Pension Advice For Expats In Canada

Canada Specific Pension Information

KEY POINT: Trusts - There are no longer any Canadian QROPS providers available, so these transfers are no longer possible. Further, the United Kingdom’s 2017 budget has made it so QROPS transfers requested after 9th March 2017 will be subject to the 25% Overseas Tax Charge.

KEY POINT: Pensions - the lump sum from a UK pension (or a pension anywhere outside of Canada) is taxable and should be declared.

If you can avoid being tax-resident in Canada when you receive the lump sum you will not have to pay Canadian taxes on it as it is UK source income.

Canada Specific Pensions

KEY POINT: For most people the Canada Pension Plan (CPP) is the first port of call for retirement income.

Canadian residents have three options:

– federally financed plans

– tax deferred savings

– employer sponsorship programs

Canada’s retirement age is 65.

Canada Pension Plan (CPP)

The contribution rate for employees to the CPP is 4.95% of gross employment income between $3,500 and $54,900 (2016) up to a maximum contribution of $2,554.30. These payments are matched by employers.

Self-employed people contribute 9.9% of their net income up to a maximum of $5088.60 (2016).

The CPP payment you are entitled to receive at 65 is one quarter of the average contributory maximum over your entire working life.

Some low-earning periods during your working life may be ignored so they do not result in your pension being lowered. The pension is intended to replace about 25 percent of your income from work. CPP with lower benefits is available at the age of 60.

CPP with increased benefits is available if you delay taking it until you are 70 years old.

NB-Quebec has opted-out of the Government of Canada’s program. Instead, residents of Quebec may receive the Quebec Pension Plan (QPP) with similar characteristics to the Canada Pension Plan.

Canada Tax considerations

The Double Tax Treaty will decide where the income tax is payable. As there are no Canadian QROPS, then the only option is to leave the pension in the UK. International SIPPs offer no tax advantages but may increase the costs to the member.

If you go to the UK Revenue and Customs site (www.hmrc.gov.uk), you will be able to find both an English language version of the current UK-USA Double Taxation Treaty (https://www.gov.uk/government/publications/canada-tax-treaties) (Articles 18 and 19 refer to pensions).

KEY POINT: Trusts - The Double Tax Treaty between the UK and Canada determines the taxing rights and not the product.

KEY POINT: For those expats who were advised to take out a pension in Malta, Guernsey, Gibraltar and other non-Canadian jurisdictions - with an Investment Bond for tax efficiency reasons – you must review this arrangement as there are no obvious tax benefits but clearly higher costs and fees.

For more information go to our Tax Hub

Key issues / concerns 

The vast majority of expat advisers (differ from regulated Canadian advisers), providing investment or pension investment advice to British expats, do not have investment licences and are circumventing this by operating outside the country.

QROPS or International SIPP, are to be avoided.

British, Cayman island or EU based Investment bonds, especially when sold in a QROPS or International SIPP, are to be avoided post 2017.

The main consideration should be the balancing of tax efficient advice which takes into account future plans, and charges of products.

Investments not regulated under Canadian rules will not be considered or protected by any local regulators. If these investments go bust then the client will lose all their money and have no protection.

What should you be considering?

1. If you are confident enough, then do your research, and place investment directly.
2. If you need assistance, then seek advisers who are regulated themselves in the UK for pensions advice,
3. Consider not only tax efficiency, but also costs!
4. Point 4 – is, make sure the costs are accurate! If you are told the costs are 1% or 1.5% per annum in total and there is no fee up front, then you are probably being lied to in 95% of cases.
5. Don’t get taken in by the great claims over QROPS/International SIPPs and Insurance bonds or investment platforms that are really investment bonds. These add layered charges and are usually not the best outcome for clients (although we accept that in around 15% of cases they are).
6. Don’t be a sheep. Just because your best friend was advised to do something, never assume this is the right thing. Each person is an individual and requires individual solutions. If your friend were to walk off a cliff, would you follow them?

Our Empirical evidence from clients we have spoken has shown us that many expat sales advisers outside of the UK, just sell a product to their clients for commission and do not provided financial solutions. The product is often a QROPS or an International SIPP or an investment bond, which may or may not be the best advice but this is not really considered. Don’t listen as 85% of the time you would be better off doing something else with your hard earned money or pension.