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Retiring and Not Sure What To Do With Your Pension?

Retiring and Not Sure What To Do With Your Pension?

Transfer your pension plan from your employer to a locked in retirement account managed by the experienced financial advisors at Accountable Inc. Wealth & Asset Management.

Many of our clients are choosing to transfer their pension plans from their employer to a locked in retirement account and have a financial advisor manage their funds.

Registered Pension Plan’s (RPP) are funded by employee contributions, employer contributions or a combination of both. The goal is to allow a pension income to be received at the employee’s retirement.

With the way RPPs work, the plan’s assets become “fully vested” with the employee after a certain amount of time – in most cases this is a period of two-to-five years. The term fully vested refers to the plan’s funds becoming full property of the employee once a specified age/service requirement is met.

When employees have reached the fully vested stage and leave an employer, they are afforded a choice with respect to their RPP funds. The amounts in the plan have become “locked-in”, and the first option would be to leave it with the former employer and receive a pension income at a later date. The individual would receive their pension at retirement.

The second option is to transfer the locked-in funds to a locked in retirement account (LIRA), which allows an individual the benefit of self-direction as it relates to managing the investments in the plan.

Let’s take a closer look at the two options with a simple case. Consider John, 54 years of age, who is considering leaving his employer at age 55, after many years of service. He meets his advisor who highlights the options relating to his RPP funds.

Keep pension with former employer:
  • Michael has no control over the way his RPP funds are invested.
  • He will have a CPP offset at age 65 – meaning his pension will be reduced from the age of 65 by the amount of the CPP payment.
  • If John were to pass away, his spouse Susan would only receive approximately 66.66% (two-thirds) of the income.  When Susan passes, John’s children would receive nothing.
  • If the former employer were to become insolvent or declare bankruptcy, there is no guarantee John would still receive his pension.
  • John would receive a steady monthly cash flow.
Benefits of transferring the pension to a locked in retirement account (LIRA):
  • John has full control of the funds; so he is free to choose where assets are invested and ensure proper diversification.
  • There is no CPP offset at 65 – therefore John has a full entitlement to both pension plans.
  • If John were to pass away, his spouse Susan (named beneficiary) would receive 100% of the assets.  The children would inherit the assets when Susan passed.  A very attractive characteristic.

It is quite clear that the choice of transferring the pension plan to a locked in retirement account is the better option. It allows flexibility in the form of self-direction, a higher total income received (no CPP offset), and can provide full – rather than partial – inheritance to named beneficiaries.

Since the funds are locked-in, they cannot be withdrawn prior to retirement (in most situations), or received as a lump sum. Instead, by December 31st of the year in which the individual turns 71, the locked-in RRSP must be converted into a Life Annuity, Life Income Fund (LIF), or Locked-In Retirement Fund (LIRF). In this manner, the LIRA is designed to truly replicate the RPP, but with obvious benefits to the former employee.

Contact or call us at 519-434-0449 for assistance with your pension transfer