So, you’re leaving a job with a defined benefit pension plan and are unsure on what to do with your pension benefit? This is an important decision, and it can be daunting trying to figure out the right choice to make. Not to worry, we’re here to help you better understand your options so you can make the best decision for you.

When leaving a job with a defined benefit plan, you are presented with several options for the funds earned. Two of them are the choice to take a lump sum payment or to defer taking it until you’re ready to retire. The decision you make is important because either choice could impact you and your future retirement plans.

Taking a commuted value

Simply put, a commuted value is the value of the pension a member has earned in a pension plan if it was paid out in a lump sum. It’s commonly known as cashing out your pension benefit, and it’s only presented when the terminating member hasn’t reached eligible retirement age. While it may be tempting for some to take the lump sum payout, there are important details to consider.

Taking a commuted value of your pension means you would be solely responsible for making investment decisions by yourself. More importantly, taking a commuted value means you forfeit an opportunity to have a retirement income that would be paid to you for the rest of your life.

Another thing to note with this option is your pension is transferred into an eligible locked-in-retirement vehicle up to something called the Maximum Transfer Value, a limit set by the Income Tax Act. You are only paid the excess of the maximum transfer value in taxable cash and the rest of your pension held in the LIRA until you reach retirement age.

Deferring your CAAT pension

A deferred pension is a pension you delay collecting until you’re ready for retirement. When you leave a job with a CAAT defined benefit pension plan, you can leave your pension with the plan until you choose to retire. This means that your benefits are preserved with the promise of regular payments in the future.

A deferred pension spares you the hassle of worrying about investments or making those tough decisions – those risks/decisions fall in the hands of the pension plan. In addition, the spending power of your deferred pension is protected from the impacts of inflation, so it continues to go up over time with annual conditional cost-of-living increases, even before you start to collect it.

Next Steps – What should you do?

Understanding the financial impacts of the decisions you make about your pension is important because your financial future and security are dependent on it. It’s not something that should be rushed into, and it’s important you weigh your options carefully before making a decision.

If you have more questions about your retirement with the CAAT Pension Plan, visit our Member Resources page, contact us using secure messaging through your My Pension account or call us at 1-866-350-2228.