This is the Year of The Pink Slip - What it means to your pension?
Are you being "downsized", changing jobs, or retiring - what it means to your pension?
Are you being ‘downsized’, changing jobs or retiring? If so, you’ll have some important financial decisions to make – especially when it comes to your pension plan. Here are some important facts you need to know.
The Essentials
You are entitled to all the money you contributed to your pension plan plus your investment earnings. After a certain period (determined by provincial legislation), you also become entitled to your employer’s contributions to your pension plan. This is referred to as being “vested.” When you leave your employer, you can choose to leave your money in the pension plan and draw a pension when you are ready. Many plans allow you to transfer your accumulated cash value to your own locked-in plan that will give you greater control over how your money is invested and when you withdraw it as income. However, deciding to transfer to a locked-in account could result in the loss of other employer benefits like extended health care, dental care or pension increases that offset inflation.
Types of Plans
There are two basic types of employer-sponsored registered pension plans (RPPs):
Defined Benefit (DB) pension plans guarantee a specific pension amount paid to you regularly from retirement through the rest of your life. The amount of your DB pension benefit is set according to your length of service and average salary. If you plan to take early retirement, assess the financial impacts such as when you could receive an unreduced pension and whether your pension plan includes a “bridging” benefit to provide slightly higher benefits until you reach age 65 and Canada Pension Plan (CPP) and Old Age Security (OAS) benefits kick in.
Defined Contribution (DC) pension plans, also known as money purchase plans, do not guarantee the amount of future benefits. Your retirement income will depend on accumulated contributions and the investment returns earned by these contributions.
Retirement Incentives and Severance
You may have been offered an attractive financial package to take early retirement. If you were “downsized,” you probably received some severance pay. You may also be entitled to some or all of the pension benefits you’ve accumulated at the company.
The most important factor is that the total amount is usually fully taxable in the year you receive your severance -- although there may be ways to defer tax on some or all of it.
Your pension plan decisions can have a major impact on the quality of your retirement or your standard of living while seeking a new opportunity. Make the best choices for your situation by assessing alternatives with the help of your professional financial advisor.
This article is presented for general information only. Consult your financial advisor for your specific financial situation.
Labels: downsized, insurance, investments, job loss, pension plan, registered pension plan, retirement, severance
posted by laramaryann @ 8:02 PM
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