Can I transfer my UK pension to Canada?

It can be tempting to enjoy your retirement in Canada, but you’ll need to make sure you can transfer your UK pension to the country, so you can access your hard-earned money. 

Transferring to other countries: India | New Zealand | Malta | Spain | Portugal | Australia

What is a QROPS?

A Qualifying Recognised Overseas Pension Scheme (QROPS) is the best way to transfer your UK pension to Canada, but you must make sure they are approved by HMRC.

It’s for anyone who has a UK pension scheme (excluding the state pension), who is a Canadian resident taxpayer and planning to live in the country for at least five years. 

You’ll need to be at least 55 to use QROPS. 

Here are some of the key benefits of the scheme: 

• You can consolidate your investments in your home country. 
• You can lock in the exchange rate of your pension assets. 
• It gives you a known income stream and the potential for higher income. 
• You have flexibility as your funds are not ‘locked in’ to anything. 
• You have access to plenty of investment choices. 

• It offers easy estate administration and the opportunity to name your own beneficiaries. 

What are the rules for transferring your pension to Canada?

To start a QROPS transfer of your UK pension to Canada, you need to take these steps:

First, tell your UK pension scheme that you wish to transfer your funds to Canada and get the necessary forms. You must be over 55 to do this.

You then need to open a QROPS account at your selected company in Canada. Since 2020, there have been a few schemes approved by HMRC to facilitate transfers into QROPS accounts.

These are the IA Clarington Investments Retirement Savings Plan, IAG Saving and Retirement Plan, and Cidel Alternate Retirement Plan (CARP).

In 2024, HMRC also approved the Canadian Forces Superannuation Act as a QROPS. This is a defined benefit plan specifically suited to ex-British military personnel and not available to the general public.

HMRC updates its recognised overseas pension scheme (ROPS) twice a month, so it’s worth checking to see what’s available beforehand.

Next, you need to prepare and complete all transfer forms. These are pretty complex, so it’s worth considering professional financial advice when filling these out.

They can then be 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.

As defined benefit transfers are pretty complex; they can take three to six months.

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

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

The biggest drawback concerns tax.  

For example, Canada’s 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. 

If you withdrew funds from a QROPS while you are a UK resident, you would incur member payment charges and UK taxation charges. 

Also, if you changed your Canadian tax residency within the first five tax years after transferring into a QROPS, this would not be regarded as a recognised transfer. So, an unauthorised payment charge of at least 40% could be levied.

From 6 April 2024, any amount transferred to a QROPS will be tested against the overseas transfer allowance, set at £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.

Additionally, if your QROPS is deregistered or the pension scheme fails to meet compliance requirements, this could impact the tax efficiency of your pension.

The lump sum death benefit allowance (LSDBA) could be affected if your scheme loses its qualifying status, potentially altering the benefits available to your beneficiaries.

With these cost considerations and implications, it’s worth seeking financial advice before transferring your UK pension to Canada.

This would also be worthwhile if you chose a self-invested personal pension (SIPP) instead of a QROPS.

If you become a Canadian resident, transfers to a 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 must consult a tax expert to help you navigate this.

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 probably want your UK pension converted into Canadian dollars.

But be aware 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 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.

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

Also, it’s worth setting up a removals fund so you can transport your belongings. 

When transferring your pension to Canada, you need to be aware of the rules and how to make the most of the complex taxation landscape when you’re dealing with both HMRC and the Canadian tax authorities. 

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.