Leaving your DC 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 contributionContribution Money that you put into a savings or investment plan.+ read full definition (DC) plan before retirement:

  1. Transfer to an individual locked-in retirement account (LIRA)Locked-in retirement account (LIRA) An account that holds money moved out of a pension plan. You may use one if you are changing companies and can take your pension savings with you. It works like an RRSP, but your money is locked in. You cannot withdraw the funds until you retire.+ read full definition – A LIRA works much like an RRSP. You set it up with a bank or other financial institution.
  2. Transfer to an insurance companyInsurance company A company that sells insurance products. Some companies sell only life insurance. Some sell only property insurance. Others sell all types of insurance.+ read full definition to buy a deferred annuityAnnuity A contract usually sold by life insurance companies that guarantees an income to you or your beneficiary at some time in the future. An annuity is a contract with a life insurance company. When you buy an annuity, you deposit a lump sum of money, and the insurance company agrees to pay you a guaranteed…+ read full definition – This is a contractContract A binding written or verbal agreement that can be enforced by law.+ read full definition that guarantees to pay you an income for life. The start date is “deferred” until a future time when you want to begin receiving income. Learn more about annuities.
  3. Transfer to another 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 plan – Transfer your pension to your new employer’s plan if they will accept it.

If you become disabled before leaving the plan

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 leaving the plan

If you die while you are still a member of the plan, your savings will be transferred to your spouse, if you have one. The amount can be transferred to your spouse’s RRSPRRSP See Registered Retirement Savings Plan.+ read full definition or RRIF so the savings remain taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition-sheltered until your spouse withdraws the funds. Some provinces allow transfers only to the 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 versions of these plans (locked-in retirement accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition or locked-in retirement income fund).

In Ontario, and some other provinces, you and your spouse can waive your spouse’s right to this entitlement.

Payments made to any non-spouse 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 can be paid out in cash and are fully taxable to the beneficiary.

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.

Key point

Most DC plans require you to transfer your money out of the plan when you leave your employer.

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