A workplace pension is a great thing because you know that you will have guaranteed income for life when you retire.
But if you're nearing retirement, changing jobs, or you are self-employed, you may want to consider creating a pension by taking advantage of unique options offered only by insurance companies.
Here are some things about pensions that you should be aware of:
A pension is simply guaranteed income for life and in the case of a defined benefit pension plan you actually know what you will be getting when you retire. But a pension with an insurance company allows you the flexibility to pull all your money even after it starts paying you a monthly income during retirement. And you get the guaranteed minimum OR the market value, whichever is higher. Whereas with a workplace pension, when you retire and start taking income, you cannot withdraw the commuted value as a lump sum.
If you change jobs (as many people often do long before retirement) or retire early, the pension can be left with the employer and you can start taking it at age 65; or you will have to park the money into a locked-in retirement account and start taking income or lump sum at age 65. If you leave the pension with your employer and have no eligible spouse, and then you pass away, the employer may end up keeping the pension that you built up over the years.
Some pension plans are very inflexible. I have a client in Toronto who retired at age 65 and started taking his pension. He subsequently got divorced and remarried and guess what? If he dies the first spouse who was named as beneficiary gets the balance of his pension and his current spouse gets zero. He can’t change the beneficiary. It is important to know what the beneficiary provisions are regarding your pension.
The Guaranteed Income for Life product (which is really an individual pension) is something self-employed persons should consider from now. People changing jobs or near retirement should also consider it so they have the VERY SAME income guarantees (or higher) that their work pension provides, they have control over their money, they can name and change beneficiaries and make sure that the employer does not keep their pension if they die.
If you opt for early retirement, if you're changing jobs or if you're self-employed, it really makes sense to transfer your pension to a financial institution that offers the benefits I listed above.
Give me a call today and let me help you earn tax free income for life – It’s your pension, pay attention.