Losing a job is never easy, especially when it comes unexpectedly after years of service. Recently laid off Bell Canada employees face the immediate challenge of understanding and deciding on their pension options. Fortunately, there are professionals like Bruce Youngblud from Pension Solutions Canada.com who specialize in helping employees navigate these challenging waters.
A Sudden Goodbye
The bitter pill to swallow is the sudden nature of such exits. After decades of service, employees might find themselves on the receiving end of the abrupt message: “Your services are no longer required”. But what does that mean for their pension?
Three Main Pension Options
For Bell Canada employees, there are three primary pension options:
- Company Pension: After being laid off, employees will receive a pension statement detailing their monthly payout amount, including potential spousal continuation. This is a fixed sum for life based on one’s service and salary while at the company.
- Commuted Value Option: This option allows the employee to transfer a cash lump sum from their pension plan to a financial institution. While many institutions can handle this transfer, Pension Solutions Canada primarily collaborates with Manulife. A portion of the transferred amount goes into a locked-in retirement account, and the remainder arrives as cash. However, government legislation caps the amount transferable, known as the maximum transfer value (MTV).
- Copycat Annuity: A relatively newer option, the copycat annuity is a means for an employee to receive the equivalent of their company pension from an insurance company like Sun Life. This option can sometimes result in a cash surplus if the insurance company requires less than the earmarked commuted value for the pension.
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Managing the Cash Portion
When opting for the commuted value, there’s the challenge of handling the cash portion. Employees should:
- Check for RRSP Room: The possibility to shelter some money in a Registered Retirement Savings Plan can help in reducing tax implications.
- Consider Spousal RRSP: If one’s spouse has unused RRSP room, the after-tax cash can be sheltered there, reducing the overall tax bill. However, this strategy works best when the spouse is currently working and paying taxes.
The Rate of Return Question
A critical aspect to consider when assessing pension options is the expected rate of return. If an employee can secure a decent return on their investment, like a 5% GIC, the cash-out option becomes more attractive. Not only does this provide the peace of mind of a consistent return, but it also allows flexibility in managing assets, be it fulfilling lifelong dreams or ensuring a legacy for beneficiaries.
A Surprise in the Copycat Annuity
A pleasant surprise sometimes awaits in the copycat annuity. When the actuary from an insurance company requires less than the commuted value proposed by the employer, the surplus comes to the employee as taxable cash.
Want to Explore Further?
Bruce Youngblud of Pension Solutions Canada.com offers a wealth of resources for those facing pension decisions. With extensive videos and expert insights on topics ranging from retirement planning, CPP, OAS, to estate planning, Bruce is ready to help. For those interested, click here to schedule a free 15-minute Zoom call to address your individual concerns and get started.
