Comparing iA Clarington Mutual Funds and Industrial Alliance Segregated Funds for QROPS Transfers in Canada (2024)

Key Points

Choose between mutual funds or segregated funds for your UK pension scheme

Mutual funds can potentially offer lower costs to invest compared to segregated funds

Segregated funds offer more guarantees on your principal investment compared to mutual funds

Strata Wealth specializes in the transfer of pension schemes to Canada via QROPS

Introduction

When transferring a UK pension scheme to Canada, individuals may face several decisions regarding investment options once the pension funds arrive in Canada. When the funds arrive in Canada, they must be invested in a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) with an investment provider who is qualified to administer UK pension funds in Canada (QROPS).

Two key options to consider are iA Clarington Mutual Funds and Industrial Alliance Segregated Funds, particularly when managing a QROPS (Qualifying Recognised Overseas Pension Scheme) transfer as they are both qualified to receive UK pension transfers in Canada as of December 2024.

Each of these investment products offers distinct features that can impact retirement outcomes, risk management, and overall financial planning.

This report outlines the major differences between these two types of investment options and the considerations for individuals utilizing QROPS to transfer their UK pension schemes to Canada.

Overview of QROPS and RRSP in Canada

Once we have identified your pension and eligibility, the next step is to formally request the transfer paperwork from your UK pension provider which will include updated transfer values and all required transfer documentation which are required to complete the transfer.

After we have gone through all of the documentation together and everything has been completed, the next step is to formally request the transfer from your UK pension provider. This involves sending the relevant transfer forms to your UK pension administrator, who will need to verify your identity, assess the transfer request, and provide the necessary details to initiate the transfer.

iA Clarington Mutual Funds

iA Clarington Mutual Funds are a suite of mutual funds offered by iA Clarington Investments, part of the iA Financial Group. These funds pool investor capital and invest in a diversified portfolio of assets, managed by professional portfolio managers.

Key Features of iA Clarington Mutual Funds:

1. Diversification: Mutual funds typically provide a diversified portfolio of stocks, bonds, and other assets, which is beneficial for long-term growth and risk management.
2. Liquidity: Mutual funds can be bought and sold daily at their net asset value (NAV), providing flexibility for investors who may need access to funds in the short term.
3. Professional Management: Each mutual fund is actively managed by a team of portfolio managers who make investment decisions based on market conditions, fund objectives, and performance goals.
4. Fees: Mutual funds have management expense ratios (MERs) that vary depending on the fund. These fees are typically higher for actively managed funds, although they may be lower for passively managed index funds.
5. Risk Exposure: The risk exposure in mutual funds is determined by the underlying assets and the strategy employed by the fund manager. Different funds target different risk profiles, from conservative to aggressive.

Advantages for QROPS for Mutual Funds:

• Diversified Investment Options: QROPS transfers often involve significant amounts, making diversification a key consideration. Mutual funds provide access to diversified portfolios, reducing individual investment risk.
• Professional Oversight: Many UK pension transfers are sizeable and can benefit from professional management to ensure assets are invested with a long-term growth strategy in mind.
• Flexibility: The ease of buying and selling mutual fund units makes it a suitable choice for individuals who may need to adjust their investment strategy periodically based on changing life circumstances or market conditions.

Disadvantages for QROPS for Mutual Funds:

Less Control: Investors in mutual funds rely on the fund managers to make decisions, which means they have less control over the specific securities held in their portfolio.

Fees: Depending on the mutual fund, The MERs for iA Clarington Mutual Funds could potentially be higher compared to some other investment products.

Industrial Alliance Segregated Funds

Industrial Alliance Segregated Funds are similar to mutual funds but with added insurance features. They are typically offered as an investment option through life insurance policies, and they come with certain guarantees such as principal protection and a death benefit. They are a very popular option for UK pension transfers into Canada because of the capital preservation.

Key Features of Industrial Alliance Segregated Funds:

1. Guaranteed Return of Capital: Many segregated funds offer a guarantee that investors will receive at least a specified percentage of their original investment upon maturity or death, typically 75% to 100%. This is known as the “guaranteed maturity value.”
2. Creditor Protection: In Canada, segregated funds are often used for creditor protection. The assets in a segregated fund may be protected from creditors in the event of bankruptcy or financial hardship.
3. Estate Planning: Segregated funds have certain estate planning advantages, such as bypassing probate upon death. This can be important for individuals with large estates or complex family situations.
4. Professional Management: Like mutual funds, segregated funds are professionally managed, offering diversification and active management.
5. Management Fees: Segregated funds used to come with higher fees than mutual funds due to the added insurance guarantees and other benefits, but recently have become much more competitive and comparable to fees offered by mutual funds.

Advantages for QROPS for Segregated Funds:

• Capital Protection: The guaranteed return of capital can be very appealing to investors transferring a pension scheme like QROPS, as it provides some peace of mind that their principal investment will not be lost due to market fluctuations.
• Creditor Protection: For individuals who may be concerned about potential financial risks or creditors, segregated funds offer enhanced protection of assets, making them an attractive option.
• Estate Planning Benefits: The ability to bypass probate makes segregated funds a useful tool for individuals concerned with legacy planning and minimizing delays in asset transfer to beneficiaries.

Disadvantages for QROPS for Segregated Funds:

Complexity: The structure of segregated funds, with their mix of insurance and investment components, can be more complex and difficult to understand for investors not familiar with such products.

Management Fees: The guaranteed features and added insurance protections come at a cost, which can potentially lead to higher MERs compared to mutual funds. We recommend speaking with one of our advisors to get a better understanding of the differences in management fees.

Conclusion

When transferring a UK pension scheme through a QROPS to Canada and setting up an RRSP, the choice between iA Clarington Mutual Funds and Industrial Alliance Segregated Funds depends on individual risk tolerance, investment goals, and the desired level of protection.

• iA Clarington Mutual Funds offer a diverse range of investment options and professional management with relatively lower fees depending on the fund. They are ideal for those who are comfortable with market fluctuations and are primarily focused on achieving long-term growth.
• Industrial Alliance Segregated Funds, on the other hand, provide additional insurance features such as capital guarantees and creditor protection. They are more suitable for investors seeking downside protection and estate planning benefits, but the trade-off comes in the form of higher fees and somewhat reduced investment flexibility.

Ultimately, the decision should be based on the investor’s preferences, financial goals, risk profile, and the level of comfort with the complexities of segregated funds versus the flexibility and cost structure of mutual funds.

At Strata Wealth, we specialize in UK pension transfers to Canada via QROPS as well as RRSP planning. We will work with you to determine the most suitable investment choice.

If you are interested in learning more about transferring a pension scheme from the UK to Canada, please contact us today for a free, no obligation consultation.