after the original transfer date to HMRC.
- For those that have transferred to QROPS before 6th April 2017 you also have to be resident outside of the UK for 5 consecutive tax years before making a withdrawal. The period of non-UK residence was extended to 10 consecutive tax years for those who transferred on or after April 6th 2017. This is often referred to as the ‘5 or 10 year Non-Residence Rule’.
- Payments or transfers from a QROPS on or after April 6th 2017 may be subject to UK tax rules for UK taxation five years after the date of transfer, regardless of how long you have been a non-UK resident. This is often referred to as the ‘5 years from Transfer Rule’. As you now must be 55+ to open a QROPS in Canada, generally this rule will have zero tax implications.
- If you are a UK resident when you withdraw from a QROPS, you will be subject to hefty member payment charges and UK taxation.
- If payments in the reporting period are considered “unauthorized payments,” they would be subject to UK 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.
- Pension funds are tested against the available Lifetime Allowance (LTA) (BCE8) and a LTA charge of 25% is applied on any excess. If the transfer value is below the available LTA then there would be no excess tax charge.
- If your pension exceeds the standard LTA, contact us to discuss the possibility of applying for pension protection (Individual Protection 2016 or Fixed Protection 2016). There is a possibility to save thousands in tax.
- Tax on excess LTA cannot be claimed back through any foreign tax treaties.
- If you change your Canadian tax residency status within the first 5 full UK tax years – April 6th to April 5th – after transferring into a QROPS, this would no longer be considered a recognized transfer and a unauthorized payment charge of 40% at minimum could be levied.
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 ten year ‘non-residence rule’ reporting period.
Note: Had the same withdrawal been made by a client who has been away from the UK for more than ten UK tax years, the withdrawal must be reported, but it would not incur tax charges from HMRC.
- The overseas transfer charge of 25% does not apply if the scheme member has provided information in advance of the transfer which shows that the member is a resident of the country that the QROPS receiving the transfer is based in.
- The overseas transfer charge of 25% of the ‘transferred value’ will apply to a transfer if, within five tax years, an individual becomes resident in another country so that the exemptions would not have applied to the transfer. Otherwise called the ‘post transfer charge – the relevant period’.
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.
While this is a fantastic opportunity to get a hold of your hard earned assets and flexibility you desire, 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 may 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 currently licenced to deal with clients living in Ontario, Quebec, Alberta, British Columbia, New Brunswick and Nova Scotia and open to becoming licenced in other provinces on a case by case basis.
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.
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