There are thought to be over 600,000 British citizens now living in Canada. There are also thousands of Canadian citizens who have worked in the UK at some point and are now back living in Canada or elsewhere in the world.
These two groups will both have one issue in common; what to do with their UK pension benefits.
Anyone who has worked in the UK will normally have built up some form of pension benefits as it’s now compulsory by law for all employers in the UK to enrol their employees into a workplace pension scheme.
This means when people leave the UK, they will need to decide what to do with their UK pension.
➤ Find out why MyExpatSIPP is the ideal solution for a Canadian resident with a UK pension
Transfer a UK pension
The money held in a UK pension scheme can be transferred to another pension scheme in the UK, or certain overseas pension schemes. Transferring your pension between UK pension schemes is usually a relatively easy process and enables people to transfer and combine multiple pensions into one easy to manage pension plan, such a SIPP.
You can only transfer your pension to an overseas pension scheme if the receiving scheme meets a number of criteria specified by HMRC in the UK.
QROPS in Canada
You can only transfer your UK pension to a Retirement Plan or Pension Plan in Canada if the receiving arrangement has QROPS status.
A qualifying recognised overseas pension scheme or QROPS for short, is an overseas pension scheme that the UK recognises as eligible to receive transfers from registered pension schemes in the UK.
To qualify as a QROPS the scheme must meet the requirements set by UK tax law. To check if a pension is a QROPS you can check the list of schemes that have told HM Revenue and Customs (HMRC) that they meet the conditions to be a recognised overseas pension scheme (ROPS). You can find the name of any QROPS in Canada on the following link.
➤ Why transfer your pension to MyExpatSIPP
Drawing your UK Pension
You are able to start taking withdrawals from your UK pension once you reach age 55. New rules implemented in April 2015, known as “pension freedoms”, mean you can now withdraw your whole pension fund, there is no longer a requirement to use your pension fund to purchase an annuity income for life.
You can take up to 25% of your pension tax free, either as one lump sum or gradually over time through multiple withdrawals.
The remaining 75% is treated as income and subject to UK income tax. This can also be withdrawn as one lump, gradually over time as your income in retirement, or not at all. There is no requirement in the UK to draw your pension or purchase an annuity.
Tax treatment in Canada
The double taxation agreement between the UK and Canada states that:
“Periodic pension payments arising in a Contracting State and paid to a resident of the other Contracting State who is the beneficial owner thereof shall be taxable only in that other State.
For the purposes of this Convention, the term “pension” includes any payment under a superannuation, pension or retirement plan, Armed Forces retirement pay, war veterans’ pensions and allowances, and any payment under a sickness, accident or disability plan, as well as any payment made under the social security legislation in a Contracting State.”
This effectively means that UK pensions paid to Canadian residents will be taxable in Canada. Conversely it would mean that withdrawals from a Canadian Retirement Plan or Pension paid to UK residents would be taxable in the UK.
You should seek specialist advice from a tax advisor for clarification on the tax treatment of the pension payments in Canada.
A UK pension scheme will always tax the first income withdrawal from your pension as if you’re a UK resident. You will need to inform HMRC that you are no longer resident in the UK and you would like your UK pension to be paid without the deduction of UK tax.
You can do this by completing the Canada DT Individual form.
Manage your pension with a SIPP
As you won’t be able to transfer your pension to a Retirement Plan in Canada given the absence of a QROPS, you can still stay in control of your pension once you leave the UK.
MyExpatSIPP is a type of UK pension plan that allows you to manage your pension online and provides you with increased flexibility and options compared to a standard employer pension plan.
You can investment in a wide range of investment including Funds, ETFs, Shares, Bonds and Investment Trusts as well as multiple currencies. If you prefer to leave managing your investments to the experts, there is a range of ready-made investment portfolios that invest in funds managed by Vanguard and BlackRock.
We provide you with all the resources, information and guidance to enable you to stay in control of your pension and manage it online from anywhere in the world.
It is easy to transfer your pension to our SIPP and in most instances you won’t need to complete any transfer forms.