Q&A: Pension Issue

Adviser wants employees to take the commuted value of their pension and invest the money. Is it a good idea? Gordon Pape gives his view.

Q – I am still working and contributing to an OMERS pension fund. I plan to retire in a couple of years. Some of my co-workers who are also nearing retirement have claimed that their financial adviser has recommended that they take the commuted value of their pension and transfer it to something else. I believe the primary reason for this is that with OMERS there is only one beneficiary, typically a spouse and if both die at the same time then there is no more OMERS. Taking the commuted value of the pension and transferring to something else would provide the portfolio to other family members. What are your thoughts on this? Could be the adviser just wants the portfolio. – Brian W.


A – Could be. So put the adviser to the test. Find out how much you can expect to receive annually from your pension plan when you retire. Then find out what the commuted value is expected to be and calculate the annual return required to obtain the same amount of income. Ask the adviser how he/she would invest the money to obtain that return and what risks would be involved. See if the plan makes any sense.

I generally advise staying with a defined benefit pension plan because the payment is guaranteed The OMERS plan is solid and does not involve any market risk from your perspective. If you invest the money through an adviser, even a very good one, you lose the guaranteed return and open yourself to the potential for losses if the market drops. – G.P.

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