Should I take my pension as a lump sum, if so is there taxes to be paid?
There are so few guarantees in life. Why would anyone fortunate enough to have a pension take a lump-sum payment instead? Maybe the employer is going through financial straits and the pension doesn't look sound. Maybe the recipient is thinking about his or her estate and wants to leave the cash to family members as beneficiaries.Today less than 40% of employed Canadians have a pension plan at work. If you decide to move (take) your pension and are not ready to retire, the rule of thumb is that it will be transferred in to a Locked-In Retirement Fund (LIRA), as a 'holding tank" until you are ready to retire and then it is transferred in to a Life Income Fund (LIF) with will then provide you an income as you choose, typically a monthly income. It is very important to note that the LIRA will be part of your accumulation period, growth in a LIRA will not be subject to tax until an income is received from the LIF. Simply a Pension goes to a LIRA, a LIRA goes to a LIF for retirement income.

​In fact, taking the lump sum, or commuted value, looks even more attractive when short-term interest rates and bond yields are low, as they are now. That is because when fixed-income returns are low, a guaranteed, Defined Benefit Pension (DB) plan needs more money earlier to meet expected payouts later. But, a warning that there could be a large bite that income taxes take from the lump-sum amount in the year of receipt if you take a lump sum. Taxes are critical when calculating what will be left over from the maximum allowed as a direct transfer under The Income Tax Act (Canada). The catch is that when commuted pension values are high, so are the taxes. Clients can be surprised to learn that hundreds of thousands of those dollars may be subject to tax.

Some of that taxable portion of the commuted pension could be put into a registered retirement savings plan (RRSP), if the RRSP contribution room is available. It's vital to know, too, that every pension has its own set of rules and is subject to Provincial or Federal regulations.

Despite the potential downsides, some soon-to-be pensioners may still want to invest the commuted value themselves or use a financial adviser. Any lump sum from a pension has to be put into a vehicle such as locked-in retirement account (LIRA), in which you have investment choices, and where the money is held until retirement. Upon retirement, this account can then be converted into a retirement income account, from which income is generated monthly.

Pension recipients can also choose hybrid investment vehicles such as Guaranteed Minimum Withdrawal Benefit plans, (GMWB) which are similar to annuities but also act like investment funds to take advantage of market gains, some GMWB offer a 4%-5% bonus on the value of the account each year that no withdrawals are made. Douglas works with many Companies that offer these plans.

It's also easy to be dazzled by such a large sum of money. Just remember the taxes. Understand what the tax implications are, and whether it's right for you. Too often, employees may not be aware of their pension's rules and don't realize that they need to make lump-sum decision well before retirement.  It's not the kind of decision that one should be looking at weeks in advance of the deadline. [It should be] really months or perhaps even years in advance.

Can I designate a beneficiary of my LIRA?

It is important to be aware that designating a beneficiary of a LIRA is more restrictive than for other registered investments like RRSPs and RRIFs. There are 3 options for designating a beneficiary of a LIRA:
1-your estate,
2-your spouse (or common law partner) or,
3-another individual

If you wish to designate someone other than your spouse or common law partner, he or she must waive his or her spousal entitlement. This must be done in the specific manner set out in the legislation.

It is critical that you review all of your beneficiary designations as part of your estate planning. Call 416-873-4872 or email to schedule an appointment to meet with me. We will explore every facet of your unique situation to ensure your beneficiary designations sync with your overall estate planning goals.

CPP Breakeven Point Chart 
If you take your CPP starting at age 60, your breakeven point with someone who waits until age 65 is when you both turn 74. Confused? Let me put it another way; if Mary takes her CPP a 60 and Brenda takes hers at 65, Mary’s monthly CPP payment will be 36% lower than Brenda’s, but she will collect five years longer. They will be at age 74 when Brenda pulls ahead of Mary for overall amount of CPP dollars collected.

​Professional Advice: This document was prepared solely as a general guide and is not intended to provide or replace professional, legal or tax advice.
For your own specific situation, please consult your own tax and legal advisors.


Canadian Private Pension Plans;
Employer sponsored private pension plans provide an important source of retirement income for employees and their families. Employers generally set up pension plans voluntarily; however, once a pension plan is established, it must be funded and administered in compliance with applicable tax and pension laws as per Province.

Retirement plans for employees;
1- A Defined Benefit Pension Plan (DB) is a type of pension plan in which an employer promises a specified pension payment on retirement that is predetermined by a formula based on the employee's earnings, years of service and age.

2- A Defined Contribution (DC) Plan is a type of retirement plan in which the employer, employee or both make contributions on a regular basis. ... In DC plans, future benefits fluctuate on the basis of investment earnings and places the financial risk on the employee, which is becoming the normal type. No promises on a specified pension payment.