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What Are My Pension Options When I Leave Work?

Deciding What to Do Can Be a Balancing Act

When you leave your job, your company will send you a summary of your pension plan options. When you review your choices, think about balancing the cash you need in retirement with the level of risk you're okay with and whether you want to leave a benefit to your estate.

Common Options for Pension Plans

While available options can vary from one plan to another—here are four common ones

Option 1: Keep Your Pension with Your Former Employer

Income Flexibility

Survivor Benefits and Estate Planning

Investment Management and Investment Risk

Income Flexibility

Survivor Benefits and Estate Planning

Investment Management and Investment Risk
  • Pro: Benefits are payable for life.
  • Con: Limited or no ability to change payments once they begin.
  • Con: Limited or no ability to access large single payments from the plan.
  • Pro: If you die prior to payments starting, the present value may be available to your surviving spouse or benficiaries.
  • Pro: If payments have started, your surviving spouse generally receives a reduced monthly payment for the rest of his or her life.
Defined Benefit (DB) plan:
  • Pro or Con (depending on how you feel about it): Investment decisions are made by pension plan administrator.
  • Pro: Risk lies with plan administrator.
Defined Contribution (DC) plan:
  • Pro or Con (depending on how you feel about it): You make investment decisions, subject to limited choices.
  • Con: Risk lies with you.
Option 2: Purchase an Annuity

Income Flexibility

Survivor Benefits and Estate Planning

Investment Management and Investment Risk

Income Flexibility

Survivor Benefits and Estate Planning

Investment Management and Investment Risk
  • Con: Limited or no ability to change payments once they begin.
  • Con: Limited or no ability to access large single payments from annuity contract.
  • Pro: Details are agreed to when annuity is selected.
  • Pro: Various options are available to provide protection to your surviving spouse and/or estate.
  • Pro: Insurance company assumes risk if investments don't perform as expected.
Option 3: Transfer to a LIRA/Locked-in RRSP

Income Flexibility

Survivor Benefits and Estate Planning

Investment Management and Investment Risk

Income Flexibility

Survivor Benefits and Estate Planning

Investment Management and Investment Risk
  • Pro: Flexible amount of income may be taken each year, subject to minimum and maximum amounts and minimum age requirements.
  • Pro: Some flexibility to delay taking income and allow LIRA/locked-in RRSP to potentially grow in value, subject to age limits.
  • Pro: Some flexibility to withdraw large sums and/or unlock funds for increased availability later.
  • Pro: Surviving spouse may receive 100% of remaining plan value on a tax-sheltered basis.
  • Pro: Payable to estate or other beneficiaries if there is no surviving spouse.
  • Pro: In some provinces, surviving spouse may have increased access to large sums (i.e. unlocking).
  • Con: Estate is responsible for paying taxes.
  • Pro: You can decide how involved to be and choose from a wide range of investments.
  • Pro: You may benefit from strong investment performance.
  • Con: You assume the risk of weak investment performance.
Option 4: Transfer to a New Employer Pension Plan
  • If you stop working at your new employer and remain in that employers pension plan, refer to option 1.
  • If you end membership in your new employer's plan and purchase an annuity or convert to a LIRA or locked-in RRSP, refer to option 2 or 3 as applicable.

Note: Your available options will depend on your specific pension plan as well as the legislation that governs your benefits.

How Do You Make the Right Choice?

Although the choice is often irreversible, you don't have to make this decision alone. An RBC Financial Planner can work with your tax advisor and pension or benefits representative to help you select the option that is best for you.

Tip: Select an option before the deadline on your paperwork; otherwise, your plan administrator may assign a default option, which may not be the best choice for you.

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