# Cashing out pension + separation package



## crgf1k (Aug 8, 2015)

I will be leaving my employer and cashing out my defined benefit pension. Part of the pension will go to a LIRA, and the rest will be taxable. I will also be receiving a separate cash amount as part of a separation package.

I will be managing the investment of these funds myself.

Do I need to hire a financial adviser or accountant now to create a tax strategy for receiving these funds, or should I simply give my employer the account numbers of my existing investment accounts and let an accountant sort out the taxes at tax time? 
I already have a LIRA, RRSP, TFSA, and unregistered investment accounts. Can I have my employer transfer into an existing LIRA account, or will have to make a second one?


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## twa2w (Mar 5, 2016)

crgf1k said:


> I will be leaving my employer and cashing out my defined benefit pension. Part of the pension will go to a LIRA, and the rest will be taxable. I will also be receiving a separate cash amount as part of a separation package.
> 
> I will be managing the investment of these funds myself.
> 
> ...


You may transfer the portion of the pension to the same LIRA if your current pension falls under the same jurisdiction as your current LIRA. A pension in Canada is set up under the jurisdiction of either one of the provinces, or the federal government. This has nothing to do with the province you live or work in.
Contact your current LIRA provider, or check your paper work. They should tell you which it falls under. Then check your pension documents or contact your HR for the current pension.

No need to use an advisor or acvountant unless you wish to. Note you may be able to transfer a portion of you separation allowance to an RSP as well. 
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/130/rtrng-eng.html


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## crgf1k (Aug 8, 2015)

twa2w said:


> You may transfer the portion of the pension to the same LIRA if your current pension falls under the same jurisdiction as your current LIRA. A pension in Canada is set up under the jurisdiction of either one of the provinces, or the federal government. This has nothing to do with the province you live or work in.
> Contact your current LIRA provider, or check your paper work. They should tell you which it falls under. Then check your pension documents or contact your HR for the current pension.
> 
> No need to use an advisor or acvountant unless you wish to. Note you may be able to transfer a portion of you separation allowance to an RSP as well.
> http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/130/rtrng-eng.html


Ok thanks. When you say LIRA provider, do you mean the bank where the LIRA account is held?

It sounds like there will be a Pension Adjustment Reversal applied in order to open up some RRSP contribution room, but I have no idea how much.


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## RBull (Jan 20, 2013)

The broker where you have the LIRA can confirm the jurisdiction of your current LIRA, if you have forgotten that or don't have records of it.


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## Eclectic12 (Oct 20, 2010)

^^^^

Not sure how far I'd trust broker records ... when I rolled the second DB pension payment from leaving the pension *for the same juristiction* into the existing account - the first comment/question from the broker was "what was the original pension's jurisdiction? Our records don't show it."


YMMV ...


Cheers


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## twa2w (Mar 5, 2016)

Eclectic12 said:


> ^^^^
> 
> Not sure how far I'd trust broker records ... when I rolled the second DB pension payment from leaving the pension *for the same juristiction* into the existing account - the first comment/question from the broker was "what was the original pension's jurisdiction? Our records don't show it."
> 
> ...


In that case it is easy. Yup, pretty sure it is ( name of current jurisfiction) ;-)


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## Eclectic12 (Oct 20, 2010)

Sure ... the other possibility is the broker tells you a separate LIRA has to be setup as each pension was under different jurisdictions/rules so that they can't be combined into a single account. :frown:


Cheers


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## RBull (Jan 20, 2013)

Eclectic12 said:


> ^^^^
> 
> Not sure how far I'd trust broker records ... when I rolled the second DB pension payment from leaving the pension *for the same juristiction* into the existing account - the first comment/question from the broker was "what was the original pension's jurisdiction? Our records don't show it."
> 
> ...



My mileage did vary. Perhaps the safest thing is simply get hold of the company HR where the pension originated.


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## Moneytoo (Mar 26, 2014)

A somewhat-related question if I may... Is it ever worth it to leave the money with the company plan? My company got acquired last year by a huge & stable corporation who started Group RRSPs and Defined Contributions plans for us in January. With all the "restructuring", I might get the package soon - or leave myself sooner... I don't have a personal LIRA yet, and will only have 1-2K in my group DC plan (depending on when we part ways) I'm sure the company will still be around when I'm 55 - and would rather leave the money there, to avoid the extra hassle. Or would it still be better to open a personal LIRA and do the transfer even for such a small amount? Thanks!


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## Spudd (Oct 11, 2011)

I suspect they will not let you, but I don't know. I know when my husband quit they forced him to take his DC plan into an LIRA, it wasn't an option for him to leave it where it was. The advantage to a personal LIRA is you can have it at your bank so you're less likely to forget it's there.


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## Eclectic12 (Oct 20, 2010)

First question is what the company allows for former employees with the company sponsored plans.

I have never been offered a Group RRSP with matching funds so I am not sure if that would make a difference but all of my employers forced the $$$ in the Group RRSP to be transferred to my personal RRSP (i.e. I was not allowed to access the plan). It didn't bother me as because of the higher costs as well as the limited investment choices, I would have moved the $$ anyway.

For the DC pension, I have limited experience. I have read for some DC pensions that former employees:
a) have to transfer the $$ out to a combination of personal LIRA/RRSP.
b) have to transfers the $$ to a separate account with the same provider with higher costs. Employer contributions as well as funding plan expenses are lost.
c) have the choice of leaving the $$$ in the DC pension, the costs don't change and only the employer contributions stop being made.


Personally, I like having the $$$ to help with costs for personal accounts as well as don't like being restricted as to what I can invest in so I am biased to moving the $$ to personal LIRAs / RRSPs.




Moneytoo said:


> ... Or would it still be better to open a personal LIRA and do the transfer even for such a small amount?


Finding out how the financial institution will charge or waive fees for where the $$ might be transferred to is another part of the puzzle. For my broker, the LIRA account $$ get counted into the total needed to reduce costs so every bit helps at qualifying for cheaper costs. 


Then too, depending on the juristiction's rules - there may be criteria that allow one may be able to transfer all/some of the LIRA out to a regular RRSP. 
http://www.taxtips.ca/pensions/rpp/unlockingrpp.htm


Keep in mind that if multiple companies and multiple pensions have been left, as long as the jurisdiction is the same - the same LIRA can receive the $$ (ex. leave company A's pension means setting up a LIRA, leave company B's pension that is under the same jurisdiction means more $$$ flow into the existing LIRA instead of having to create a second LIRA).


Cheers


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## Moneytoo (Mar 26, 2014)

Spudd said:


> I suspect they will not let you, but I don't know. I know when my husband quit they forced him to take his DC plan into an LIRA, it wasn't an option for him to leave it where it was.


Oh, shoot, I didn't even think of that, assumed it's always an option, like with DB plans.. Thanks, will check! 



> The advantage to a personal LIRA is you can have it at your bank so you're less likely to forget it's there.


Yeah all our DIY investment accounts are with Questrade, so I wouldn't be paying an inactivity fee even on a small amount in one more account.. and will have to be moving Group RRSP one anyway, so more hassle it is


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## Eclectic12 (Oct 20, 2010)

Spudd said:


> ... The advantage to a personal LIRA is you can have it at your bank so you're less likely to forget it's there.


IMO it is also a big advantage to be able to buy the stock, MFs, GICs, bonds etc. that my broker offers in the personal RRSP / LIRA instead of being limited to whatever the company contracted for. 

The one DC pension that I received the details for was offering four MFs as the range of investments (i.e. no GICs, no stocks etc.).


Cheers


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## Eclectic12 (Oct 20, 2010)

Moneytoo said:


> Oh, shoot, I didn't even think of that, assumed it's always an option, like with DB plans.. Thanks, will check!


It's one of the differences between a DB and DC pension.




Moneytoo said:


> ... Yeah all our DIY investment accounts are with Questrade, so I wouldn't be paying an inactivity fee even on a small amount in one more account.. and will have to be moving Group RRSP one anyway, so more hassle it is


I'd view it as a bit more paperwork to benefit from wider choices for the Group RRSP and the LIRA ... but it depends on one's POV. :biggrin:


Cheers


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## Moneytoo (Mar 26, 2014)

Eclectic12 said:


> Then too, depending on the juristiction's rules - there may be criteria that allow one may be able to transfer all/some of the LIRA out to a regular RRSP.
> http://www.taxtips.ca/pensions/rpp/unlockingrpp.htm


I assumed that I can only do it after 55, that's why thought if I leave the plan with the group - and then transfer it to my RRSP instead of opening one more account.. but obviously will need to check the particulars of ours. I kinda liked the MF I picked for it (Canadian Small Cap, the only asset class for which I believe there's a chance for active management to beat the passive one), but not married to it, so will transfer in cash and buy XAW.. 

Group RRSP has an S&P500 Index MF in it (small MER), and it's unlikely that I'll stick around to get the company-matched portion next January.. But DC plan is fully paid by the company.


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## Eclectic12 (Oct 20, 2010)

Since you are talking about "leave the plan with the group - and then transfer it to my RRSP instead of opening one more account" as a plan of action - I believe you also need to investigate if the jurisdiction governing the pension/LIRA allows a direct transfer without creating a LIRA/LIF.

BC's FAQ has a question that covers this situation where the transfer to a LIRA/LIF is a pre-requisite that has to be done before the application for unlocking is made.

If the rules that the pension is under are similar so that a LIRA/LIF must be created - it may change the planned action.



Cheers


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## Moneytoo (Mar 26, 2014)

I'm in Ontario - and looks like opening LIRA is very easy at Questrade


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## ian (Jun 18, 2016)

I had a DB plan. I did not have to contribute to it. It included an optional RSP component. I could put in a max. of approx $3300. and the company matched with 1650. The purpose was to enhance the DB...several options. Additionally, we had group RRSP option that I could contribute up to $3300. year to. This DB plan was actually quite unique at the time and took advantage of several CRA provisions. I also had a 20 month separation agreement.

My DB pension exceeded the CRA guidelines. 

The monies that were in excess of the pension (called a supplemental pension) were paid out in taxable dollars. My employer paid these out in three separate payments over three taxation years. None of these monies could be sheltered.

The monies in the 3 % RSP and 1.5 percent match could only be used to buy an enhancement to the DB...in my case I took extra monthly DB payments until age 65.

There was a small portion of the RSP matching that could not be used to enhance the DB. These monies went into a LIRA. 

I took the separation payment monthly, as salary continuance to reduce impact of income tax. I was permitted to transfer a very small portion of the settlement monies directly into my RRSP. Something like $2K year X 12 years or so (I forget the details but the formula is on the CRA website).


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## Moneytoo (Mar 26, 2014)

Just accepted a verbal offer (didn't think it'd be so easy to find a new job! was trying to wait for the package, but got too bored... ) The new company also has RRSP matching "and a pension plan" (their internal recruiter couldn't answer if it's DC or DB though lol) So yeah, will need to find out our plan's details sooner rather than later, do the transfer - and get out...


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## Eclectic12 (Oct 20, 2010)

Congrats! :biggrin:

It would seem that sooner rather than later, the old company will tell you what the choices to make are (assuming it's like the companies I have left).

One other question you may want to ask the new company is whether their pension plan will accept the payout from the old company's pension plan. It is rare (only one plan of five pensions allowed it) and may not be worth it ... but if you don't ask, you can't make an informed decision.


Cheers


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## Moneytoo (Mar 26, 2014)

Thanks! :biggrin: 

There's a 6 months probation period at the new company (apparently standard in the financial world), so no matching or pensions plans before next year for me  But, as you said earlier, if I open personal LIRA now - will have a place to where transfer the new pension, too lol

(A friend & co-worker has been telling me that it's "hard for women of our age (near 50)" find new jobs in IT, so I feel rejuvenated :biggrin


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## RBull (Jan 20, 2013)

Congrats on the new job Moneytoo. Some good information above. 

I've gone through moving from ex employer DC pension to LIRA and more recently a final conversion to a LIF but don't really have anything to add to the above details. The company will almost certainly let you know choices that have to be made. Check it all out carefully to understand your options. 

I had options a) or c) from above available to me but lower investment costs, more options and having all assets under 1 broker were reasons for me not to keep money with former employer plan. My jurisdiction didn't allow me to convert any of this to RRSP. I also later had a separation severance from the same long term employer that did allow me an amount of this to go to my RRSP.


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## Moneytoo (Mar 26, 2014)

Thank you, RBull!  Yeah quite a few people left since January, so I'm sure our HR knows by now how to handle the transfers (as we didn't have those plans until this year) And I'll also have more than a month before starting a new job, so should be plenty of time to figure out the particulars - now that I know what to ask  

Sorry, just realized it's a Retirement sub-forum (and I was trying to prepare mentally for the early retirement - if I got the package but wouldn't be able to find something good... but now really excited to get a fresh start and work some more )


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## Eclectic12 (Oct 20, 2010)

My letters have taken a while as the DB pension has a complicated formula to figure out what the payout is. I would expect your letter for your DC pension outlining the choices available to arrive much earlier/be less complicated. Perhaps RBull can give an idea of the timing.

As for this being a Retirement section - IMO, there is nothing to worry about or apologise for. The thread / your added question is about the same thing, whether the next stage is retirement or a fresh start. Far more appropriate here than say posting in the "Individual Stocks / Equities" section. :wink:


Cheers


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## RBull (Jan 20, 2013)

You're welcome Moneytoo. Agree with E12- no need to apologize. Not too many threads on here that stay completely on track! 

Sorry I can't help for sure with the timing expectations since it was nearly 13 years ago I lost my main career and had to reinvent myself. I've forgotten now.


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## Eclectic12 (Oct 20, 2010)

Since you mentioned you are in Ontario, this link says there's three choices.
http://www.getsmarteraboutmoney.ca/...g-your-DC-pension-plan-before-retirement.aspx

If I recall correctly, only the employer is contributing to the DC pension so my guess would be that for a transfer, everything would have to go into the LIRA.


I seem to recall an Ontario gov't web site saying that the requirement is for the letter outlining options to be sent within thirty days of leaving, spell out the choices and highlight any deadlines for making those choices. If I find the link again, I will post it.


Cheers


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## Moneytoo (Mar 26, 2014)

Talked to a co-worker today who was let go couple weeks ago. She said she's keeping both her plans (DC and RRSP) with Manulife group plan for now. HR told her no rush, she can leave them there or transfer later or if her new employer also uses Manulife (which my won't) - transfer to the new plan 

I'm just signing the paperwork today for the new job, looks like they'll have a DB pension (and even in the official 7 page offer it wasn't clear lol) Will give the official notice at current work tomorrow..


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