What Happens to My Pension If I Quit My Job Canada
It can be exciting to leave a job, especially if you are accepting a new job offer elsewhere! However, it can be tricky when it comes to the logistics of many things– for example, you may be concerned about the company pension plan that you have been contributing to during your years of service to your employer. Is all that money lost to you now? Or is there a way to claim it?
There are a few different ways to handle your current employer’s plan when you quit your job to better set you up for your retirement planning. Read on to find out more.
Your Pension Rights
When you are deciding how to move forward with your pension plan, it is important to know your pension rights and pension options. There are certain guidelines that you and your past employer must follow.
Information Rights
After you leave a position, you must receive a written statement within 30 days in regards to your pension plan. This statement should include the details of the benefits that are payable to you, as well as your options and the deadline for your decision. If you are entitled to a refund of any of your contributions, this should be noted as well.
Transfer Rights
For those who are not at retirement age, you can choose to either transfer the commuted value out of the plan or choose to keep the amount in your pension plan and collect it once you reach the age of retirement that was specified by your particular plan.
Even if you do choose to transfer the pension money out of the current employer’s pension plan, the retirement money stays locked in until you reach retirement age, however. They would simply be moved to a different type of retirement savings account.
Options for Your Pension When You Quit Your Job
If you have quit or left your job, there are a few different ways that you can handle your pension. You could cash it out, keep the money in the plan without making any more contributions, or even, in some cases, transfer your pension plan to your new position.
Not all employers will offer all of these options, though, so it is important that you do your due diligence and look into this properly so that you can plan what is best for your situation!
Commuted Value
Commuted value refers to the lump sum amount that your pension plan is currently worth. If you choose to go with this option, you are cashing out your pension and receiving the lump sum, which must then be invested back into some sort of special bank account.
An example of one of these accounts is the Locked-In Retirement Account. This is an account that serves the purpose of accepting transfers from pension plans. These types of accounts usually have strict guidelines and rules in regard to the withdrawal of funds.
You are also the one typically in charge of the investment decisions with this type of account, meaning that your choices are the ones that directly affect the account’s performance.
Reduced Pension
If you are not leaving your job because you are retiring, your company may allow you to leave your pension funds in the plan. However, neither you nor the company would be making any further monetary contributions to the fund. Then, once you reach the age of eligibility for the pension– which is usually age 55– you can elect to begin receiving these funds.
Since you only contributed to the plan for a few years, and were not contributing to this constantly until you turned 55, the funds you receive will be a reduced pension benefit. If the plan you are leaving is a defined benefit plan, you would be notified of the amount that your reduced pension benefit would be.
Pension Transfer Process
This is not possible in all cases, but sometimes, you are able to transfer your existing pension from the job you are leaving to the new job that you are starting at. For example, if your new employer has a defined benefit pension plan, you may be able to transfer the value of your pension plan to a certain number of years of pensionable service in the new plan.
The transfer may not apply equally, meaning that the current number of years you have in your plan may transfer over as fewer years of service on the new pension plan. This is caused by the differences between pension plans– some are more profitable than others, and my have different contribution rates as well.
Frequently Asked Questions
Do I lose my pension if I quit?
You do not lose your pension if you quit your job. You may be able to keep your pension in your employer’s pension plan, but they will not add any more to it. If not, you can also cash out your pension.
Typically, you cannot move your pension from one job to another new job if it is not within the same company, though sometimes this is an option, so research accordingly.
What happens to my pension if I leave my job?
If you leave your job, your pension is usually frozen. This refers to the time that you leave your job, and it is at that time that you and the previous employer stop making contributions to your pension plan. The money is not lost, so you will have options as to how you can move forward.
Usually, these options are to remain in the plan without making any further contributions or to cash it out. You may even be able to transfer your pension, though this is not the norm.
What is vesting?
Vesting, when it comes to pension plans, refers to when and what you are entitled to keep when both you and your employer contribute to your plan. No matter what, you are entitled to everything that you have contributed, but employers typically have a scale of what and how much you can keep of their contributions. This is based on the amount of time you spent with the company.
Also known as a vesting period which is the time an employee must work for an employer in order to own outright their retirement money.
What is a Registered Retirement Savings Plan?
An RRSP is a savings plan, that is registered with the Canadian Federal Government. The goal of an RRSP is to ensure that when you’re ready to terminate employment, you have enough money for retirement.
RRSP accounts are “tax-advantaged” meaning the contributions you make are not taxed in the year you make them. Withdrawals from the plan are, however, exposed to income tax.
To learn more you can visit your financial institution and talk to a financial planner.
What are the Canada Pension Plan Options?
These are the three main registered pension plan options in Canada:
– Defined Benefit Pension Plan (DBPP)
You will know how much money you will receive in retirement.
– Defined Contribution Pension Plan (DCPP)
The amount you will receive in retirement is not guaranteed. To turn this into retirement income, you may purchase an annuity from an insurance company or transfer the money into a locked-in retirement income fund such as a life income fund (LIF).
– Pooled Registered Pension Plan (PRPP)
For those who are self-employed or who have an employer not offering a pension. It is similar to a DCPP.