If you’ve just been laid off and you’re staring at a thick pension packet from HR, take a breath. It’s overwhelming—especially if you’ve been with your employer for years. And if you’re lucky enough to have a defined benefit or defined contribution pension plan, you’re probably asking: What happens now? Should I take the money? Move it? Leave it?
The decisions you make right now can affect your entire retirement. So let’s walk through what you need to know.
First: Don’t Rush It
Seriously. One of the biggest mistakes people make is jumping into a decision just to get it over with. But with pensions, there’s no gold medal for being first to file your paperwork. You typically have some time, typically 60 – 90 days, to make a decision—use it.
Start by reviewing your final pension statement. This will include your commuted value (if you’re eligible), your monthly pension estimate (if you leave it in the plan), and any important deadlines or options.
For a deep dive on this, check out our article on obtaining a final pension statement.
What Are Your Options?
Depending on the type of pension you have and your years of service, you’ll usually be faced with a few key choices:
1. Leave It in the Plan
If you have a defined benefit (DB) pension, this means leaving your pension with your former employer. When you retire, you’ll receive a monthly income for life based on a formula tied to your salary and years of service.
Pros:
- Predictable income for life
- No investment management needed
- Possible inflation indexing
Cons:
- Zero control over the funds
- Risk if the plan becomes underfunded
- No estate value if you pass away early
This might be okay for some—but others want control. That’s where the commuted value comes in.
2. Take the Commuted Value
This is a lump sum payout that represents the present value of your future pension. It’s calculated using actuarial formulas that factor in life expectancy and current interest rates.
If you’re under retirement age and eligible, you might be offered a commuted value. The lump sum can be transferred to a Locked-In Retirement Account (LIRA) and managed on your terms.
Learn more about how commuted value works in our full breakdown: What is Commuted Value for Pensions in Canada?
Pros:
- Control over investments
- Potential to leave assets to heirs
- Flexible retirement strategy
Cons:
- Monthly income can vary with investment returns.
- Investment risk
- Partial taxation if over transfer limit, MTV, maximum transfer value.
And speaking of income guarantees…
3. Set Up a Copycat Annuity
A copycat annuity is a way to replicate the monthly income you would’ve gotten from your defined benefit plan—without leaving the money locked up with your former employer. It’s an annuity purchased from a life insurance company using your commuted value payout.
This option gives you lifetime income but keeps the control and structure outside of your old employer’s hands.
You can read more about this strategy here: Why Canadians Should Consider a Copycat Annuity
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Should You Take the Lump Sum?
Here’s the thing: lump sum payouts (commuted value) sound appealing, especially when the numbers are large. But this isn’t a lottery win—it’s money meant to support you for decades.
Still, for a lot of laid-off employees, the commuted value route paired with a copycat annuity or custom investment plan can offer more flexibility and better estate options.
We break that trade-off down more here: What Happens if You Cash Out the Commuted Value of Your Pension?
Timing Matters
The value of your pension isn’t fixed in stone. Interest rates, your age, and plan rules all play a part. When interest rates are low, your commuted value is usually higher.
If you’ve been laid off recently and interest rates are still relatively low, your offer may be at or near its peak value.
More on this here: Video: Jon Hreljac Explains Commuted Value Advantages
What About Defined Contribution (DC) Plans?
If you have a defined contribution plan, it’s a bit more straightforward. Your account value is yours to transfer, typically to a LIRA or RRSP. You’ll need to decide how to manage it going forward. I spoke with an HBC employee. His money sits at Canada Life IN HIS NAME. That means the money is fully vested. The employer has on access to that money. Great news.
But don’t treat it casually. These plans often come with a mix of mutual funds or company-selected investments—and you can likely do better with a bit of strategic planning.
You may also want to look into other financial options to get the most out of your savings. We touch on this in our article here.
Don’t Rely on HR to Explain It All
The pension paperwork might come from your employer, but they’re not your fiduciary. Their HR rep isn’t there to optimize your retirement or explain all your options.
You need independent advice from someone who understands commuted values, annuities, tax implications, and planning for longevity. Book a free call with us right away.
You’ve Got One Shot to Do It Right
Here’s the truth: once you make your decision, there’s no going back. You don’t get a do-over on whether you took the commuted value or not. And the wrong choice can cost you hundreds of thousands of dollars in future income.
So if you’re unsure—get help. Our team at Pension Solutions Canada has Certified Financial Planners who specialize in pension transitions, especially for laid-off or near-retirement workers. Click here to chat with us.
