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Understanding Jazz Aviation Pension Options: An Insightful Guide

As a dedicated Jazz Aviation employee, understanding your pension choices is vital. Whether you lean towards the traditional company pension, are intrigued by the cash-out option, or see potential in the copycat annuity, ensure you’re equipped with the right knowledge and expert advice.

Unpacking Jazz Aviation’s Defined Benefit Pension Plan

Upon nearing retirement, Jazz Aviation employees will be presented with their pension option statement. This is essentially the route you decide to take with your pension:

a. Company Pension: The Traditional Route

The traditional option is the company pension, which is a defined benefit pension plan. It guarantees a set monthly payment – for instance, $5,000. The ‘defined’ in defined benefit means the amount is pre-set, and the ‘benefit’ simply refers to the monetary advantage that lands in your bank account every month. So defined benefit is specific payment.

b. Commuted Value: The Cash-Out Option

Some employees lean towards this ‘take the cash’ approach. In essence, you can withdraw the lump sum pension value – which could be in the range of hundreds of thousands to well over a million dollars. This sum is designed to sustain you for the rest of your life, replicating a pension. However, there are nuances to understand:

  • Locked-in Portion: The LIRA, locked-in retirement account, is money that you cannot access prior to a certain age, often age 55. Most of your commuted value will be locked in. The balance is non locked-in.
  • Non-locked-in Portion: This portion can ideally be transferred directly to your RRSP, if allowed by the employer. You must have available contribution room. If no room exists in your RRSP, this will be treated as taxable cash.

Remember, the commuted value comes in two primary parts: Part A (locked in retirement account or LIRA) and Part B (ideally, your RRSP or, in a less ideal scenario, cash after withholding tax).

c. Copycat Annuity: The New Contender

The copycat annuity or pension is a fascinating new choice. This option involves moving your pension to a trusted Canadian financial institution, like Sun Life. The institution then assumes the obligation to pay you the pension, which must be identical to what Jazz Aviation would have provided. In other words, you collect your same pension BUT draw that from Sun Life forever.

Why consider this?

  • Confidence in Longevity: Not every employee is certain about their employer’s financial stability. Some folks simply do not trust their employer. By shifting to a strong Cdn. financial institution, there’s increased assurance that the pension will be paid for your life. Additionally, Cdn. insurers are backed by Assuris.
  • Cash Surplus Possibility: Often, there’s a cash surplus when transferring to a copycat annuity. For instance, if your commuted value is a million dollars and Sun Life only requires $950,000 to pay out the same pension, you’ll have a $50,000 cash surplus, which, after tax, is money in your pocket or pre-tax into your RRSP.

2. Making Your Decision: Reach Out for Expert Guidance

Before settling on a pension path, it’s invaluable to consult with experts like Bruce Youngblood. They offer invaluable insights and advice tailored to your unique situation.

Ready to explore further? Click here to book a free 15-minute discussion with Bruce to delve into what’s best for your financial future.

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