Pension plans do I take you with me or not?
With the shortage of labour, changing jobs has become almost child's play. But at the time of departure, workers with defined benefit plans must make an informed adult decision. Is it better to wait for the rent or take back his marbles?
Publié le 31 oct. 2021Financial experts are advising a growing number of workers who hesitate between the egg and the chicken when they leave a job. It is right, because it is not always easy to make such a decision.
Fortunately, much of the answer lies in the analysis of a key document: the exit statement. As long as you know how to do the calculations and accept that there are grey areas.
Captain Carole-Anne Dufour must make that choice. She leaves the Canadian Armed Forces after 12 years of service. She was in receipt of a defined benefit (DB) pension plan. As a result, the amount of her guaranteed pension is known, which is not the case with defined contribution (DC) plans.
"in the long term, I find it difficult to determine what would be the best option for me," writes the one who will get $1,861 at age 60, and then $1,493 at age 65 (in today's dollars). Generous, his indexed plan compensates for the presumed absence of a QPP pension between the ages of 60 and 65.
With respect to the actuarial value of $360,978, less than half can be transferred without tax impact to a locked-in RRSP, the federal equivalent of the Quebec locked-in retirement account (locked-in retirement account). The transferable amount is limited because you cannot put infinite money into an RRSP.
So the rest of the transfer value will have to be subject to tax, and we're talking about $200,000, roughly. "this amount will be added to her salary and she will lose half of it. People often Don't understand that, "reports financial planner André LACASSE of LACASSE Financial Services.
Once the actual amount of the transfer has been determined, it is necessary to determine what rate of return will be required to obtain the same pension as that promised by his or her DB plan. An exercise that Lucie Gervais, Director General, Tax Planning and Estate at IG wealth Management, agreed to do with Carole-Anne and two ages data for demonstration purposes. She also calculated her chances of success.
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Before revealing the purely mathematical conclusions, let us draw up a list of other questions to be asked.
"the first is: what is the solvency rate of the plan?" says André LACASSE. If you benefit from a government plan like RREGOP, you Don't worry about it. But in the private sector, they do.
Companies are required to make up for deficits, but not all have solid kidneys. We must therefore ask ourselves about their life expectancy. In the event of bankruptcy, the pension may be reduced.
One must also consider one's own life expectancy. "people Don't realize that they can live up to 100 years of age," notes André LACASSE. The advantage of rent is that it is guaranteed until death, when you can survive your savings. Those interested in the stock exchange will reply that they are capable of doing better than their pension plan. "many people are convinced that they can make wonderful returns. Especially stock exchanges, "observes the expert, pointing out that this is far from simple and guaranteed.
Of course, the younger you are, the more likely you are to "beat" the performance of your pension plan and to recover in the event of a sharp decline in markets, so your age is an important factor in the equation (see scenarios in the table below).?
Is the plan indexed? If so, it's worth gold. "it's hard to beat," sums up Lucie Gervais.
Another factor to consider is his love situation. An annuity will generally be redeemable to the spouse at 60% (sometimes more), while the estate will not receive a penny after the guarantee period. Do you have a spouse, do you think you will have one after age 65, what will your financial need be? Note that the definition of spouse is different depending on whether it is a federal or provincial PD plan.
The advantage of the pension is that it's safe. We Don't have investment choices to make, we Don't have to worry about fluctuations in stock indices. "if you Don't live anymore and you're too stressed, you're no more advanced," says Lucie Gervais, adding that it takes good financial discipline to get actuarial value.
Now let's get back to Carole-Anne 's case. Unless she's 32 years old and a lot of risk tolerance.
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