If you have a vested company pension and you decide to leave that employer, what’s your best option: getting a deferred pension or transferring those funds into a locked-in account and managing it on your own?
—Sharon Duclos, Brantford, Ont.
Many people fret over this question, says Malcolm Hamilton, a partner at Mercer, but there’s no right answer. It really depends on the option you like best, he says. The amount you would get in a lump sum is prescribed by law to be “actuarially neutral,” meaning you won’t get any more (or less) than you would if you left the money in the plan. “If you like playing in the stock market then take the lump sum,” says Hamilton, as long as you recognize the risks. “But there’s nothing inherently wrong with saying you’d like to have some guaranteed income for life.” Indeed, if you already have a self-directed RRSP that is heavily weighted in stocks, you might want to opt for the guaranteed pension income as a safety net.
Another thing to consider is whether you already have pensions from previous jobs. You don’t want to have 10 different pensions from 10 different employers, says Hamilton. It’s hard to manage and you risk forgetting about them. You’ll also want to consider the financial health of the company and how well funded the pension happens to be. “Bottom line, if you leave the money in the pension fund and it is badly funded or the employer goes bankrupt, you’re at risk.”
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