Pensions



Pensions are definitely a political "hot potato' in most countries around the world as population demography changes with an increase in the numbers of retired citizens.

Canada is no exception as private schemes are being promoted to take the heat off the Governments Canada Pension Plan that many analysts believe will not be able to cope in the future.

No matter which country you are from, if you decide to retire oversea's then finding the best method of ensuring your payment reaches you is critical. To simplify things a little, you probably have two main options:

1: The first and probably the easiest, would be to leave your bank account open in your "homeland" and have the money paid directly into that account. Then set up a regular payment account (RPA) with the Currency Transfer Company that specialises in this account - HIFX.

HIFX's RPA service is designed to eliminate this risk and hassle. You can fix one exchange rate for 6 to 24 months worth of payments and HIFX will then set up a direct debit to ensure that your payments are made on time every month with no wire transfer fees charged. (HIFX is the only currency broker to have eliminated all bank receipt charges. As a result they can guarantee that clients will not have to pay any receipt charges when they send funds abroad.)

RPA service includes:-

  1. Never miss a payment
  2. Simple direct debit with your bank
  3. Fixed exchange rates for up to 24 months
  4. No commission (most main stream banks can charge up to 3%)
  5. Guaranteed forward prices (up to 2 years in advance)
  6. EVERY monthly transfer is FREE (which could save you over $300 per year)

As you can see this is an extremely attractive option that involves the foremost transfer company and is available from many countries. For more FREE information with no obligation whatsoever click the HIFX graphic or link above.

2: This option involves transferring any Pension plans you have and this example is applicable to UK residents only.

If you are from the UK, your old age (State) pension can be paid to you in Canada but will be subject to tax as part of your Canadian income (you will receive a tax-credit for any tax deducted in the UK.) The state pension however, cannot be transferred to Canada.

If you have an occupational or personal plan in the UK you should be aware that in certain circumstances the capital gains and income in those plans could be subject to taxation (even though you do not have access to the monies to pay the tax).

There is a way to transfer the plans tax-effectively to Canada but you must act before the pension starts to pay out. Transferring the plans can be complex and time-consuming but there is a specialist company which can help you:

They can help you transfer your personal and occupational plans and

> avoid a potential tax liability

> avoid exchange risks

> grow your pension faster

TransAtlantic Transfers has a special offer for visitors to "onestopimmigration-canada.com". If you enter the code osc101 on the "Order" page of the Transatlantic Transfers site, you will receive a substantial discount on the price of their comprehensive guide to transferring pensions to Canada. Visit TransAtlantic Transfers for full details.

It is best to start the process before you leave. Even if you do not intend to transfer your pension plans to Canada, you should have up-to-date information on all of them. You should provide the pension plan trustees with your new address and contact details and request valuations of the funds available. You should also ensure that they will make payments to a Canadian bank account as otherwise you will have to make alternative arrangements. Be sure you know the date that you qualify for pension payments and apply in good time so that the pension companies can send you the payments as soon as you are entitled. They have no incentive to contact you!

Please note that any pension payments are classed as income and will be subject to standard taxation rules. Using the services of a professional financial planner will enable you to plan your retirement income in the most tax efficient way.

Before You Move

The chances are you will have pension schemes in the country you are leaving - either private or state run. This can cause a major headache to sort out.

The first thing to do is to ensure that you have up to date information on all pensions you may be entitled to and that these plans have your latest contact details. Most schemes will pay out only if the plan holder contacts THEM. You must ensure you have all the contact details and let them know you are moving to Canada. Once you are settled, ensure you let them have your new address.

Check and get written confirmation that the plan will pay to a Canadian bank account - if not you will have to make alternative arrangements.

For state pensions, Canada has Social Security Agreements with many different countries regarding qualifying time for state pensions so check these to see if it helps you.

If you choose to transfer to a Canadian plan, check to see how much it will cost and if there are any additional penalties incurred as it may not be worth it. If it is, ensure all the ground work is completed before you leave and you have points of contact to deal with to make it a smooth transfer or someone to sort it out if its not! You cannot open a Canadian Pension until you have a Social Insurance Number (SIN) so this can't be done until you have landed.

Old Age Security

The most basic level of state pension is the Old Age Security payments. These are available as a monthly payment to most people over the age of 65. You need to apply for the payments before your 65th birthday and meet certain eligibility requirements which are dependant upon your age and length of time living in Canada.

As mentioned earlier, Canada has social security agreements with many countries that may enable you to qualify.

Canada Pension Plan (CPP)

Once you are working in Canada, your paychecks will show deductions for the CPP to a set annual limit (approx $2160).The amount you contribute is based upon 2 limits and your employment type (self or employed).

The lower limit is frozen at $3500 and the maximum limit (adjusted every year), currently $47,200 - you will only pay a percentage of the income between these limits. If you earn $100,000 a year you will not pay any more into the plan than someone on $50,000 a year. These payments will enable you to receive benefits from the plan should you become disabled or retire and, if you die, to your surviving family members.

If you are moving to Quebec, you will be part of the Quebec Pensions Plan. This is run on a similar system to the CPP and you will pay similar amounts into it each year.

As with most pensions you will have to apply to receive it. You can start receiving payments from your 60th birthday though they will be reduced by 0.5% per month before your 65th birthday. Conversely, your payments will increase by 0.5% per month that you wait to claim it after your 65th birthday to a maximum age of 70.

You can apply for a pension sharing agreement with your spouse or common law partner. This may reduce any possible tax implications - the total you can share is based on the amount of your contributions made during your time together. Again, always consult a professional financial planner for the best advice for your situation.

For a downloadable summary in PDF format go to this Government Information Page

RRSP

To encourage Canadians to save for their retirement, the Government has given substantial tax breaks to people who pay into Registered Retirement Savings Plans - RRSP's.

These plans are government sponsored but privately administered with management fees charged by the companies that offer them. All capital gains in the plan are sheltered tax free while the plan is in force. Any cash withdrawn in retirement is declared as income on your annual tax return.

There are annually adjusted limits on the amount you can contribute to your RRSP. These are 18% of your previous years "Canadian" salary as declared on your tax return, to a maximum of $22,000 (2010) - this will rise each year. If you are unable to pay the full entitlement each year, any (spare) allowance will be rolled over into the next financial year.

This is where being an immigrant becomes a pain. Basically, you will not have an allowance for the first calendar year you are living in Canada so any payments you make will be classed as an over contribution. You can get away with a $2000 over contribution, but over that you will be taxed at 1% per month. If your employer pays into a company plan that is a benefit for all the employees you will not be penalized - just be careful with any voluntary payments.

There are special rules governing the use of RRSP funds. Some plans are locked in and therefore inaccessible until the plan matures. Most RRSP aren't locked in and so are available to be withdrawn before plan maturity.

Subject to qualification criteria, you may be eligible to withdraw upto $20,000 from your RRSP under the Homebuyers Plan. You will not have to add this to your declared income on your next tax return but it will have to be repaid to the fund over the next 15 years. You must be able to qualify as a first time buyer, intend to live in the home and satisfy all Conditions Attached.

With The Lifelong Learning plan you can withdraw money to fund training or education. Like the homebuyers plan, the money withdrawn will have to be repaid to the fund within several years.

Many couples opt to use a spousal RRSP. If one partner earns substantially more than the other this gives a tax break straight away by giving the higher paid partner some of the other person's allowance. The retirement income is evenly split between the two which will reduce the tax paid.

Normal retirement age is 65 though you can work beyond that. Before age 69 you will have the following options:

1. Withdraw the funds and have tax withheld.

2. You can transfer the funds to a registered retirement income fund (RRIF)- you will receive predetermined payments from the fund which are then taxed as income.

3. Use the funds to buy an annuity - this gives you a guaranteed income for a set period of time.

When you turn 69 you have to close the plan and choose one of the following options:

1. Withdraw the cash,

2. Transfer to a RRIF,

3. Purchase an annuity for life

4. Purchase an annuity for a set period of time.