If you are going to retire in Canada and you have a Defined Contribution Pension in the UK, life might be better if you transfer the funds to Canada.
Did You Know?

If you are going to retire in Canada and you have a Defined Contribution Pension in the UK, life might be better if you transfer the funds to Canada.

By June 15, 2020 September 29th, 2020 No Comments

A Defined Contribution (DC) plan is a retirement account where both an employer and employee make contributions to an employee’s own individual retirement pot – the employee has flexibility to take the income any way they wish but the amounts depend on how much was contributed and how those contributions were invested.

If you leave a DC plan in the UK it is most likely to be invested in British pounds. British investments often grow in line with British inflation and hopefully plus a little something. If you have left the UK for good you may be more interested in Canadian inflation and investing in North American stocks. Some of your retirement income will be in British pounds but expenses will be paid in Canadian dollars – a mismatch. You could avoid this exchange risk and transfer the DC plan proceeds in Canadian dollars to a special type of RSP. The money can be invested according to your wishes until you are ready to retire.

Some people make the mistake thinking that the biggest risk to their pension is always where it is invested in the stock market.  If you have you left a pension behind in the UK and are not invested in Canadian dollar investments, your biggest risk may actually be one of currency.  The value of British Pounds versus Canadian dollars has seen swings as large as 32% over the last 5 years.

XE Currency Charts: GBP to CAD

Source: XE Currency Charts

The value of British Pounds versus Canadian dollars has seen swings as large as 32% over the last 5 years.

If you leave your plan in the UK and it comes into payment, you will normally be paid in British pounds. You will have all the hassle and expense of converting them to dollars each time and as the value fluctuates, each month your payment could be worth more or less.  You have no certainty nor the comfort of knowing exactly what your pension is worth in local terms.

Managing a pension plan from over 3,000 miles away is hard. Give us a call or e-mail and we would be happy to explore if you are eligible to transfer a UK pension and maybe you too will have the prospect of a better retirement.

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Did You Know?

When your pension plan starts paying out, the amounts received will be taxable in Canada whether you leave the pension in the UK or have it transferred to Canada.

If you transfer your UK pension to Canada, it may qualify to go into a special type of RRSP. There is no tax on the lump sum transfer and you would only pay tax when you take some money out.
Did You Know?

Some pension amounts are defined as “Trivial” and you can cash them in.

Right now, but subject to change, if the total lump sum value of your UK Defined Benefit and Defined Contribution pension plans is £30,000 or less you can withdraw the Defined Benefits amounts in cash and bring it to Canada.
Did You Know?

If you are going to retire in Canada and you have a Defined Benefit Pension in the UK, life might be better if you transfer the funds to Canada.

Your retirement expenses will be growing in line with Canadian inflation (which could be quite different from UK inflation). So a transfer out into a QROPS may be a better fit with your retirement plans.