Have You Switched Jobs?

It’s traditional at the start of every new year for many to re-examine personal and professional goals and many question if their current employment is the correct one.  If you are considering quitting your job and moving on to something else, here are a few things you should consider.

First, quitting a job isn't conceding defeat; it's recognizing the need for a different path. It's honoring your mental health and realizing that your talents and skills might be better served with a different employer.

If you do decide to change employers this year, you should consider the financial impact as it relates to your retirement savings and group benefits.

Retirement Savings

After you resign, depending on where you work you will probably receive a package in the mail typically a couple of weeks after your last day of work.  The number of options you must choose from will depend largely on the type of pension you had with your former employer.  There are two main types of pensions in Canada:  defined benefit and defined contribution.   Some larger private companies will provide a hybrid of the two, but most employers will typically provide one or the other. 

Defined Benefit Pension - a defined benefit pension provides you a specific amount of monthly income for you and your partner in retirement.  If you are a teacher, or work for the Saskatchewan Health Region (SHEPP), federal government, or a municipality you most likely have a defined benefit pension. 

Typically, when you decide to change jobs, you will be given the following options for your defined benefit pension.

1. Leave it with your employer - if you leave it with your current employer, it will most likely show how much you can expect at a specific age.  If you decide to leave it with your current employer, you should consider the long term sustainability of the pension.  Typically, government pensions are safer than private companies, but there are no guarantees (there were several U.S states in the last few years that had difficulty meeting their pension obligations).   If you decide to go with this option, keep in mind that there isn't any discretion on the monthly amount you receive each month - if you needed to take more money out for a larger purchase you wouldn't have this option and you would need to plan accordingly. 
2. Take the commuted value of the pension and open a Locked-In Retirement Account (LIRA) and invest the proceeds.  Before you do this, you should consider that unless the funds are invested in GICs you are sacrificing a guaranteed stream of monthly income (assuming the pension remains solvent during you and your spouse's lifetime) for investing in the markets.  Before you make the decision to withdraw the funds you or your advisor should run a future value calculation to determine which is the better option for you.  There are two advantages in taking the commuted value:  one you have more discretion on when and how much you may want to withdraw from the funds.  Two, if you have children or other individuals you want to bequeath the funds to, it's easier with a LIRA account than an income stream from a defined benefit pension.
3. Depending on who your new employer is and the type of pension they offer, you might have the option of merging your previous pension with you new pension.  Typically, the new pension will have limits as to how much can be added, but you can discuss this with your new employer's human resources personnel. 

Defined Contribution Plan - these are the most common types of pension plans offered in Canada.  Typically, a percentage will be deducted from your salary and your employer will provide also contribute an amount as well. If the employers are large enough, like the provincial government (PEPP) or Federated Co-Op, they have their own pension plans that they administer, however most companies use pension plans that are administered by SunLife, Manulife, or Canada Life.    

These types of pensions do not provide a guaranteed stream of income, rather the funds are invested in the markets and when you retire whatever the sum has grown to you are entitled to.  

Similarly, when you change jobs, you can continue to leave the funds with your previous employer's pension, or you can withdraw the funds and open a LIRA account.  Unlike a defined benefit plan, there are no guarantees of a monthly income - over time hopefully the funds are invested wisely and will grow over time.  If you do decide to leave it with your previous employer's pension, ensure you choose your investments wisely.  I have seen many times, individuals have kept the same investments over the years that were more appropriate for younger investors, and then watch their investments drastically drop during a market correction which was near the time they were getting ready to withdraw the funds. 

Similarly, to a defined benefit plan, depending on your new employer, you may have the option to merge your previous pension funds with your new pension.  Again, check with your human resources department. 

Group Benefits

A change in employment is the perfect opportunity to do an insurance review with your advisor.  There are countless group benefit programs in the marketplace, so do not assume that all plans are created equal.  If you have a partner, have your insurance advisor review both plans to coordinate your benefits and possibly minimize overall insurance premiums.  For example, if your partner has a comprehensive dental program for the entire family, perhaps you don't need to participate in the dental program with your new employer.  Again, make sure you have an insurance advisor review both plans to ensure what is covered and what isn't covered. 

Have you recently switched employers and have questions about your pension options?

Go to the Featured Section of my profile to book an appointment with our team to review your options.