Pension Transfers

When you leave an employer who a pension plan in place, there is usually an option to transfer that pension plan into a personal retirement account. Essentially, what you're doing is leaving the pension plan in exchange for a lump sum of cash that is determined to be an equal benefit when compared to the pension you would've received.

There are many pros and cons for transferring your pension to a personal retirement account, and the situation is very different with each individual case..

Considerations when Transferring

          Flexibility - More options in how the money is invested and withdrawn. You and your financial planner can discuss risk tolerance and how to use that money to provide long-term income in your retirement.

          Inheritance - Instead of the money you contributed to the pension your working life being consumed by the pension company to continue providing benefits to other pensioners, you will have the money in your pocket allowing you to pass it along to future generations.

          Health - If you suffer from poor health, there will be access to more money while you're still alive, and/or you will be able to leave a larger inheritance for your family.

          Concerns about the Employers Future - If you're unsure that your former employer will be able to financially meet the pension promise over the long term, it may be beneficial to take a lump sum to avoid the uncertainty. Ontario is the only province with pension laws protecting you in this situation, and it's capped at $1,000/month.

          Certainty - A pension plan monthly payment should never decrease, even in a stock market correction. When planned for correctly, a personal retirement account can have the same reliability.

        Inflation - Some pension plans come with a provision that your pension payments will increase with inflation. If your pension has that provision, it becomes more valuable. In a personal retirement account, inflation has to be made up through quality investing.

          Provisions for Survivors - Most pension plans will continue payment to your spouse or common-law partner after death - it's built into the plan. In the personal retirement account, this is done through the inheritance.

          Taxation - Depending on the size of the pension payout and other factors around your personal financial situation, there may be taxes due when transferring a pension. Many times the taxes due can be eliminated or minimized with different strategies.