Understand Your Options
Your options on leaving your employer may depend on whether your current retirement program is a defined benefit plan or defined contribution plan, whether your benefits are locked in or not, and on whether it is contributory on non-contributory. Your employer will provide you with information outlining the options specific to your plan.
Defined Benefit Plan Options
Generally speaking, if you are a member of a defined benefit plan leaving your employer prior to retirement, you will have the option of remaining a member of the plan and receiving a pension income at retirement, or transferring a lump sum present value (the accumulated value) to an RRSP. If you leave your employer or retire from your employer after becoming eligible for early retirement (usually at Age 55), you may not have the option of taking the commuted value. Your Human Resources specialist can confirm the options available to you.
Option 1: Immediate Pension Option
If you leave your employer and are within 10 years of your normal retirement date, you may be entitled to receive an immediate pension. The amount of this early retirement pension will be specified in the information provided to you by your employer. To qualify, you must generally be within 10 years of your normal retirement date.
Option 2: Deferred Pension Option
A deferred pension simply means that you are entitled to receive a monthly income, payable from the plan at retirement. You are entitled to receive this monthly income on your normal retirement date (usually Age 65), or in some cases, starting as soon as you are eligible for early retirement. If you are permitted an early retirement option, your pension income will be reduced for each month prior to your normal retirement date. Pension income commences on your early retirement date or your normal retirement date.
Option 3: Commuted Value
The commuted value is a lump sum amount that represents the present value of the deferred pension based on a prescribed basis under pension law. In most cases, employer and employee contributions are locked-in, meaning they cannot be withdrawn but rather must be used to provide retirement income (from Age 55 or later). Generally, any additional voluntary contributions made by you are not locked-in.
1. Transfer to your new employer's pension plan
2. Purchase of a deferred annuity
3. Transfer to a locked-in vehicle (RRSP or LIRA)
If you elect to receive the commuted value of your pension plan, you have several options to consider:
- You may transfer the commuted value to your new employer's pension plan if this plan allows such a transfer
- You may be able to use the lump sum to purchase a deferred annuity (this means buying an annuity which is to start at some time in the future). However, unless current interest rates are very high and you are near retirement age, this is usually not considered a viable option.
- You may transfer the lump sum directly to a locked-in vehicle (RRSP or LIRA)
Defined Contribution Plan Options
If you are a member of a defined contribution plan, you will have an individual account of accumulated contributions and investment earnings to date. The market value of the assets in this account will be shown on statements sent to you periodically from the plan administrator. If you are leaving your employer, the following options may be available to you.
Option 1: Transfer the Funds to Another Pension Plan
You may be able to transfer your account value to your new employer's pension plan if this plan allows such as a transfer.
Option 2: Stay with Your Present Pension Plan
Your present employer may permit you to remain a member of the pension plan until retirement, in which case, you would continue to maintain your account with your pension assets invested in the various investment options you have selected.
Option 3: Transfer to an RRSP
You may have the option of rolling the value of your account directly into an RRSP. If the funds are coming from a Group RRSP or DPSP, then transfers can be made to a regular RRSP. However, in most cases, for defined contribution pension plans, employer and required employee contributions are locked-in and will be placed in a locked-in RRSP.