If you are a Toyota employee nearing retirement or recently laid off, you have probably heard about various retirement options, including copycat retirement Or imitative rent. While you may be familiar with the traditional retirement plan offered by your employer, a copycat pension is a lesser-known option that can provide the same benefits but with more flexibility and control.
In this guide, we’ll explain what a follower pension is, how it works, and why it can be a great retirement option, especially if you’re considering moving your retirement funds away from Toyota.
What is a follower pension?
Mimic pension, also known as imitative rentis essentially a mirror of your employer’s retirement plan, but with a different provider – an insurance company like Sun Life. The beauty of a follower pension is that it provides exactly the same benefits as your employer’s pension, right down to the payment structure, including spousal continuation. Yes, the copycat also matches bridge or transition payments up to age 65.
For example, if Toyota offers you a pension that provides you with lifetime income and a bridge benefit until you turn 65, a follower pension from Sun Life, Desjardins Insurance or another provider will offer only benefitsguaranteed. This is required by Canada Revenue Agency (CRA)so the terms cannot be less favorable than the original pension plan. Basically it is a replica what Toyota offers, but with the option of transferring your pension to a private provider.
How does the copycat pension work?
The process of setting up a follower pension is quite simple. Here’s how it works:
- Get your retirement statement
First, you will receive a retirement certificate from Toyota detailing your retirement benefits. This document shows the amount of your pension and any additional benefits, such as bridging benefits. - Find a copycat supplier
Once you receive your pension statement, you can contact an insurer such as Sun Life. You can think of it as making a “copy” of your pension. The new provider will offer the same guaranteed pension payments as your Toyota Pension, but you will now transfer responsibility to a private insurance company. - Exactly same payments, new supplier
The law requires a follower’s pension to offer same pay as your Toyota pension. This includes both an annuity and a bridging benefit (if applicable) that ends at age 65. It’s a simple transition – think of it like crossing out “Toyota” in your retirement plan and replacing it with “Sun Life” or another provider.
Why interest rates and value added don’t impact follower pensions
One question Toyota employees often ask is how interest rates or value added affect a follower’s retirement. The answer is simple: they don’t.
Although interest rates affect the refined value of your pension, this does not apply to a copycat pension. Here’s why:
- The commutated value does not matter
The converted value of your pension is a lump sum representing the present value of all your future pension benefits. This value changes with interest rates, but if you choose a follower pension, your employer’s actuary will make the calculation based on interest rates on that day or week. The insurance company’s actuary then makes the same calculations. Therefore, changes in interest rates and changes in commutated value are already included in the calculations. The insurance company only cares about providing the same monthly payments that Toyota offered. - Guaranteed payments, regardless of the added value
The insurer calculates the amount needed to guarantee payment of the pension for life. Even if your converted value has fallen due to higher interest rates, this will not affect the amount of pension benefits you receive from your follower pension. The supplier will guarantee the same payments, so don’t worry about fluctuations in travel value.
Follower Pension Benefits
Choosing a follower pension can offer several benefits, especially if you’re looking for more flexibility with your retirement funds. Here’s why this could be a great option for you:
- Same pension, different provider
You get exactly the same guaranteed payments as Toyota Pension, but from a different provider. There is no risk of loss of benefits or reduced payments. - Control your retirement funds
With a follower pension, your pension savings are transferred to the insurer, which means you have more control over how your funds are managed. In some cases, you may even end up with cash surplus after transfer. This can provide additional flexibility for retirement plans. - Cash Surplus: In most cases, you will receive additional cash from the copycat, probably 1% – 10% of the travel value.
- Peace of mind
By transferring your pension to an insurance company, you protect your retirement income even if Toyota experiences financial difficulties in the future. Your pension is secure and you don’t have to worry that changes in your employer’s financial situation will affect your payments.
What about excess cash?
In many cases, when you transfer your pension to a follower annuity, you may experience: cash surplus. This happens when the insurer determines that it does not need 100% of the funds to guarantee payment of the pension.
For example, Sun Life may calculate that it only needs 95% of the funds available from your converted value. The remaining 5% — which could be $20,000 or more — goes to you as cash. This excess cash, which is taxable income, can provide an extra financial cushion in your retirement, allowing you to use the extra money for investments, travel or other needs.
Why copycat pensions are gaining popularity
Mimic pensions are becoming increasingly popular among workers in the auto industry and large corporations such as Toyota. Here’s why:
- Flexibility: Employees value having control over their retirement funds and the ability to transfer them to a provider they trust, like Sun Life.
- Security: By transferring your pension to a large, reputable insurance company, you can be sure that your retirement income is safe, regardless of any changes to your employer.
- Additional benefits: The potential for surplus cash makes a follower pension an attractive option for people looking to maximize their retirement benefits.
Frequently asked questions about follower pensions for Toyota employees
Does the converted value affect my follower pension?
NO. The converted value is not relevant when determining the follower pension. The insurer guarantees the same payouts as your Toyota pension, regardless of how interest rates affect your commuter value.
Surplus cash: Can I get cash by setting up a follower pension?
Yes. In most cases, the insurer does not need the full amount of your retirement funds to guarantee your payments. This leaves you with excess cash which you can receive as a taxable lump sum and which you can use as you wish. Or contribute to your RRSP to avoid tax.
Will my pension be the same as the follower pension?
Yes. The Canada Revenue Agency (CRA) requires that a follower pension offer exactly the same payments as your employer’s pension plan. You will receive the same guaranteed income, including bridging benefits.
Is a copycat pension safe?
Yes. Follower pensioners are managed by large insurance companies such as Sun Life, which are regulated and stable. This will ensure that your retirement income is protected throughout your life.
Assur: It’s like an insurance policy with insurance companies. Your copycat pension payments are protected by Assuris protection. Here’s an example from the Assuris website: If your monthly payment is $3,500, then the protected amount will remain $3,500. Amounts over $5,000 per month are protected up to 90%. Remember that Assuris only steps in if your insurance company goes bankrupt.
Why should I consider a follower pension?
A follower pension offers the same benefits as your employer’s pension, but with the added flexibility of transferring your funds to a trusted insurer. This can provide peace of mind, especially if you are concerned about your employer’s financial future.
