Do You Trust Your Employer With Your Pension?

Whether you’re retiring by choice, you’ve been terminated, or impacted by layoffs… if you’re like most people, you probably don’t think too much about your pension until you’re getting ready to retire. Before that time comes, think about the answer to these questions:

  • How much do you trust your employer with your pension funds?
  • Is the company you work for in a stable industry and financially strong?
  • Do you foresee your company potentially going bankrupt in the next 10, 20, or 30+ years?

Example 1: Sears Canada’s Pension Fund was short $267 million, according to court documents, and retirees had their pensions cut by 30% after the retailer folded and left behind an underfunded pension plan.

Example 2: Frost Fence Co. if Hamilton ON. Stelco sold Frost to a new owner. My friend went with the sale although he was a long time employee of Stelco. No choice. The new owner bankrupted Frost and under funded the pension. My buddy took a 30% haircut.

When you retire, you may want to consider moving your defined-benefit or defined-contribution pension away from your employer and into a secure financial institution that your employer does not have any control over. Remember, you could be retired longer than you worked.

Several reasons why:

  • Moving your pension away from a company you no longer trust or think might go bankrupt.
  • Some employers offer limited investment options for their pensions. By moving your pension to a new provider, you may have access to a wider range of investments.
  • Employers tend to outsource the management of their pension plans. This can make it difficult to get the information and help you need [when you’re 80 years old]. Instead, move your pension to a Cdn insurer for safety and growth. Do this via your local financial advisor who will deliver personalized service to you.

If moving your pension out of the control of your employer, there are two strategies we recommend:

1. The copycat annuity is a popular choice for employees coming out of a defined-benefits pension plan. It allows you to receive the same pension that your employer promised you, but it gets paid out by a secure Canadian insurer (such as Sun Life, Manulife, Canada Life, or Desjardins) instead of the company you worked for. The Canadian insurance company you choose will pay you the exact same pension, same bridge and the same spousal pension. Plus, sometimes you might qualify for bonus surplus cash. We’ve seen bonus cash payouts up to $72,000! Sound like B.S.? Not so! We regularly negotiate 2% – 8% of the commuted value. You might qualify.

2. Taking the cash is known as the commuted value. You’re able to move the money out of the company pension plan so it can be self-managed by you. Your employer cuts two cheques to you, one is locked in pension money, the other is cash. Watch out for the government tax grab dictated by the MTV ,maximum transfer value. But beyond that, this is your money. Use it for retirement or to pay off your mortgage or buy a boat or RV. Take a trip. The rest is your estate. Remember: commuted values can leave an estate, not so for pensions.

Before making any moves, always consult a financial advisor to understand the nuances involved.

We’d be happy to chat with you about it, schedule a free virtual zoom call with a Certified Financial Planner.

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