Reading your pension statement
During the RRSP season it is important
to get a handle on your pension – not only to determine how much
you can expect after retirement, but also to understand how much you
are eligible to contribute to your RRSP.
First you need to know if your pension plan
is a defined benefit plan or a defined contribution plan. A defined
benefit plan sets what your pension benefit will be – and contribution
amounts fluctuate to fund the final amount upon retirement. Alternatively,
a defined contribution plan has a set annual contribution and the final
retirement benefit will vary based on investment choices and other factors.
In fact the retirement benefit will pretty much remain unknown until
retirement.
For the majority of our members their pensions
are based on a defined benefit plan. A copy of your pension statement
should be mailed to you once a year. This statement is a great resource
for providing a variety of information from how your pension estimates
are calculated to what your benefit level is at various retirement ages.
Each year the average of your best 5 years of income is calculated to
determine your benefit level. Those 5 years do not need to be consecutive
– so if you moved jobs, or at some point took a job with a lower
salary the timing is not important. The statement also provides the
following additional information:
- How much you can expect to receive based
on your current income if you retired at age 65, but left your employer
today. Remember any savings you have or payments from Canada Pension
Plan (CPP) or Old Age Security (OAS) are not included.
- What you can expect to receive if you continue
to make contributions until your full retirement date.
- What you can expect to receive if you are
eligible for an unreduced early pension.
- Date at which you can retire under factor
90 or the 60/20 rule.
- The total pension amount including bridging
benefits until age 65.
The statement also details your beneficiary
information – this is really important to check. If it is not
up-to-date make sure you contact your pension provider in writing to
make the necessary changes.
Did you know as a provincial government
contract employee you can elect to join and make contributions to the
pension plan?
Once you join the Ontario Public Service Pension Plan your employer
contributes as well. If you had an interruption in employment because
of maternity, illness or disability leave you can buy back your years
of service by making contributions equal to your portion plus the employer’s
portion. This will bump your years of service, which may mean you qualify
for an earlier retirement date. This is especially helpful if the gap
in employment came at a time when your salary was lower. Better yet
– you can use your RRSP to do this – ask your financial
advisor how.
Your Pension Fund – Accessing
and Transferring
Your pension benefits will vest after a specified period of employment.
That means that your pension money is locked in and can only be used
to provide you with income at retirement. Once it is vested you cannot
take the money out in a lump sum cash payment. Of course, there are
exceptions for medical reasons, and if you leave your employer and the
value of your benefit is small. But those are exceptions. By limiting
access to these funds, the government has provided a couple of additional
benefits – it safeguards your money so that you do have a fund
at retirement, and it protects any locked in amounts from creditors.
If you leave your job, your plan administrator will provide you a written
statement within 30 days of your termination date. This statement will
give you details on your benefit, transfer options, and the deadlines
for choosing an option. If your plan has not yet vested, and therefore
is not locked in yet, the statement must give you information on your
contribution refund amount and any interest that you accrued.
If your plan has vested you will have a few options to choose from;
you can stay in the plan or you can transfer the current value of your
plan to another type of plan or to your new employer. Remember even
if you transfer out of the plan it is still locked in and you will not
be able to access it until retirement. This is one of the times you
really need to speak to your advisor as there can be tax implications
if you transfer to a retirement savings product. As well, if you transfer
out, any additional benefits (such as the CPP top-up at early retirement,
or benefit increases) may not be made available to you.
Questions about Your Pension
Just like any financial product there can be many questions dependent
on your personal financial situation. These are best answered in consultation
with your financial advisor. These questions range from whether you
should take an early retirement, who you should name as a beneficiary
if you do not have a spouse, or options you have if you leave the government.
The useful link box details some excellent resources for understanding
your employee pension, CPP and OAS. If you are unsure, ask questions.
When you get your statement make sure you read the Annual Pension Statement
Guide included in your package. If you need some help figuring it all
out, just give us a call, drop us a line or come in.
Useful Links
Employee pension plan
General info on government plans
Canada Pension Plan
Old Age Security
Pension Rights
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