You’ve paid into your pension plan for your whole career. So what is it worth? If it is a “defined contribution” plan, you will know exactly, at least according to the last statement you received. But if your plan is a “defined benefit” plan, you likely have no idea what your pension asset is worth because the value is stated as a monthly pension benefit rather than a lump-sum amount. In fact, it is probably a lot more then you think — it could easily be double or triple the value of your home. In that context, the form of pension you choose in retirement could be one of the most important financial decisions you ever have to make.

The world of pensions is complicated and full of technical terminology like guarantee periods, survivor options, commuted values, and life annuities. Yet often the information provided to employees in company seminars is very general in nature and does little to bring clarity to their particular situation. Issues such as other sources of income, lifestyle needs and estate considerations, which could have a significant impact on pension decisions, are seldom personalized for individuals. You only get one crack at deciding what form your pension will take. Once that decision has been made and the pension payments start, there are no changes allowed. It is a decision for life. Accordingly, it is very important to educate yourself as much as possible to ensure that you make an informed decision.

In many cases, a member of a pension plan has the option of leaving the pension with the current administrator — often a government agency or an insurance company — or rolling the value of the pension funds (known as the commuted value) into a locked-in RRSP. This will depend on a number of factors, including the type of pension plan and the length of time you have been a member of the plan. Pension plans typically have many members and, therefore, are managed for the group as a whole rather than for individuals.

Clients who choose to roll the commuted value into a locked-in plan often do so because they want more control over their investments and, ultimately, the stream of pension payments that are received from the plan.

A comprehensive financial plan is a wonderful tool to help analyze pension options and assess the impact on key issues such as retirement cash flow and estate values. This “big picture view” can provide perspective to the role pension benefits play in your total retirement picture. The rate of return on the pension plan can also be estimated to determine whether the level of pension payments is fair in relation to the pension assets that have accumulated.

When it is time to make a decision about pension benefits, it is crucial to fully understand your options and the ramifications of your choices. We can help guide you through the process and illustrate the potential effect of your decisions. Use our experience to help you make a well-informed decision.

Contact Craig Gronsdahl by e-mail at craigg@fraserfinancial.com.