Leaving your DB pension plan before retirement
3 options when you leave
In Ontario, you have the following optionsOptions An investment that gives you the right to buy or sell it at a set price by a set date. The buy right is termed a “call” option, and the sell right is termed a “put” option. You buy options on a stock exchange.+ read full definition when you leave your defined benefit (DB) pension planDefined benefit (DB) pension plan A registered savings plan that promises to pay you a set income when you retire. A formula sets how much you will get. It is often based on your income when you were working and the number of years you have worked.+ read full definition before retirement:
- Keep your pensionPension A steady income you get after you retire. Some pensions pay you a fixed amount for life. Others save up money for you while you are working. You use that money to create income after you retire.+ read full definition in your plan – Leave your pension in the DB plan and start collecting it when you reach retirement age. This is known as a “deferred pension”.
- Transfer to another pension plan – Transfer your pension to your new employer’s plan if they will accept it.
- Transfer to locked-inLocked-in An account that you cannot take money out of until you retire. In most cases, you can’t get a cash payout. Your plan may make exceptions if you have a terminal illness, or a small pension benefit.+ read full definition retirement savings accountSavings account A bank account intended for depositing funds. Pays interest and lets you withdraw cash at any time.+ read full definition (LIRA) – Transfer the cash value of your pension to a LIRA. This option is usually only available if you are under age 55 at the time of transfer.
If you become disabled before retirement
Check with your plan administrator about the disability benefitBenefit Money, goods, or services that you get from your workplace or from a government program such as the Canada Pension Plan.+ read full definition rules that apply to your plan. If you are off work due to disability, you may be able to continue earning benefits under the plan.
If you die before retirement
In most cases, your spouse (or your beneficiaryBeneficiary The person(s), institution, trustee or estate you choose to give money, property or other benefits when you die. You may name beneficiaries in your will, insurance policy, retirement plan, annuity, trust or other contracts.+ read full definition or estateEstate The total sum of money and property you leave behind when you die.+ read full definition if you don’t have a spouse) will be entitled to the cash value of the pension benefits you earned to your date of death.
If the benefits are going to your spouse, they may be able to receive them as a deferred pension, or transfer the amount directly to their own RRSPRRSP See Registered Retirement Savings Plan.+ read full definition or LIRA tax-freeTax-free Money that you do not pay tax on.+ read full definition. Otherwise, payments are made in cash and are taxable.
Designate a beneficiary
Designate a beneficiary for your plan, so benefits can be paid directly from the plan upon your death. Your plan administrator can tell you how.
If you transfer the cash value out of your DB plan, you give up your pension guarantee.