Can I transfer my UK pension to Canada?

Canada is a popular choice for those wanting to retire abroad, but you’ll need to understand the best ways to access your pension without issues and extra charges.

This article looks at transferring your pension using a QROPS, a type of pension scheme that meets regulatory standards set by the UK taxman.

If you’re planning to retire in Canada, it can make sense to transfer your pension there.

This process can be complex and incur a 25% tax charge.

However, if you transfer your funds to a pension plan known as a qualifying recognised overseas pension scheme (QROPS) and meet certain other conditions, then you can transfer it without the tax being paid.

Here’s how it works.

What is a QROPS?

A QROPS is simply a Canadian pension scheme that has been approved by HMRC for UK pension transfers.

HMRC has approved three Canadian QROPS: IA Clarington, IAG and Cidel.

Ex-British military personnel can also use the Canadian Forces Superannuation Act fund, but this defined benefit plan is not available to the public.

The list of recognised schemes can change, however. It is updated twice a month on the government website, so you can check what is available before you transfer.

What are the rules and steps for transferring your pension to Canada?

To transfer your pension to Canada, you’ll need to meet several conditions.

You’ll need to be a Canadian resident taxpayer, plan to live in Canada for at least five years and be at least 55 years of age.

From 6 April 2024, any amount transferred to a QROPS will be tested against a maximum allowance of £1,073,100 (or a higher protected amount if applicable).

Transfers exceeding this allowance may face a 25% overseas transfer charge on the excess amount.

What are the benefits of transferring a UK pension to Canada?

If you have retired to Canada, transferring your pension there has the following benefits:

• Your pension payouts are in Canadian dollars, so currency fluctuations do not affect your spending power.

• You can consolidate several UK pensions into one Canadian pension, making it easier to manage.

• There may be some advantages if a spouse inherits the pension.

• Your pension income is no longer liable to any UK tax, including inheritance tax.

What are the disadvantages of transferring a UK pension to Canada?

There are also disadvantages to transferring your UK pension to Canada:

• Canadian withholding taxes may be applied when money is withdrawn from a QROPS, and the amount is then added to your taxable income for the year.

• The choice of authorised plans is limited and changes often as HMRC frequently removes or adds schemes to their approved QROPS list.

• If your QROPS is deregistered or the pension scheme fails to meet compliance requirements, this could impact the tax efficiency of your pension, and the lump sum death benefits could be affected.

• If you withdraw funds from a QROPS while you are a UK resident, you could incur member payment charges and UK taxation charges.

• If you become a Canadian resident, transfers to a self-invested personal pension (SIPP) are viewed as ‘constructive receipt,’ so it’s viewed as fully taxable income for the year. There are ways to avoid this, but you should consult a tax expert to help you navigate this.

How do I transfer my pension to Canada?

You’ll need to follow a series of steps. These are complex, so it’s worth considering professional financial advice when filling out any forms.

First, tell your UK pension scheme that you wish to transfer your funds to Canada and get the necessary forms.

You then need to open a QROPS at your selected company in Canada.

Next, you need to prepare and complete all transfer forms. These are sent to your UK pension provider so they can process the transfer.

The receiving company will convert your pension funds to Canadian dollars, using the exchange rate on the day your funds are deposited.

You can deposit funds from several UK pension providers into the same QROPS.

Defined benefit pension transfers are particularly complex. They can take three to six months.

Can I transfer my state pension to Canada?

When you retire to Canada, you are entitled to your UK state pension, provided you have made sufficient national insurance payments and are of retirement age.

However, the amount payable will be frozen, so you won’t receive any annual increases.

As a Canadian resident, you’ll probably want your UK pension converted into Canadian dollars.

But be aware that your payments will inevitably be exposed to fluctuations in currency exchange rates, potentially changing the income you receive from month to month.

What other financial issues should you consider before moving to Canada?

Moving across the world to another country will be expensive, and Canada is no exception. 

Careful financial planning is essential to make your move as smooth as possible - here’s what you need to consider.  

Buying property

Think about how you’ll finance your new home in Canada. Will you apply for a mortgage, use your savings or rely on selling your UK property?

If you’re getting a mortgage, work out what you can borrow, so you’ll be ready to buy when the time comes. 

Sort your tax affairs

HMRC will need to know about your change of circumstances, so that they can establish any tax liabilities.

A tax adviser can help you notify HMRC of your departure, clarify tax liabilities, advise you on your pension, explain how statutory residence tax will affect you and provide you with peace of mind. 

Inheritance

Once you own property in Canada, you should draw up a will. 

Insure your new life

You must insure your new life in Canada. Make sure you get an insurance policy for your property, contents and vehicles, and consider private medical insurance.

This could give you valuable cover before you start using Canadian healthcare. 

Open a Canadian bank account

Canada’s banking system has a good reputation, and by using the larger banks, you should be able to open an account before moving.

This will be useful, as you’ll be able to transfer funds before arriving. You’ll need many forms of ID, but there shouldn’t be any set-up fees. 

Save in advance

You’ll need a decent contingency fund to cover plane tickets, hotels and car hire if you need to go to property viewings.

It’s also worth setting up a removals fund to cover the cost of transporting your belongings. 

Get expert financial advice

Transferring your UK pension to Canada can be a beneficial move if you're planning to retire there, but it's essential to navigate the process carefully.

Understanding the rules, the potential tax implications, and the limitations of available QROPS schemes will help ensure a smoother transition.

Proper preparation, including financial planning and awareness of both UK and Canadian tax regulations, will allow you to make the most of your retirement savings in your new home.

Let Unbiased quickly match you with a financial adviser for expert financial advice and guidance on transferring your UK pension to Canada and making the most of your retirement savings.