# OMERS and LIRA pension question



## curioso (Nov 22, 2018)

Hello everyone. Got a question and thought this would be a good place to get some feedback. Wife has a job that comes with an OMERS pension, and she may leave the job in the near future. We have not been able to get all details about her options but it appears that OMERS being a DB plan _should_ allow her to transfer it to her RRSP (only the CV, correct?) or to a LIRA account (not sure if only the CV or whole amount).

My question relates to how the LIRA can be used, specifically regarding the potential income generated inside it. Let's say the amount transferred to her new LIRA account is X, and she uses that money to purchase an ETF that pays monthly dividends... what happens? I ask because my (primitive) understanding is that money in a LIRA account cannot be withdrawn until she reaches a certain age and converts it to a LIF. She is currently 46y old, so still a long way until she qualifies to move money to a LIF. 

Would she even be allowed to use the funds in the LIRA account to purchase that ETF (which pays monthly dividends/distribution) ?
If so, would she be able to get that monthly income or would it need to be reinvested (like a forced Drip)?

Sorry if the question sounds silly.. Im a noob when it comes to this and my web searches did not produce conclusive results.


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## Money172375 (Jun 29, 2018)

She could invest in a ETF, but can’t make withdraws. (there are limited ways to make withdraws....limited life span, financial hardship etc, small balances).

It would need to be reinvested. And she would need to wait until withdrawals are allowed. The program is meant to deliver lifelong income in later life (just as a pension would).


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## Plugging Along (Jan 3, 2011)

The funds in the LIRA can be invested just like other registered account but no withdrawals until the minimum age. Dividends can be automatically DRIP or they can go into cash for other investments, but not withdrawn. The "LI' stands for locked in.


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## MrMatt (Dec 21, 2011)

Not sure what you mean by CV or whole amount.

You might want to consider if you can simply stay in OMERS.


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## ian (Jun 18, 2016)

You need to aware that in some instances not all of a DB commuted value can be transferred into a tax sheltered retirement fund. It may depend depend on salary and the DB plan.

When I retired my employer provided me with a CV statement that indicated the portion of the CV that could be sheltered and the portion that had to be taken into my taxable income immediately. As I recall the latter was about 25-30 percent of the total. The entire amount of the supplementary pension CV was also taxable and no part of it could be sheltered.


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## curioso (Nov 22, 2018)

Thanks for the feedback, guys. Really appreciate it. 

Keeping it with OMERS will be very unlikely, as we believe the whole DB model is flawed, particularly with such a long timeframe. Since she joined the employer and started the OMERS pension, they have already cut down some benefits and are constantly trying to modify payout and indexation calculations, so we will most likely try to move the money out.
I mentioned "the CV or whole thing" as I understand (and might be wrong about this) the CV amount is lower than the actual amount into the pension now. For instance when she logs into her Omers account the statement shows only her contributions to the plan, while the employer matches those 100%. A while ago she contacted the employer to inquire about a few things and was told that deferring the pension would allow the payouts to be calculated based on the "whole amount" (her contributions and the employers), while moving it to any other account such as LIRA/RRSP/whatever would transfer only her contributions, not those made by the employer.


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## Beaver101 (Nov 14, 2011)

curioso said:


> Thanks for the feedback, guys. Really appreciate it.
> 
> Keeping it with OMERS will be very unlikely, as we believe the whole DB model is flawed, particularly with such a long timeframe. Since she joined the employer and started the OMERS pension, they have already cut down some benefits and are *constantly trying to modify payout and indexation calculations*, so we will most likely try to move the money out.


 ... interesting... I thought the OMERS' pension plan was one of the oldest (and strongest) plan in the province.



> I mentioned "the CV or whole thing" as I understand (and might be wrong about this) the CV amount is lower than the actual amount into the pension now. For instance when she logs into her Omers account the statement shows only her contributions to the plan, while the employer matches those 100%.


 ... I'm guessing there're no details on how the CV is calculated. And I'm in disbelief that the CV amounts is lower than the actual amount in the pension now considering interest rates are at an all time low. Could it be the CV amount is lower because her contributions is only (half?) of the employer's if that's what you're saying.



> A while ago she contacted the employer to inquire about a few things and was told that deferring the pension would allow the payouts to be calculated based on the "whole amount" (her contributions and the employers), *while moving it to any other account such as LIRA/RRSP/whatever would transfer only her contributions, not those made by the employer.*


 .. so in essence the OMERs' plan is a hybrid DB plan rather the traditional /true "DB" plan.


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## fireseeker (Jul 24, 2017)

curioso said:


> Thanks for the feedback, guys. Really appreciate it.
> 
> Keeping it with OMERS will be very unlikely, as we believe the whole DB model is flawed, particularly with such a long timeframe. Since she joined the employer and started the OMERS pension, they have already cut down some benefits and are constantly trying to modify payout and indexation calculations, so we will most likely try to move the money out.
> I mentioned "the CV or whole thing" as I understand (and might be wrong about this) the CV amount is lower than the actual amount into the pension now. For instance when she logs into her Omers account the statement shows only her contributions to the plan, while the employer matches those 100%. A while ago she contacted the employer to inquire about a few things and was told that deferring the pension would allow the payouts to be calculated based on the "whole amount" (her contributions and the employers), while moving it to any other account such as LIRA/RRSP/whatever would transfer only her contributions, not those made by the employer.



Interesting issue.
I had high regard for OMERS, but I see what you mean about cutting down benefits with this move to "shared risk indexing."
That article says the following:
_"Stemming from the annual plan review, the board approved shared-risk indexing, providing the plan with the option to reduce future inflation increases on benefits earned after Dec. 31, 2022 based on an annual assessment of its health and viability. The change won’t impact benefits earned before Jan. 1, 2023 and will only impact plan members retiring after Dec. 31, 2022. "_

So, if your wife leaves the plan/employer before the end of 2022, these changes may not affect her. And if she leaves her money in the plan, it sounds like her benefits would not be affected anyway.

The bit about only being able to move her contributions is confusing. If she is vested in the plan (after two years, typically), she is entitled to both her and the employer contributions. How long has she been in the job?

Transfers from registered pensions must normally go into locked-in accounts (LIRAs), not standard RRSPs.

Be aware that commuted values usually cannot be fully sheltered, as @ian said. A portion often must be taken as taxable income at the time of the transfer. So a hunk gets lost to income taxes.

Given that, and given the guaranteed benefit, leaving your money in a healthy plan (like OMERS) is often the safest course of action. It eliminates investment risk and longevity risk for a portion of your retirement savings.


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## MrMatt (Dec 21, 2011)

Well OMERs has a lot of votes, politically the Province won't let it go anywhere.

Realistically it's hard to make up the loss of the employer contribution.

A lot of the ways these plans work seems sketchy AF to me. I don't think it's appropriate for the plan to unilaterally change their policies to your detriment with due compensation, or a vote from the planholders.

Finally how much money is it? Is it worth all the trouble. For smaller amounts, just take the money and run, the cost of simplicity is often worth it.


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## curioso (Nov 22, 2018)

I might be using incorrect wording, or simply having misunderstood what they said. The concern about the stability of Omers in the future is not limited to what they are planning to do in 2022 (with the new changes) but what happens in the next several years until wife reaches retirement age, which would take at the very least 9-10 years from now.

About the "half" - this is what she was told once, but again we are not familiar and may have misunderstood it. But when she logs in to her pension report it states "you can see your contributions, not the total contributions made by you and the employer" or something along those lines. 

In any case, we will find out soon and I will update the post.


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## AltaRed (Jun 8, 2009)

IF she is vested, I suspect employer contributions cannot be seen because they most likely vary up/down over rolling periods to maintain solvency, etc. Someone leaving the plan after vesting would/should get a share of the employer's contributions as they stand at that moment in time. Some expert with pension plan knowledge may disagree with the specifics of the calculation.

With this quote above


> _"Stemming from the annual plan review, the board approved shared-risk indexing, providing the plan with the option to reduce future inflation increases on benefits earned after Dec. 31, 2022 based on an annual assessment of its health and viability. The change won’t impact benefits earned before Jan. 1, 2023 and will only impact plan members retiring after Dec. 31, 2022. "_


 that would be standard practice. The benefits earned by being part of the plan up to the date of changes have to remain, e.g. full indexing if that is the case, for those X years of contributions. Forward contributions after 1/1/2023 would be risk-shared. So, for example, if someone had 10 years under old benefits and another 20 years under the risk-sharing concept, then the pension would be in two parts, one part for the first 10 years, and one part for the last 20 years after the change. My own DB pension is blended in 3 parts, as benefit generosity changed (reduced) over my career.


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## Money172375 (Jun 29, 2018)

Tell her to call HR and ask....”what would my pension options be and the approx figures to remain in the plan or to withdraw to a LIRA”

my former employer did that for me about 6 months before I left. At with rates so low, my transfer amount was much higher than I thought. I took the money and dumped all in an balanced etf in March. Up 13% so far.


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## Eclectic12 (Oct 20, 2010)

curioso said:


> ... We have not been able to get all details about her options but it appears that OMERS being a DB plan _should_ allow her to transfer it to her RRSP (only the CV, correct?) or to a LIRA account (not sure if only the CV or whole amount) ...


Some of this has been covered in other posts but I thought I'd give a bit more of an overview, having left two DB pensions.

Where one leaves the company, one is given a choice of staying in the DB pension (no further credits with any increases being from cost of living arrangements) or leaving the DB pension.

Where one leaves the DB pension, one will be informed of the commuted value (CV) when it is calculated on a variety of factors like interest rates, age, sex etc. The choices for the CV will depend on how big it is. A CV that is less than or equal to the maximum transfer value (MTV) can be transferred to a locked in retirement account (LIRA, though some pension jurisdictions use different names), with no tax implications. A CV that is greater than the MTV can have the MTV transferred the the LIRA and the excess is taxable income. If there's enough RRSP contribution room to absorb some or all of the over amount then the taxable income will be reduced or eliminated.

Some other factors that may be beneficial to consider is where keeping the DB pension means one will receive some healthcare benefits that leaving the DB pension forfeits. whether one wants to manage the LIRA investments versus the DB pension investment management and whether the DB pension is healty/the employer has the abillity to deal with setbacks (ex. gov't or a Nortel).



https://www.pwlcapital.com/leaving-job-defined-benefit-pension-plan/










Your client wants to leave her defined benefit pension. How can she turn it into cash? | Advisor's Edge


A tale of two cousins




www.advisor.ca









curioso said:


> ... My question relates to how the LIRA can be used, specifically regarding the potential income generated inside it. Let's say the amount transferred to her new LIRA account is X, and she uses that money to purchase an ETF that pays monthly dividends... what happens?


The LIRA is essentially an RRSP with restrictions. The distributions that may be part or wholly dividends will be credited to the LIRA as they are paid. It will be up to someone to redeploy them.

Keep in mind the restrictions on the LIRA that don't exist for an RRSP are that:

no further contributions can be made (unless there is a CV from another DB pension that is under the same pension authority). I have done this to avoid having multiple LIRAs to manage.
withdrawals can only be made through a transfer to a LIF and only as early as when the original pension would have allowed a reduced pension payment. In practice, it seems that age 55 is used without checking the terms of the original pension. The "only at age 55" is the new part compared to the RRSP as there is an age by which one must transfer to a LIF.
depending on the pension authority, there are situations one can unlock the LIRA by transferring to an RRSP without using RRSP contribution for things like small amounts or health issues and in most cases, when a LIF is opened/funded, 50% can be unlocked. Having some or all of the funds moved to an RRSP removes restrictions.



curioso said:


> ...Would she even be allowed to use the funds in the LIRA account to purchase that ETF (which pays monthly dividends/distribution) ?


Like a personal RRSP, it depends on what was contracted for when the account was setup. Open a LIRA that only allows interest on the deposit or GICs then no. Open one with a discount brokerage that allows GICs, stocks, bonds, ETFs, REITs, options then yes it will be allowed.

If the account allows the purchased ETF to be DRIP'd then instead of having to redeploy the full distribution dollars then likely what buys full units will be taken care of and a small residual amount will need to be taken care of. 


Cheers


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## Eclectic12 (Oct 20, 2010)

ian said:


> ... When I retired my employer provided me with a CV statement that indicated the portion of the CV that could be sheltered and the portion that had to be taken into my taxable income immediately. As I recall the latter was about 25-30 percent of the total. The entire amount of the supplementary pension CV was also taxable and no part of it could be sheltered.


How much credit has been built up and how generous the DB pension(s) is/are is going to affect this.

From what I recall, the first DB pension I left I had about ten years of service. The letter that spelled out the CV indicated that the plan had over-collected contributions so that 95% was tax sheltered and 5% was taxable (easily absorbed by an RRSP contribution).

For the second DB pension I left, it was nine years of service so that the full CV was tax sheltered.

Neither of these pensions had a supplementary pension while my current DB pension does. I'm doubting there is one to consider in this case but it is good to know about the possibility.


Cheers


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## Eclectic12 (Oct 20, 2010)

curioso said:


> ... Keeping it with OMERS will be very unlikely, as we believe the whole DB model is flawed, particularly with such a long timeframe. Since she joined the employer and started the OMERS pension, they have already cut down some benefits and are constantly trying to modify payout and indexation calculations, so we will most likely try to move the money out ...


Something to consider as part of the decision.




curioso said:


> ... I mentioned "the CV or whole thing" as I understand (and might be wrong about this) the CV amount is lower than the actual amount into the pension now. For instance when she logs into her Omers account the statement shows only her contributions to the plan, while the employer matches those 100% ...


Keep in mind that if the "the whole thing" is the future pension amounts, it is likely too high.

"The Whole Thing" that my pension account shows is the future pension at the specific ages of 55 and 65. One of the key assumptions included are that I will keep working where I'm earning pension credits to those ages. Leaving the DB pension a decade earlier means there's a decade of pension credits with whatever assumptions about salary growth included that won't be in the future payout - should one stay in the pension, after leaving the job.

The contributions are important but they don't tell you much about what the CV will be. It's a complicated formula that considers the current value of the pension then how many years of growth while invested to have the same amount at retirement. Lots of assumptions built in like long term interest rates, mortality tables etc.




curioso said:


> ... A while ago she contacted the employer to inquire about a few things and was told that deferring the pension would allow the payouts to be calculated based on the "whole amount" (her contributions and the employers), while moving it to any other account such as LIRA/RRSP/whatever would transfer only her contributions, not those made by the employer.


This does not sound right.

As it's a DB pension, the payout is based on the formula. The formula uses factors such as credited service years, "best five years" earnings etc. but nothing about contributions. My understanding is that where one stays, the payout for whatever date one requests the pension to start will be based on the years of service with the related salary info on record. The only change is as of the date of leaving, no further years of service or increased salary will be recorded.

It seem to me that the employer talking about "deferring the pension" while the age of leaving the job is confusing things. Early retirement is typically age 55 or later so whether one stays in the pension or transfers to a LIRA, there's typically a minimum waiting period to age 55 before one can take income. The details of the OMERS pension or the annual pension statement should indicate the earliest one can take the pension.

Where I can see deferring making a difference to the pension is where one stays in the pension and waits until the usual age of retirement. Taking the pension before the usual age of retirement means it is reduced to compensate for the extra years of payment. For example, in my pension - an age 55 pension is reduced for each month before age 65. Fortunately for me, there is an optional supplementary pension that I can use to buy back the reduction, if I retire before age 65.


As for leaving the pension being only her contributions, my understanding is that at minimum one gets both employer and employee contributions plus investment growth. The idea that the CV would be only employee contributions makes no sense. You say OMERs is cutting benefits and I'd guess they are boosting employee contributions. If the combination of employer/employee contributions with investment growth isn't enough to cover the pensions earned - there's no way employee only contributions could come close to the PV of what's been earned.


Cheers


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## Eclectic12 (Oct 20, 2010)

AltaRed said:


> curioso said:
> 
> 
> > ... About the "half" - this is what she was told once, but again we are not familiar and may have misunderstood it. But when she logs in to her pension report it states "you can see your contributions, not the total contributions made by you and the employer" or something along those lines.
> ...


I suspect it's a lack of interest and/or the feel of no need. Many of the pension authorities say the employee can at most pay for half of their pension so the base amount the employer is contributing is what the employee did.

As AltaRed mentions, where the combination of employee/employer contributions plus investment growth isn't enough, the employer kicks in more.

I don't recall and likely don't still have copies of my annual DB pension statements for the ones I left. My current one gives an aggregate total of all employee contributions and all employer contributions. This means I can see year by year when the employer has kicked in more, if I didn't notice the employer sending out notices about it.




AltaRed said:


> ... Some expert with pension plan knowledge may disagree with the specifics of the calculation.


Not that I'm an expert but I have found the specific formula in the past on the Canadian actuarial web site. I didn't find it all that useful as I was too lazy to dig out mortality tables and other bits that weren't that easy to find. 

From a smell test POV ... if 2 x contributions plus investment growth isn't enough money to cover the future pension payout as evidenced by cutbacks with employer top ups - it seems clear that 1/2 contributions does not have a chance of coming close to the PV of what has been earned.




AltaRed said:


> ... My own DB pension is blended in 3 parts, as benefit generosity changed (reduced) over my career.


Which will complicate the CV calculation as to get to the value earned, there's three factors instead of one. FWIW, I'm on two factors and am hoping it doesn't go to three before I retire. 

Cheers


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> Some of this has been covered in other posts but I thought I'd give a bit more of an overview, having left two DB pensions.
> 
> ...
> 
> Where one leaves the DB pension, one will be informed of the commuted value (CV) when it is calculated on a variety of factors like interest rates, age,* sex* etc. The choices for the CV will depend on how big it is. A CV that is less than or equal to the maximum transfer value (MTV) can be transferred to a locked in retirement account (LIRA, though some pension jurisdictions use different names), with no tax implications. A CV that is greater than the MTV can have the MTV transferred the the LIRA and the excess is taxable income. If there's enough RRSP contribution room to absorb some or all of the over amount then the taxable income will be reduced or eliminated.


 ... this is glaring ... didn't know CV calculations are still "gender" dependent by those sexist calculating experts in this time and age (October 1st, 2020). Just WoW.


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## Eclectic12 (Oct 20, 2010)

Last I heard, women live longer than men, by almost a decade.

If a man's shorter life span is used for both sexes to calculate a lower CV, likely more women would run out of money from the LIRA before their death. Assuming they both make the same investment decisions in the LIRA.

If a woman's longer life span was used for both to calculate a higher CV, likely more men would be leaving more assets to a combination of their beneficiaries and the gov't when they die earlier.


If there's no difference in life span - all other variables are the same which should mean the CV will be the same for a man and woman who leave the pension with the same service, on the same date, with the same salary.


Cheers


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## Beaver101 (Nov 14, 2011)

^ Still doesn't answer whether the CV is adjusted / accounted for the "sex" of the commuter, or countering your earlier statement quoted.


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## Eclectic12 (Oct 20, 2010)

The Canadian Institute of Actuaries lists gender as a factor in the calculation.


> *What is the formula for calculating the lump sum present value of a pension? *
> [PV factor] is determined using actuarial software that takes into account the following:
> 
> Ages of those involved at the calculation date
> ...








FAQ - Pensions







www.cia-ica.ca





My understanding is that gender is also used in the mortality tables.


Cheers


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## Eclectic12 (Oct 20, 2010)

curioso said:


> ... A while ago she contacted the employer to inquire about a few things and was told that deferring the pension would allow the payouts to be calculated based on the "whole amount" (her contributions and the employers), while moving it to any other account such as LIRA/RRSP/whatever would transfer only her contributions, not those made by the employer.


It may be helpful to review the OMERs links on the subject.






Employment Changes


When you leave your OMERS employer, the pension you've earned with OMERS is yours to keep. You will have to decide what to do with the OMERS pension you’ve built up. We can help.




www.omers.com









Employment Changes


When you leave your OMERS employer, the pension you've earned with OMERS is yours to keep. You will have to decide what to do with the OMERS pension you’ve built up. We can help.




www.omers.com





Note that it says:
If you are entitled to a CV, this option will appear in your Pension Options Form when your employment ends. Your CV transfer option and amount is guaranteed up to the expiry date indicated in your Pension Options Form. 

The CV amount as well as being able to check how much can be rolled over into a LIRA and any excess that is taxable should be known.


Cheers


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## Eclectic12 (Oct 20, 2010)

fireseeker said:


> ... The bit about only being able to move her contributions is confusing. If she is vested in the plan (after two years, typically), she is entitled to both her and the employer contributions. How long has she been in the job?


I don't think the "employee contributions only" is accurate. I also don't think the length of time on the job matters either.

OMERS is Ontario where the Financial Services Commission of Ontario says that vesting in a DB pension means being entitled to receive a pension benefit that is based on the defined benefit formula that is used by your pension plan. The formula does not use contributions and is what the CV is based on.

As for length of working, Ontario switched to immediate pension vesting a while ago, likely 2012. Being a member of a pension who quits after July 1st, 2012 means one is vested, with no "work for two years" criteria.


Vesting and Locking-in of Pension Benefits



Cheers


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## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> The Canadian Institute of Actuaries lists gender as a factor in the calculation.
> 
> 
> 
> ...


 ... so does this mean a seperate mortality table is used for a female commuter? 

And there's the "gender-neutral" folks, what does an actuary use? duh...


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## curioso (Nov 22, 2018)

Lots of incredible feedback.. thanks everyone! I guess I misunderstood quite a bit of what the implications can be. I will get clarification from OMERS and provide an update within 2 months or so.


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## curioso (Nov 22, 2018)

As promised, here is an update. We inquired about the CV and boy it was much more than anticipated... Now the question is : how to reduce (if possible) the tax load of the portion in excess of the LIRA limits? That alone is over 250k, so the tax load will be brutal.

Our RRSPs are pretty much max out (maybe 5k or 10k each in room left at most)


Any suggestion? Or just accept the reality of taxes and be done? Im looking for (if they exist) any suggestion on how to potentially reduce the tax load on that excess amount that cannot be rolled into a LIRA account.


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## OntMan (Mar 25, 2016)

You could try asking if they can pay the amount in excess of the LIRA limit, over more than one year that way the tax burden could be spread over multiple years.

But in any case, a few comments. You seem to be concerned about the pension rules/payouts changing, but that is a fact of life for all pensions, not just OMERS as things change over time. It is a very well run pension plan with returns averaging 8.5% over the last 5yrs, 11.9% last year. Are you sure that you can beat those returns? It is run by investment professionals who have access to investments that normal retail investors like us don’t have access to. Plus in the unlikely event the pension runs into trouble, the government would bail it out.


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## Spudd (Oct 11, 2011)

curioso said:


> As promised, here is an update. We inquired about the CV and boy it was much more than anticipated... Now the question is : how to reduce (if possible) the tax load of the portion in excess of the LIRA limits? That alone is over 250k, so the tax load will be brutal.
> 
> Any suggestion? Or just accept the reality of taxes and be done? Im looking for (if they exist) any suggestion on how to potentially reduce the tax load on that excess amount that cannot be rolled into a LIRA account.


Honestly I would just keep it in pension format. The idea of a lifelong monthly payment is very enticing. Nothing to manage.


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## Eclectic12 (Oct 20, 2010)

curioso said:


> ... Now the question is : how to reduce (if possible) the tax load of the portion in excess of the LIRA limits?


For the pension itself, the only two options I know of are:
a) stay in the pension so that no CV with it's taxable component are generated.
b) have an accommodating employer that breaks up the CV into multiple payments.

After that, it's the usual suspects of credits/deductions like charitable donations or RRSP contributions.


Cheers


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