Leaving a job is typically a difficult and emotional experience. You’ve invested time, energy and effort into your career, you like your colleagues (most of the time), and you feel like you’re planning up to this point has been going well. Walking away from a job is stressful.
You might be wondering… what happens to my pension if I quit my job?
Whether you are quitting your job freely or involuntarily, there are important financial considerations to consider:
- Retirement allowance planning: this includes retirement payouts from a company retirement allowance or a retirement income plan.
- Severance pay: the amount you’re entitled to in case of termination.
- Benefits coverage: your health, dental, and disability insurance.
- Pension / retirement plan alternatives: income funds, investments, etc.
- Early retirement: whether you can retire early and what happens to your pension if you do.
- Taxable benefits: any taxable employment benefit received during active employment years is going to be subject to taxes once your employment ends, but not all taxable benefits are taxed equally.
Leaving a job is an important decision for your future. Before you resign from your position, have a heart to heart with your financial planner so you are ready for the transition ahead of time.
Note: This article is about the different things you should think about when leaving a job, and what happens to your pension. This article does not give legal advice, but rather general information. If in doubt whether something that happened to you was unlawful termination, speak to an employment lawyer about your options.
Your Pension After Quitting Your Job
If you quit your job, your options for how to use your pension will be determined by the rules of your company’s pension plan, and the laws of the province/jurisdiction you reside in.
You might be able to:
- Leave your money in the plan
- Transfer the value of your pension to another pension plan
- Transfer your commuted value to a registered retirement savings plan or other plan (if it’s not locked in), or a locked-in vehicle (if it’s locked in), or take the cash value/commuted value.
Some provinces may have vesting rules based on years of service or plan participation. If you leave before the benefits are fully vested, you will be compensated for your own contributions and earnings, but you don’t get to keep your employer’s payments or earnings.
If you are quitting and getting out of a pension plan for whatever reason, you should consult with a Certified Financial Planner. They will be able to guide you through the next steps and help answer your questions. Book a call here.
Moving Your Pension
If you are leaving your work or were recently dismissed by your employer and your business offers a pension plan, you may want to consider transferring your defined-benefit or defined-contribution pension to a safe financial institution that your employer has no influence over.
When you leave your job, you can transfer the funds in your defined-benefit pension plan to another investment vehicle such as an RRSP, RRIF or LIF that gives you greater flexibility and control over your money.
Keep in mind: The transfer process can take time: it could be a matter of weeks or even months before your defined-benefit pension is transferred to your new investment vehicle.
Before deciding on a withdrawal strategy, consider consulting with an investment advisor who can help you sort through all of your options and choose what works best for you.
Click here to learn more about moving your pension when leaving your job.
If you’re leaving your job on mutually agreeable terms, or if your employer fires you, you may be entitled to severance pay. Most severance packages are outlined in your employee contract. Unless there is a violation of your employment agreement (for example: theft, harassment), or serious misconduct on your part that results in termination, you are likely to receive severance pay.
However, sometimes employers don’t follow the proper procedures when dismissing an employee and will try to avoid severance pay. If you’re not sure about how much money you’re entitled to, speak with a legal professional who deals with employment law in your province/territory.
You might want to make note of the following when negotiating your severance pay:
- If you leave without providing proper notice, you may not be entitled to severance.
- Negotiate for a lump-sum payment instead of monthly instalments if you’re wanting to put the money into your own investments.
- If you are able to negotiate your severance, make sure the money is put into an interest-bearing savings account.
- In some cases, transferring your existing pension to another financial institution might be better for you financially, and there may be the opportunity to receive surplus cash.
Health, Dental and Disability Insurance Coverage
If you are involuntarily leaving your job without retirement or severance packages to support you, one financial downside is the loss of employer-provided health insurance. Generally speaking, if your job ends, your coverage ends, too.
You should apply for health insurance as soon as possible to avoid paying a premium. You can get individual coverage to replace your employer’s group insurance if you apply within a specified time (usually 90 days). Call your employer’s benefits provider to find out whether you can switch over to individual coverage from your group plan. If you transition over quick enough, you may be able to avoid having to do a medical questionnaire or exam.
Employers are required by law to provide a printed or electronic package outlining their benefits program to you and you should be able to request an updated copy if you don’t have one handy when you leave your job. If you were unable to get the details before leaving your position, ask to set up a meeting with HR or call them directly.
When you leave your job for any reason, make sure you collect all retirement planning and benefits information (such as employee handbook) to keep on file at home. You’ll need this when applying for individual coverage so you have all your employer’s group benefits information to get continuity of coverage.
Book A Call With Us
Always seek the assistance of a qualified financial advisor to guide you through a smooth and stress-free retirement! A specialist can answer your retirement pension concerns and assist you in understanding next steps.
Pension Solutions Canada’s staff are available to assist you. We specialize in assisting people in preparing for retirement. Allow us to evaluate and review your retirement income sources and assist you with retirement planning. Call us at 1-888-554-6661, or click here to book a virtual Zoom meeting.