Pension Changes

If you are part of a defined benefit pension plan, you should be aware that some changes are about to take place. Many of these pension plans are underfunded and some of them heavily. The concern over that has companies and regulators in agreement that something needs to change. The Financial Services Regulatory Authority of Ontario (FSRA) came out with guidance on May 22, 2020, referring to the solvency of pension plans. It states that the solvency of pension plans has been undermined and are ‘under water’ far more than expected. There are several reasons for that, including falling bond rates. This impacts pensions because they rely on long-term interest rates and interest rates have been dropping for decades.

On December 1st of this year, the calculations used by the pension administrators will change. The formula will include non-Federal bonds which include provincial and corporate bonds which have a higher bond rate. This will result in lower commuted value amounts on or after December 1st 2020. 

If you were considering taking the commuted value to create your own pension instead of your company pension, this could and will have a significant effect on your overall finances.

Taking the commuted value in lieu of a company pension may or may not be the right thing for you to do. Many things must be considered and a financial plan that includes tax planning is a must.

If you are considering this option, let us help you to understand all aspects of both sides. We will create a fair comparison that will help you to make a decision that will suit you and your family best.