Changing jobs: your pension options

You may be thinking about changing your job soon, or perhaps you already have a new job offer? If you currently have a workplace pension plan you should carefully consider the options you have with regards to your accumulated pension funds. While the temptation may be to remove the money from the plan and invest it based on the advice of a friend, family member or financial planner, you should do your own homework to determine whether this is the right move for you.

So what happens when you resign from a company and are a member of the pension plan? Within 30 days of the date that you terminate employment, your pension plan administrator must provide you with a written statement of benefits. Keep this somewhere safe forever. In the event there are any administrative errors, this is proof of your retirement benefit entitlement. The statement must include:

  • details about the pension benefits payable to you from the plan;
  • the options you have for what to do with those benefits;
  • the deadlines for choosing an option; and
  • information about any refund(s), plus any interest, for which you are eligible.

The pension options you have when changing your job depend on whether your pension plan offers defined benefits or defined contributions.

Defined benefits

If your pension plan offers defined benefits and you decide to change jobs, your options are:

  1. Transfer your pension to your new employer’s pension plan: Your new workplace may have an established workplace pension plan and they may allow you to transfer your current pension. Be sure to also check that your current workplace pension allows you to do this.
  2. Leave your pension in your current employer’s pension plan: if allowed to do this, you will receive a pension benefit when you retire. In today’s gig economy, you may end up working twenty different jobs before you retire, some with pensions. They will only benefit you if you keep the plan administrators up to date with any life events such as getting married or divorced, or changing your address. If they can’t find you when it comes time to collect your pension benefit you’ll miss out!
  3. Take your pension money and invest it elsewhere: This could mean transferring your pension to a Locked-In Retirement Account (LIRA) offered by a financial institution, such as a bank. A LIRA is similar to a registered retirement savings plan, but it’s locked-in, meaning you can’t access the money until you retire. If you do this, be sure to speak with a financial planner or carefully research your investment options. If you invest poorly you may lose your retirement funds.

Defined contributions

If your pension plan is based on defined contributions and you decide to change jobs, your pension options are:

  1. Take your pension money and invest it elsewhere: You can do this in two ways:
    1. Transfer your pension to a Locked-In Retirement Account (LIRA) offered by a financial institution, such as a bank. A LIRA is similar to a registered retirement savings plan, but it’s locked-in, meaning you can’t access the money until you retire. If you do this, be sure to speak with a financial planner or carefully research your investment options. If you invest poorly you may lose your retirement funds.
    2. Transfer your pension to your pension plan’s service provider, and convert it into a LIRA. Again with this option, your money is locked-in until you retire.
  2. Leave your pension where it is: Leave your pension in your current employer’s pension plan, if allowed. By doing this, your retirement money stays locked (you can’t withdraw it) and it continues to accrue earnings depending on how the money is invested and how the relevant markets perform. If you do this, you may continue getting charged fees at the group rate despite leaving the company, but don’t rely on this. You could very well be charged a higher administration fee, so be sure to ask what that fee is.

    Be sure you keep the service provider up to date with any life events such as getting married or having a child and especially in case of a change of address. If they can’t find you when it comes time to collect your pension benefit you’ll miss out!

  3. Buy an annuity: An annuity guarantees an income to you or your beneficiary during retirement, and can be purchased from an insurance company, usually a life insurance company. When you buy an annuity, you pay a lump sum, (in this case your pension money) and the insurance company agrees to pay you a guaranteed income for a period of time during your retirement (or beyond if the annuity provides survivor benefits or a guaranteed minimum payout).

Whatever you decide, keep the details of all your pension funds and plans safe and remember to let your beneficiaries know where to find all paperwork should they need them.

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