This is going to be a short blog.
Storytime: Recently, I was told this by a retiring auto worker. The rumor is there is a $100,000 new tax by the government if you go copycat.
Two letter response: B.S.
Fact: there is no tax hit on the copycat. In fact, CRA, the government revenue agency, mandate that your copycat pension must be the same as the pension offered by your employer. Period. Not less, not more. Period.
So, think about it, if Sun Life for example will issue you an identical pension, they’re going to need the cash. Sometimes they sharpen their pencils and return to you a surplus. But, the taxman does not get in the middle. (He’ll get the tax as you receive your monthly pension.)
There is NO tax. ok? I repeat. There is no tax on copycats. The copycat is the same as your employer pension.
So Bruce, where does the confusion come from? My guess is that the shop floor rumor mill has confused the copycat with the commuted value. Yes, when you take the commute you’ll likely have a big tax hit. Maybe $100,000 depending on your age, gender, RRSP room, time of year, etc. But this tax hit is only the case with commutes, not with copycats.
There you go. Feel better now?
Bruce Youngblud, CFP
Pension Solutions Canada