- July 22, 2022
- Posted by: Simon Huften
- Categories: Investing, QROPS
Updated January 2023
If you decide to transfer your UK pension to Canada, it will have to be transferred into a Canadian account governed by the CRA called a RRSP (defined below). Since the current rules state that you must be over the age of 55 to transfer your UK pension to Canada, if you are in between the ages of 55 and 71, your funds will have to be transferred into a RRSP. If you are older than 71, the funds from your UK pension will have to go into a RRIF account.
A Registered Retirement Savings Plan (RRSP) is a type of savings plan that is available to Canadian residents for the purpose of saving for retirement. RRSPs have certain tax advantages which help Canaidans save more money for retirement.
You should become familiar with how RRSPs work in Canada in the event that you transfer your UK pension because your pension will be deposited into a RRSP.
The money inside of a QROPS RRSP can be invested in a variety of different investment vehicles such as stocks, bonds and cash between mutual funds and segregated funds. Typically you will have a mix of all three to match your investment objectives. This allows you to diversify your investments and manage your risk over time.
Please note that due to some of the limitations with QROPS accounts, you are limited with the investment providers that you have access to once the funds arrive in Canada. You have the option of investing in either mutual funds or segregated funds. We can assist you with deciding between which is best for you.
When an RRSP is opened, it is registered with the Canada Revenue Agency (CRA). If you decide to make further contributions to an RRSP, the contributions are tax-deductible which means that they can be used to reduce your taxable income in the year that they are made. Any income earned within the RRSP such as interest, dividends and capital gains are not taxed as long as the funds remain in the account.
Once an individual reaches age 71, they must convert their RRSP into a Registered Retirement Income Fund (RRIF) or purchase an annuity. Withdrawals from a RRIF are fully taxable as income, but the income can be spread over a number of years to minimize the tax burden.
In summary, an RRSP is a type of investment account that is registered with the Canada Revenue Agency, offering tax advantages for retirement savings. If you decided to transfer your UK pension and are between the ages of 55 and 71, your funds will be deposited into a RRSP. If you are older than 71, they will be deposited into a RRIF.
We highly suggest reaching out to us to learn more about the ins and outs of a QROPS RRSP for your UK pension.