- March 13, 2023
- Posted by: Simon Huften
- Categories: Investing, QROPS, QROPS RRIF, QROPS RRSP
Key Points
Segregated funds combine the features of mutual funds and insurance contracts
Built-in principal guarantees and death benefit protection
Popular choice of investment for UK pension transfers to Canada
Bypasses probate fees at the time of death and goes directly to beneficiaries
Industrial Alliance is qualified to offer segregated funds for QROPS
A segregated fund, also known as a segregated fund policy or a seg fund, is a type of investment vehicle available in Canada that combines the features of mutual funds and insurance contracts. A segregated fund is a contract between an investor and an insurance company that invests in a portfolio of underlying assets, mainly stocks and bonds. The main feature of segregated funds is that they offer the potential for investment growth, while providing protection for the investor’s capital.
Segregated funds are considered to be insurance products because they are offered by insurance companies and provide certain guarantees to investors that are not available with traditional mutual funds. Specifically, segregated funds provide a guarantee of principal protection and death benefit protection.
The principal protection guarantee ensures that the investor will receive at least a minimum percentage of their initial investment back, regardless of market fluctuations.
The death benefit protection guarantees that upon the investor’s death, the beneficiary will receive a minimum percentage of the investor’s initial investment back, regardless of market fluctuations.
Segregated funds are only available through insurance companies and are regulated by both the insurance and securities regulators in Canada. The insurance regulator oversees the guarantee and insurance aspects of the contract, while the securities regulator oversees the investment component of the contract.
QROPS Eligibility
If you are considering transferring a pension scheme from the UK to Canada via QROPS, you are able to transfer the funds from your pension scheme to a segregated fund in Canada.
As of 2023, Industrial Alliance (IA Financial) is the only provider in Canada who is eligible to accept transfers of UK pension schemes into a Canadian RRSP or RRIF and be able to invest into segregated funds. As described above, segregated funds provide several different benefits which include principal guarantees. Many Expats appreciate these guarantees because of the nature of the funds that they are transferring. They have worked very hard for the funds in their pension schemes and want to make sure that the funds are protected with market downturns, especially in todays unpredictable world.
Additional Benefits
In addition to the principal protection guarantee and the death benefit protection, segregated funds also offer other features that may be attractive to investors. For example, some segregated funds offer the ability to reset the guarantee period, which means that the investor can lock in the gains on their investment and reset the guarantee to a higher level. This feature may be particularly appealing to investors who are nearing retirement and want to protect the growth on their investments.
Another feature of segregated funds is the ability to bypass probate. When an investor dies, the assets in their estate may be subject to probate, which can be a lengthy and costly process. However, because segregated funds are insurance products, they can be designated as a beneficiary which means that the proceeds will bypass probate and be paid directly to the designated beneficiary. This saves the investor both time and money.
Conclusion
A segregated fund is a type of investment vehicle available in Canada that combines the features of mutual funds and insurance contracts. Segregated funds provide a guarantee of principal protection and death benefit protection, as well as other features that may be attractive to investors. Segregated funds are available for QROPS and can be used by Expats who want to transfer their UK pension to Canada.
Investors should carefully consider their investment goals and risk tolerance before deciding whether a segregated fund is right for them.
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.
