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Pension Options When Leaving Your Job

Whether you’re leaving your job by choice, you’ve been terminated, impacted by layoffs, or you’re considering a career transition, addressing the question of what to do with your company pension plan is paramount.

As a worker in Canada, you have several options to take with your company pension, so let’s dive deep and explore what you need to know.

1. Weighing the Decision: Stay or Transfer?

When you decide to move on from your job, you’re faced with a critical decision regarding your defined-benefit (DB) or defined-contribution (DC) pension.

  • Defined-Benefit (DB) Pension: You can either leave it with your former employer or transfer it to a new employer’s plan.
  • Defined-Contribution (DC) Pension: Typically, you can take your account balance with you to invest elsewhere.

Several reasons might make you lean towards moving your pension:

  • Moving your pension away from a company you no longer trust or think might go bankrupt.
  • Seeking better retirement planning opportunities.
  • Desiring more personalized service.

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

2. Vesting Period and Your Rights

It’s crucial to ascertain if your pension, whether DB or DC, is fully vested. This determines your rights over contributions made by your employer and any subsequent earnings. Typically, the vesting period is two years or less, but this can vary across companies. Depending on your province, immediate vesting might be mandatory.

3. Getting the Facts Straight: Statement of Pension Benefits

After leaving your job, ensure you acquire a written statement of benefits. This document details your retirement benefits and serves as a tangible record.

Employers have a 30-day window to provide this, which should include:

  • Overview of the benefits.
  • Commuted value of your plan.
  • Available options and decision deadlines.
  • Pension plan administrator’s contact information.

4. Choices Ahead: What’s Best for You?

  • Choice #1: Do Nothing: Keeping your pension with the company may be an easy route, but it does come with its share of risks. Company stability could affect your pension payout.
  • Choice #2: Transfer to new employer: Ask you new employer if they will accept your DB pension. Private companies tend to NOT accept this. Public institutions will likely make you an offer. You may have the opportunity to “buy back” extra time.
  • Choice #3: Copycat Annuity: Transitioning into a copycat annuity ensures the same pension benefits, but from a reliable Canadian insurer like Sun Life, Canada Life, or Desjardins. In most cases, there is a cash surplus.
  • Choice #4: Take the Cash: Opting for the commuted value provides flexibility, but also introduces the challenge of managing the funds wisely as well as tax implication. Let’s take a close look at the tax implications.

5. Specific Scenarios: Resignation, Termination, and Transfers

  • Resignation: Both federal and provincial rules safeguard pension rights, varying depending on the pension type. Defined-benefit pension holders can often take their benefits as a lump-sum or transfer into a Locked-in Retirement Account (LIRA). For defined-contribution pension members, a locked-in savings plan or cashable savings account will be available.
  • Transferring to a New Employer: If you’re transitioning to another job, it might be possible to transfer your pension benefits, provided the new plan offers accepts.
  • Termination: Even after being fired, you nonetheless own your pension.

6. Charting Uncharted Territories: Leaving Without a New Job

In scenarios where there’s no immediate job on the horizon, considering a lump-sum payout or locked-in savings plan is advisable.

  • Lump-Sum Payment: Opting for this might mean paying income tax on the entire sum, potentially landing you in a higher tax bracket. However, you can park the pension funds. Let them grow. Then draw a pension once you retire.
  • Locked-in Retirement Account (LIRA): A LIRA functions like an RRSP, with the key difference being funds accessibility. Your money in a LIRA remains inaccessible until age 55, normally. When you draw on a LIRA, there is a maximum draw amount.

Start By Contacting Pension Solutions Canada

Navigating the pension landscape post-employment can seem daunting. But with the right tools, knowledge, and expert guidance, you can ensure that your retirement remains as comfortable and secure as envisioned.

Whether you’re mulling over options or seeking tax minimization strategies, connecting with a certified financial planner can provide clarity and direction.

Plan for your future today! Schedule a 15-minute consultation with one of our Certified Financial Planners by clicking here. It’s completely free.

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