Losing a job is never easy, especially when it happens unexpectedly after years of work. Recently laid-off Bell Canada employees face an immediate challenge in understanding and making decisions about their retirement options. Fortunately, there are professionals like Bruce Youngblud of Pension Solutions Canada.com who specialize in helping employees navigate these tricky waters.
A sudden goodbye
The sudden nature of these exits is a bitter pill to swallow. After decades of work, employees may be faced with the sudden message: “Your services are no longer needed.” But what does this mean for their pension?
Three main retirement options
For Bell Canada employees, there are three basic retirement options available:
- Company pension: Upon termination, employees will receive a retirement statement detailing their monthly payment amount, including potential spousal continuation. This is a fixed sum for life, depending on the length of service and remuneration in the company.
- Commutated value option: This option allows an employee to transfer a lump sum of money from a retirement plan to a financial institution. While many institutions can handle this transfer, Pension Solutions Canada primarily works with Manulife. Part of the transferred amount goes to a blocked retirement account, and the rest comes in the form of cash. However, government legislation limits the amount transferred, known as the maximum transfer value (MTV).
- Lifetime copy: A relatively newer option, a follower annuity allows an employee to receive the equivalent of a company pension from an insurance company such as Sun Life. This option can sometimes result in excess cash if the insurance company requires less than the intended retirement value.
Managing the cash part
When deciding on converted value, the challenge is handling the cash portion. Employees should:
- Check out the RRSP room: Being able to hide some of your money in a Registered Retirement Savings Plan can help reduce your tax consequences.
- Consider a spousal RRSP: If your spouse has an unused RRSP room, the after-tax cash can be held there, reducing your overall tax bill. However, this strategy works best if the spouse is currently working and paying taxes.
The question is about the rate of return
A critical aspect to consider when evaluating retirement options is the expected rate of return. If the employee can secure a decent return on their investment, say 5% GIC, the payout option becomes more attractive. Not only does this provide you with the peace of mind of a fixed return, but it also allows you the flexibility to manage your assets, whether it’s pursuing a lifelong dream or providing a legacy for your beneficiaries.
Surprise in a follower annuity
Sometimes a pleasant surprise awaits you in a follower annuity. When an actuary from an insurance company requests an amount lower than the added value proposed by the employer, the surplus goes to the employee in the form of taxable cash.
Want to explore further?
Bruce Youngblud Pension Solutions Canada.com offers a wealth of resources for people facing retirement decisions. With extensive videos and expert insights on topics ranging from retirement planning, CPP, OAS to estate planning, Bruce is ready to help. For interested, click here to schedule a free 15-minute Zoom call to dispel your individual doubts and get started.
