Personal Pension  

Fears mount HMRC will cull Canadian Qrops next

Fears mount HMRC will cull Canadian Qrops next

Concerns have been raised that there is an anomaly in the Canadian overseas pension schemes system, as under Canadian law savers are allowed to encash them at any age, irrespective of the UK’s pension age test.

HM Revenue and Customs’ pension age test requires schemes to assert savers are not able to access funds before the age of 55 in line with UK law.

If people do access their pension prior to this, it will be treated as an unauthorised tax payment and be subject to a 55 per cent tax charge.

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In Canada, Qrops receiving schemes are primarily ‘registered retirement savings plans’, which can be cashed in partly or fully at any time, regardless of age.

Jim Bell, director at Serenus Consulting, told FTAdviser that the encashed amount is added to an individual’s income in the year of retirement and the marginal rate of Canadian income tax is charged - there is no requirement to wait until you are 55.

After five full tax years of non-residence in the UK, a Canadian RRSP can be encashed in full regardless of age, Mr Bell noted.

Mr Bell said: “We are getting no clarification from the Canadian government of what you are and aren’t allowed.

“Either the Canadians are going to have to change the pension system or it would appear these transfers will have to stop because under the new test access under the age of 55 is not allowed.”

However, a spokesperson for HMRC, pointed out that the pension age test was introduced from 6 April 2015, therefore to be a Qrops, schemes must only allow access to pension benefits no earlier than the benefits could be accessed under registered pension schemes.

“Schemes that offer early access will cease to meet the requirements to be a Qrops,” they added.

A spokesperson for the Canada Revenue Agency said: “Under the income tax act, which the Canada Revenue Agency administers, the RRSP owner can withdraw property from his or her RRSP at any age, and prior to retirement.

“The Act only requires that amounts withdrawn from an RRSP are added into income for tax purposes.”

The spokesperson added that certain RRSPs are established by funds transferred from an employer sponsored registered pension plans.

“When an individual terminates employment and ceases to be a member of a pension plan, the legislation administered by these government regulators contains restrictions intended to preserve the funds for retirement and provide a lifetime stream of retirement income for former pension members and their spouses, if any.

“Thus, if a particular RRSP was established from funds transferred from a registered pension plan, then that RRSP may be subject to locking-in restrictions that may prevent the RRSP annuitant from accessing the funds until he or she attains a certain age – such as age 55.”

Previously FTAdviser revealed that HMRC will not pursue penalty tax charges for UK pension fund transfers between 6 April and 17 June for KiwiSaver schemes, while it allegedly confirmed to the Australian Treasury that Australian superannuation funds no longer comply with its rules under the new pension age test for them to remain as Qrops.