The British State Pension is claimable from any country. But, things can get complicated if you’re receiving both private and state benefits, need to convert that income into Canadian Dollars (CAD) or have a range of income streams.
Here we will clarify how the pension system works in Canada and why your State Pension may be frozen, even if you’re 100% up to date with your National Insurance Contributions.
UK State Pensions for Expats in Canada: The Background
At one point, British citizens living in Canada received full entitlement to their State Pension. The UK government changed the rules for expats living overseas in 1977 and, although it has a social security agreement with Canada, UK nationals are not entitled to an annual pension increase.
The ‘triple lock’ system means that payments increase each year by the greatest of inflation, average wage increases or 2.5%. In April 2024, for example, State Pension benefits will rise by 8.5%, increasing the basic State Pension to £169.50 per week, and the new flat-rate pension to £221.20.
If you retire to Canada, you will still receive your State Pension, but the amount payable will freeze, and you won’t receive any annual increases above the amount payable at the point of your relocation.
Expats that retire in most countries outside of the EEA (and some other locations with a bilateral agreement) are only entitled to the full current pension rate if they decide to move back to the UK.
Claiming a UK State Pension in Canada
Provided you have made sufficient National Insurance payments, you can claim the State Pension when you are within four months of the UK retirement age and can do so by either:
- Getting in touch with the International Pension Centre (IPC).
- Submitting an International Claim Form.
You may receive a claim form when you reach the eligible age but should contact the IPC if you do not. The claim process is relatively simple, albeit protracted, and you’ll be asked for information about previous addresses and employment, as well as for your banking details in Canada.
State Pensions can be paid into any bank or building society account, so you’ll need to include the IBAN and BIC if you’re using a Canadian bank. The caveat is that you can’t change the account during the year, so it’s worth thinking through if you’re unsure whether to claim your pension through a UK or an overseas account.
While you can opt to be paid in Sterling via a British bank or have your pension converted into CAD and sent abroad, the latter inevitably means that your payments are exposed to currency exchange rates.
The amount you receive will change from month to month, but you can decide to be paid every month or every 13 weeks, which could, in some cases, reduce the variances.
Taxation Rules for Foreign National Retirees in Canada
Once you’ve claimed your State Pension and decided how to receive your payments, the next step is to think about taxation.
Much depends on your residency status, whether you are a taxpayer in Canada, and whether you remain liable for HMRC declarations in the UK.
Expats are generally considered UK residents (even if they have lived part of the year in Canada for some time), if:
- They spend over 183 days (six months) per year in Britain.
- Their primary home is in the UK, they’ve lived in it or owned it for 91 days or more and spent at least a month there within the last tax year.
Usually, you’ll automatically be classed as a non-resident for UK tax if you work abroad full-time for an average of 35 hours a week or more, spend under 16 days in Britain of each 46 days, or if you’ve been a non-resident for the last three tax years.
These guidelines aren’t comprehensive, and there are many scenarios where an expatriate is considered a tax resident in both Canada and the UK simultaneously. Canada and Britain have double tax treaties in place, so provided you declare and pay tax on your pension correctly, you should be able to avoid paying tax twice.
Speak to an Adviser in Canada
Blending Private and State Pension Income Overseas
Most British expats retiring abroad need to demonstrate they have sufficient wealth, pension income or other earnings to provide for themselves financially, depending on the type of visa they are applying for and their circumstances.
You may have both a private pension and UK State Pension entitlement but could find that receiving benefits in Canada from a private pension isn’t quite so simple. If you have already retired, you may be able to instruct your pension provider to pay your benefits straight into your bank account in Canada.
Many schemes do not offer this option and will only remit payments to UK accounts. Those that do will likely charge additional fees along with the exchange rate costs, so it’s not often the most beneficial option.
There are multiple considerations here, but some of the potential solutions could be:
- Transferring your private pension plan to a scheme on the HMRC Recognised Overseas Pension Scheme (ROPS) list. There are currently six authorised products on the approved list, which can change rapidly.
- Switching pension funds to a Self-Invested Personal Pension (SIPP) – similar to a ROPS in terms of flexibility and tax benefits, but a type of pension wrapper that remains in the UK.
- Withdrawing pension funds and investing in an alternative structure or diversified range of products to balance your risk exposure and returns.
It is important to seek professional advice before making decisions about your private pension in Canada, as the wrong choice could be costly.
For example, the Overseas Pension Transfer Charge could mean that if you withdraw funds from a UK scheme and transfer them overseas, you are liable for a 25% tax levy.
Likewise, if the UK government reinstates the Lifetime Allowance (previously set at £1.073 million) that could result in a separate 25% tax rate – although you would likely find that exposure to both charges would result in a partial offset.
Can I Claim a Canadian State Pension as a Citizen or Permanent Resident?
Foreign nationals living in Canada may become eligible for the equivalent domestic State Pension scheme, called the Canada Pension Plan (CPP).
Criteria include having worked in Canada after age 18 and having made contributions through payroll deductions in the same way National Insurance works in the UK. Your eligibility will depend on how long you have worked in Canada and the social security contributions made. The amount payable varies based on your average income over your working life.
CPP benefits are paid from age 60 at the earliest (at a reduced rate), and you could receive additional credits if you postpone claiming until age 70.
Expert Advice on Claiming Pension Benefits as an Expat in Canada
There are several variables, options and routes to retiring in Canada, and the decisions you make will impact your earnings, tax liabilities and overall pension fund value.
While there are multiple ways to manage pension transfers, the correct solution will rely on a thorough analysis of your residency position, wealth, and aspirations for the future.
If you would like further advice about claiming a British State Pension in Canada, evaluating currency exchange risks, or forming a strategy to maximise the value of private pension funds, please get in touch. Chase Buchanan is a global network of wealth management advisers with years of expertise supporting expats living in Canada, the US, and Europe.
Our Canadian team in Ontario is on hand to help, or you can contact our UK Administration Centre for guidance about the next steps forward.
* Updated April 2024