Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

The fact that Canadians continue to stash money in savings accounts paying next to nothing has to be heartening

Getty Images/iStockphoto

A funny thing happens when phoning financial planners about pensions.

The question is this: What advice do you have for retirees who are considering taking their money out of a company pension plan and investing it on their own?

Pension solvency and shaky companies are a concern these days, but what should one consider before taking your money out?

Story continues below advertisement

One Calgary planner balked at the question. There are so many variables, she said, it's impossible to give any general advice.

A financial planner in Kitchener practically ran away from the phone. He has a small financial practice, he said. There's no general advice he could give to a national audience, he said. Click. Dial tone.

The non-answers were clear. Taking money out of a company pension plan and putting it into a retirement investment vehicle, to have a greater hand in how it is invested, is apparently one of the most difficult and riskiest financial moves anyone can make.

So much depends on the plan and on the retirees – when they retire, their health, their lifestyle, their plans for their estate and so on.

"Risk is the big four-letter word here," said Christopher Cartwright, president of the Financial Education Institute of Canada in Montreal.

If you withdraw your pension money, it must be put into a locked-in retirement account or transferred into a vehicle such as a life income fund, which then pays an income to the retiree.

The retiree has the advantage in Ontario of being able to transfer 50 per cent out of the account, for instance. Yet there are restrictions, such as the rule that this has to take place within the first 60 days of creating the life income account. It's complicated. Plus, different company pensions have different options, governed by different rules in different provinces (unless the company is federally regulated, such as a bank, and here again the rules are different).

Story continues below advertisement

The upshot is that to gain control over one's pension (and to do so in a way that avoids taxes), the money has to be moved into retirement investment vehicles. This is to protect retirees. For example, there is a maximum amount that can be taken out annually from a life income fund. As Mr. Cartwright said, "you can't just take it all out and buy a boat."

The move by employers toward defined-contribution pension plans further complicates the picture.

Unlike defined benefit plans, which guarantee a pension be paid out at a certain amount, defined contribution plans are basically group RRSPs with restrictions. So, effectively, defined contribution already allows the holder of the pension plan some say in how the money is invested. "You're actually running an account in your own name already," Mr. Cartwright said.

So, the retirement vehicles are complicated enough. Then come the fees.

By exiting a company pension, a retiree is trading the typical low fees of a pension plan for the usually higher fees of financial planners. Investment advisers may be selling clients on potential ways to match or beat a pension's performance, but they are doing this for a fee. Retirees need to add that into their already difficult calculations, Mr. Cartwright said.

"There's a built-in bias in the advice community," he said. "Retail investors do not have a terrific track record. And when you compound it by talking about people who are approaching retirement and that this is their life savings, it's not something where you recommend people go down that road," Mr. Cartwright said.

Story continues below advertisement

It's a huge decision, said certified financial planner Lyle Atkins of Independent Financial Counsellors in Winnipeg. "You have to be prepared to take the investing side of that very seriously."

"My advice to most people over the last 30 years is don't even think about taking the commuted value [that is, the expected value of a pension plan's obligation to a retiree] unless you have a really good understanding of investments. Typically, you have to get somewhere in the 6 per cent to 7 per cent range on your portfolio to match what you would get from the pension plans," Mr. Atkins said.

All of this advice doesn't account for every possibility, of course. For instance, a family might achieve greater financial security taking the commuted value if the retiree holding the pension doesn't have a spouse and is terminally ill. Or pension insolvency – a la Nortel's bankruptcy – may be a factor. Or, in some situations, an employee leaving a job may have no choice but to take the commuted value.

But from strictly an investment point of view, if an employee has a choice, the risks are often too great to leave a pension plan, Mr. Atkins said.

"I have seen absolute disasters. If you go back 10, 15 years ago, a lot of people took commuted values and because of the way the markets were in 2000 and 2008, they wiped out half their pension," he said.

"The money has to be looked after properly. A lot of advisers get stars in their eyes – they can see a huge sale here, they talk you into it, they don't give you both sides of the story properly – and then the next thing you know, you're in big trouble," Mr. Atkins said.

Story continues below advertisement

Adding to the temptation is that the commuted values of pensions are normally high when interest rates are low (because the pensions have to make up for the value of lower returns from low interest).

Yet the common wisdom is that a traditional, guaranteed pension plan is still highly coveted, especially one that is indexed to inflation.

"If you're lucky enough to be in that type of a plan, it's best to stay," said Carien Jutting, a financial adviser and retirement specialist at Fiscal Wellness in Stratford, Ont.

Another factor to consider is the myriad rules surrounding pensions. They can make a bad decision worse. "In other words, whatever you do decide is cast in stone. That's good for people to remember, too. You can't backtrack," Ms. Jutting said.

"The bottom line is, if anyone is in a solid defined-benefit plan, stay in that because of the fact that it's almost like guaranteed cash for life."

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies