When you leave your employer in Canada, one of the things you may be wondering about is what happens to your employee pension plan. This is an important consideration, as your pension plan may provide a significant source of income during your retirement years.
The rules and regulations governing employee pension plans in Canada vary. The type of plan and the province in which it is administered changes things. However, in general, if you leave a company that offers a pension plan, you may be entitled to receive some or all of the benefits that you have accrued under the plan.
There are two main types of pension plans in Canada: defined benefit plans and defined contribution plans. Each type of plan has its own rules, regulations and fiscal implications regarding what happens to your pension benefits when you leave a company.
Defined Benefit Pension Plans
Defined benefit pension plans, also known as traditional pension plans, provide a set amount of income during retirement. This is based on a formula that takes into account factors such as salary and years of service. These plans have tended to disappear in recent years. This is because employers need to add large pension liabilities to their balance sheets over time when they offer them.
If you have a defined benefit pension plan, you may be entitled to receive a lump-sum payment or a monthly pension based on the benefits you have accrued. The specific details of what you are entitled to receive will depend on the terms of the plan and any applicable laws.
For example, if you have a defined benefit pension plan that provides a pension equal to 1.5% of your final average salary for each year of service, and you have been with the company for 20 years, you would be entitled to receive a pension equal to 30% of your final average salary.
In some cases, you may be able to choose how you receive your pension benefits. You may be able to receive a lump-sum payment that you can invest or use to purchase an annuity. You may also be able to receive a monthly pension that is paid out over a specific time.
Defined Contribution Pension Plans
Defined contribution pension plans are a type of pension plan in which both the employer and the employee contribute.
If you have a defined contribution plan, you should be able to withdraw the funds that you have accumulated. You might also get an option to transfer them to a new employer’s plan or a personal plan. RRSP are usually good targets for the transfer because they neutralize the tax effects of the withdrawal. The specific rules and regulations governing defined contribution pension plans vary depending on the plan and the province in which it is administered.
If you are entitled to receive a deferred pension, you may be able to start receiving your pension benefits at a later date. People opting for this will usually wait the plan’s retirement age, or 70 years old. A deferred pension is a pension that is not paid out immediately, but rather at a future date.
Consulting With A Financial Advisor Before And After Leaving Your Employer
As you can see, the rules and regulations governing employee pension plans in Canada can be complex. Therefore, if you are leaving a company that offers a pension plan, it is important to understand your options and make the best decision for your situation.
One way to do this is by consulting with a financial advisor. A financial advisor can help you understand your rights and entitlements under the pension plan. They can also help with tax implications of receiving your pension benefits. They would help you determine the best course of action for your situation. That could be withdrawing your funds, transferring them to a new employer’s plan, or starting to receive a monthly pension.
There Are Other Resources Available To You Regarding Your Pension
Additionally, you can also contact the pension plan administrator to obtain information about your pension benefits and your options for receiving them. The administrator is responsible for managing the pension plan and can provide you with important information and guidance.
In summary, if you are leaving a company in Canada that offers a pension, you are probably entitled to receive the benefits accrued under the plan. The specific details of what you are entitled to receive will depend on the type of pension plan and the terms of the plan, as well as any applicable laws. Therefore, it is important to understand your rights and entitlements and consult with a financial advisor or the pension plan administrator to make the best decision for your situation. Don’t wait, some automatic actions trigger at a predetermined amount of weeks after the end of employment.
