When you make the move abroad, you take your belongings with you. Why shouldn’t the same be said of your pension?
A Qualifying Recognised Overseas Pension Scheme (QROPS) allows individuals with a British pension who have moved to Canada to transfer their pension pot.
Whether you are a Canadian citizen or national, the majority of schemes can be transferred into a HM Revenue and Customs (HMRC)-approved QROPS – except British State pensions.
After the transfer, QROPS allow a wide variety of benefits, including:
- The ability to receive up to 30% of your fund as a lump sum (as compared to UK’s 25% limit)
- Receiving income in Canadian dollars – helping protect you against currency fluctuations
- Ability to consolidate all your pensions into one investment-efficient structure
- UK tax deferral on fund
- Dramatically increased choice of investments
- Increased income flexibility
- Ability to leave 100% of your fund to your surviving spouse, rather than loose up to 55% of your fund value to UK’s ‘death taxes.’
In addition, for larger pension pots, transferring your fund into a QROPS sees you avoid the lifetime allowance limit – the upper limit your fund can grow to before incurring tax under the UK rules. Currently set at GBP 1.5 million, this is being lowered to GBP 1.35 million for tax year 2014/2015.
The rules
Understanding the rules surrounding QROPS transfers means you are not only confident of your choice – but also know the reporting obligations to HMRC specifically.
Within the first ten years of a transfer, your QROPS manager has to report withdrawals to HMRC.
Additionally, you should be aware that the rules of your QROPS change depending on the length of time from the transfer.
If funds are withdrawn within five full tax years, they are considered Unauthorised Payments (UP), and subject to a charge.
The real benefits take place after you have been a non-UK resident for five full tax years. You can then take your 30% lump sum and receive your pension income less UK taxes, as well as all the other benefits.
The next step
Canada – like the USA – has specific and sometimes complex rules on QROPS transfers.
Often it is prudent to use a Canada-based QROPS, yet sometimes a scheme in a secure financial jurisdiction such as Malta or Gibraltar may be the best choice.
There may even be instances when a transfer into a QROPS is not advisable. That is why it is imperative you seek advice from a regulated independent financial advisor (IFA).
Contacting a regulated IFA with experience not only in QROPs – but QROPS transfers for Canadians – means you benefit from professional advice tailored to your specific circumstances.
To be put in contact with such an advisor, please click here.
