If you are used to the British pension system and have recently moved to Canada or plan to retire within Canada, you may not know what an RRSP is. However, if you plan to transfer your UK pension to Canada, you’ll want to understand a bit about them before you move your funds.
If you wish to transfer your UK pension into Canada using QROPS, the funds will have to transfer into either an RRSP ( or RRIF if over 71 ) with a provider in Canada that has QROPS status.
What is an RRSP?
RRSP stands for “Registered Retirement Savings Plan”. It’s a monetary fund you can contribute to that is tax-exempt as long as the funds remain in the plan. This encourages users to save for retirement. When an individual turns 71, RRSPs must be withdrawn and are typically placed into RRIFs, at which time holders must take a minimum out each year.
What are the Benefits of Holding onto RRSPs?
In Canada, contributing to RRSPs lowers a person’s taxable income while allowing them to save for retirement. RRSP contributions can be up to 18% of the previous year’s earnings, up to a maximum of $27,830 (2021).
As of April 2006, UK pension holders can transfer their pension assets to Canada. Tax rules stipulate that these funds must be transferred into RRSPs and unlike Canadian RRSP contributors, a UK pension holder can move the entire pension amount over in a lump sum (as long as they are a Canadian resident taxpayer). QROPS transfers only apply to private or company pensions and not the UK state ( old age ) pension
RRSPs have many benefits for those that invest in them, including:
- Tax benefits that are immediate at a time when your income is at its highest (as the total contribution can be deducted from gross income during tax season)
- The income earned is not taxed until it is withdrawn so that the total value will grow quicker
- By the time the funds are withdrawn (at retirement), many individuals are in a lower tax bracket and will therefore benefit from a lower tax rate
Are There Restrictions to Accessing My Money?
In the UK, pension rules stipulate that the account holder cannot access their money until they reach the age of 55. In Canada, RRSPs have no such restrictions (aside from a withholding tax). Therefore, currently QROPs providers in Canada will only allow UK pension transfers for clients aged 55 or older. By definition as the client is 55 or over at the time of the transfer, normal regulations will apply in terms of withdrawals from an RRSP/RRIF
Transferring UK Pensions to RRSPs
If you plan to move your funds from the UK to Canada, you must do so via a process known as QROPs (Qualified Recognized Overseas Pension Scheme). To do so, UK ex-pats need to connect with a qualified QROPs specialist. The process requires sending authority letters to your UK provider and to ensure the requisite forms are correctly filed and submitted to parties in both the UK and Canada. The entire transfer can take a few weeks to a few months to finalize the paperwork and complete the transfer.
Do you have questions about how to transfer your UK pension to Canada safely? Let us help you manage the process. Contact us today.