by Chloe Cross, BA, PFP – Financial Planner, BMO Financial Group, Sidney –
In today’s increasingly complex financial marketplace, knowing what pension options are available to you is an absolute must.
If you’re retiring from or leaving a federally registered business or company and you’ve been a member of the firm’s registered pension plan (RPP), you have the option of accepting a pension from the RPP, transferring your accrued pension amount to another RPP with another company or transferring your pension amount to your own individual registered savings plan called a locked-in retirement account (LIRA). Depending on your personal, financial circumstances the LIRA could be your best choice. Here’s why.
Transferring your RPP cash to a LIRA allows you to own the assets rather than leaving them with your previous or new employer. The obvious advantage of doing so is selection and control of the investments you choose for your cash. Unlike an RPP which restricts the securities you can choose, a LIRA offers you the opportunity to select from a wide variety of different investments. By doing so, you can tailor your investments to your investment profile, whether your investment goals are wealth accumulation, wealth preservation or income generation.
The big financial advantage of a LIRA, however, rests with the life income fund (LIF). When the time has come to access your cash (in B.C. age 50 and beyond), you convert your LIRA to a LIF. This conversion generates a stream of periodic pension income that is similar to a regular registered annuity or pension. The LIF differs in that you can choose between a minimum and maximum payout at the beginning of each year. In both cases, regardless of whether you elect to take the minimum or maximum LIF payment, all of the assets of your LIRA will be paid out by the time you reach age 90, but not before. The reason for this stipulation is to make sure that income recipients continue to receive registered benefits throughout their retirement, and have no liquidity advantage over regular members of an RPP-driven pension.
As attractive as the LIRA is over a regular RPP, regulations and rules for this locked-in plan differ across provinces and territories in Canada. To ensure you get the correct details, contact a financial planner.
For more information, email Chloe.Cross@bmo.com.
This article is provided for informational purposes only and is not to be construed as investment advice and/or tax advice. Financial Planners, Investment & Retirement Planning are representatives of BMO Investments Inc., a financial services firm and a separate legal entity from Bank of Montreal. ® Registered trade-marks of Bank of Montreal, used under licence.
