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Commutation of Pension in Barrie, Ontario

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Transfer or Commutation of Pension in Barrie, Ontario

When leaving a job with a defined-benefit pension, you will be faced with a decision to make regarding your accumulated pension funds. Namely, you would need to decide whether to leave them in place to receive a monthly pension in retirement or to “commute” the funds at once.

When it comes to pension funds, the stakes are high, and the commutation decision is irreversible. If you aren’t sure how to proceed or need help commuting your funds, financial professionals from Walton Financial are ready to help.


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All You Need to Know

What is Commutation of Pension?

Defined-benefit pensions pay out the accumulated funds in monthly installments once an individual reaches retirement. Commutation of pension involves the transfer from monthly pension installments for the rest of your life to a single lump sum payment. This lump sum may be paid out to replace either the entire pension or just a part of it.

  • Understand Your Pension
  • Plan For Retirement
  • Make The Right Decision

The Breakdown

To Commute or Not to Commute?

Aside from a home purchase or sale, commuting a pension could be one of the single biggest decisions of your life. When you are leaving an employer, you can either commute or not commute your pension. But which option is best? Let us take a closer look.

1. Leave the Pension in Place - Or Transfer It to the New Plan

Even if you are leaving the job, you will be usually offered an option of leaving the accumulated pension funds in place. Alternatively, you can transfer the funds to a new pension plan. In either case, when you become eligible according to the rules of the pension plan and your age, you will start receiving a monthly income.

  • You will continue to receive the payments for the rest of your life.
  • If the pension benefit is indexed for inflation, it will grow as the cost of living increases.
  • You don’t have to take any investment risk.
  • Your spouse will continue to receive reduced payments of your pension even after you pass away.
  • Your pension will pay out as promised, regardless of investment market dips.
  • The monthly pension income is eligible for “pension income splitting” to reduce your household tax bill.
  • The money within the pension plan is not liquid - you will receive your payments on a monthly basis.
  • If the pension plan becomes insolvent, your pension might suffer.
  • The pension income stops when you pass away (or when your spouse passes if you have one).

2. Commutation of Pension

Alternatively, you could “commute” your pension entitlement to cash. With this option, the funds contributed to your pension plan to date would be transferred into a Locked-In Retirement Account (LIRA). The commuted amount is limited by the Maximum Transfer Value, which is set by the Income Tax Act. Any amount exceeding the Maximum Transfer Value will be paid out as cash, subject to taxes. To help reduce these taxes, you could then contribute a portion or all of these funds to a Registered Retirement Savings Account (RRSA), given that you have contribution room.

Another option for pension commutation might include using the funds to purchase a life annuity from a life insurance company, which would need to match your plan’s benefits. Whatever the case, financial professionals from Walton Financial will be happy to assist you with your pension commutation needs.

  • If you “cash out” your pension, the money in your plan can be “unlocked” from the locked-in retirement account and used right away.
  • You can manage the funds in your LIRA account directly, taking on as much investment risk as you want.
  • If you commute your pension to a life annuity, you can avoid the risk of the pension plan becoming insolvent.
  • When you pass away, 100% of the remaining balance in your account can be transferred to your beneficiaries.
  • Depending on portfolio performance you could receive more money monthly in retirement.
  • You can control more of the income you receive. This could be beneficial if you are going to continue to work or have other assets to draw from.
  • You may not feel comfortable making investment decisions for your LIRA.
  • The amount of your commuted value beyond the Maximum Transfer Value can be high, meaning that you might have to pay additional taxes in the year of transfer.
  • You may be tempted to deplete the funds that have been set aside for retirement.
  • Market dips can negatively affect your retirement income.

The Choice Is Yours

We can help you evaluate all the options carefully

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Commute or Transfer Your Pension with Walton Financial Group Inc.

Whether you decide to leave your pension where it is, commute it to cash, or transfer to a different pension plan, we can help! At Walton Financial Group Inc., we are dedicated to taking a well-rounded approach to the financial situation of each and every client. Together with you, we will review your financial situation and long-term goals to come to the best decision for your case. From there, should you decide to commute or transfer your pension, we will facilitate the arrangement to ensure that you are well-prepared for your retirement years.


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