When a plan member is leaving a pension plan in Ontario, they generally have the right to choose between:
A Commuted Value – a lump sum payment that represents the present value of future pension payment
A Deferred Pension – where you start receiving pension payments from the plan in the future.
Wondering what to do? Should you take the lump sum or just start collecting the pension payments when you’re ready to retire?
Unfortunately – there’s no right answer!
Many questions come in to play when making such a decision. One of the most important is:
“Do I feel comfortable managing a potentially large lump sum for many years until retirement and then arranging an appropriate payout strategy when I’m ready to start accessing the money?”
A more emotional response may be:
“Well, I’m leaving the company (or the company has left me) – I don’t want anything to do with these guys ever again – give me my money!”
“How am I supposed to remember that I’m supposed to start getting a pension when I turn 65?” On this last point, regulations have been brought in to require plans to start issuing periodic statements to deferred members.
Another good self-evaluation is: “I don’t know what my situation is going to be years from now, but it might be a good idea to have a payment stream start when I’m ready to retire, even if it is only a modest monthly amount.”
The other part of the equation is Risk. If you take the lump sum, there is a risk your own investment results might not be as good as the pension plan’s and you wind up with less income than you thought. If you leave the pension with the plan, there are risks around the company itself or the health of the plan and its ability to pay your pension. The government does have some rules to help mitigate this last circumstance.
Remember any money transferred out in a lump sum is usually subject to locking-in rules, so you can’t really access the money until closer to retirement.
At Mondelis, our skilled team of actuaries have walked many plan members through this process. We can help you weigh all the pros and cons and your personal circumstances before making a decision.
To learn more, contact us today at 519-579-1255.