Deferred Pension or Commuted Value Transfer?

[carverman]

Commuted value, cash transfer value, and actuarial present value are three different things (although the commuted value and the actuarial present value *may* result in the same dollar figure, but they may not, for various reasons).

yes, I know... and I was just relating to my experience with my DB company pension in 1997, then again in
2003...pension "growth" difference of about 6 years.

At time of divorce, the court made a decision based
on an actuarized value of $50,xxx before taxes,
and $39,xxx after taxes. These values were consistent with the fact that I would have retired (in any case,
voluntary or company initiated) at age 60.

The actuary had to convert the pension accrued during the marriage and payable at age 60, into a pension amount that was in line with my actual
retirement date at age 57 rather than 60, for legal purposes.

Then to avoid double dipping (SCC ruling) they had to subtract the earlier actuarized amount..$50K from the calculated amount based on my retirement in Nov 2003 into a new pension amount ..based on some Group Annuity Mortality Table 1983, (updated to male and discount rates applicable to end of Oct in 2003),
to arrive at a "net" pension available for support payment purposes.

So yes, you are correct in saying you cannot compare apples to apples as it can get complicated for each individual case.

In addition, each pension will have specific features which may affect how any one of those values are derived. I'd be cautious about comparing one plan to another.

Yes, as I mentioned, each case is different.

[MoneyGal]

yes, I know... and I was just relating to my experience with my DB company pension in 1997, then again in
2003...pension "growth" difference of about 6 years.

Changes in the long-term interest rate would also affect changes in the valuation. Choosing to take a cash transfer or commuted value is a form of interest-rate-timing, you could say.

[Toronto.gal]

Hope my friend is reading and understanding all. I had to read some posts twice to understand it myself.

FT: good point, I didn't even think of that given the forced retirement age was so early due to company takeover. I just thought that a deferred plan was better in my friend's case as it offered guaranteed lifetime income, inflation protection, etc.

Thanks everyone for your responses & thanks M.gal for the link.

[MoneyGal]

I was thinking that if she keeps the DB pension, she kind of has the ideal situation - a base of guaranteed income (CPP + DB pension income) and then she can get into investing with the rest of her savings between now and retirement. Kind of the best of both worlds, in a way.

[Toronto.gal]

Ditto! And I'm trying to help a lil in the 'investing' part.

Gals have to help each other, right?

[MoneyGal]

Of course!

You might potentially pitch it as "why don't you learn about investing with all the money you are going to START saving now that you are not going to be contributing to a DB pension plan any more?"

(She might also benefit from a quick glance through Pensionize Your Nest Egg...only because she is the exact target audience for that book, and I'm told its an easy read.)

[Toronto.gal]

(She might also benefit from a quick glance through Pensionize Your Nest Egg...)

I did mention the book to her & in fact, I have mentioned your book to many friends.

[jet powder]

I dont understand pensons fully but if she stays in with the pension plan will she get more money do to bridging & if she takes money out lose the bridging. ( extra income untill CPP & OAS kicks in)

Iam not sure if I understand but if she is being offered a lump sum. Check to see how much money she would recieve compared to her pension if the money was used to buy an annuity that started paying out the same time the pension started paying out. If the annuity paid more then the pension I would consider the annuity.
I dont trust Canadian insurance companies & thier ability to pay when all the baby boomers start collecting I think Swiss Annuities in Canadian dollars are safer. I would be verry carefull so if money is transfered it is not all of a sudden taxed. If she is also able to get severence pay I think she might be able to tranfer it or part of into an RRSP. This has to be done carefully to avoid paying tax