Joanne never imagined she’d need a financial planner.

Her long term employer had a Registered Pension Plan (RPP), and she’d always been reassured that it would provide her with a steady income once she was ready to stop working.

But with her retirement approaching fast, Joanne wasn’t as confident as she once was in her RPP. The economy had taken a turn for the worse, and her employer was struggling. There was even talk around the office that the RPP was underfunded.

Joanne was depending on her RPP to be her primary source of income in retirement. Without it, her savings wouldn’t be enough to fill the gap.

Feeling vulnerable, Joanne decided to consult with us about options to protect her retirement income.

We reviewed Joanne’s plan and determined that her RPP didn’t offer many benefits beyond a monthly income. We also confirmed that she could withdraw her entire entitlement without penalty or timing restrictions. There was no real reason for her to stay in the plan.

Once we knew there was nothing holding her back from going a different route, we presented her with some alternative strategies for her retirement income.

A common choice when transferring funds out of an RPP is to move them into a Locked In Retirement Account (LIRA) or a Locked In Income Fund (LIF). Both allow the RPP member to defer taxes on the eligible portion of their pension entitlement, which is calculated by the pension plan administrator using a present value factor based on the member’s age at the time of the transfer.

A LIRA or LIF would give Joanne more control over her investments, allowing her to work with her own advisor to implement a personalized investment strategy.

But any withdrawals in excess of the eligible amount would be fully taxable immediately. Although this amount will vary depending on the individual and the plan, a generous RPP could result in a significant tax bill.

And for Joanne, security was paramount. As a retiree, she didn’t want to worry about market fluctuations or making investment decisions. She just wanted a predictable income so she could enjoy life to the fullest.

To give Joanne the peace of mind she was looking for, we suggested a copycat annuity - a life annuity product that would mimic her pension benefits.

A copycat annuity would let Joanne transfer her pension entitlement on a tax-deferred basis, as long as it met the following conditions:

  • It is issued by licensed annuity provider;
  • The rights under the annuity are not ‘materially different’ from those provided under the RPP;
  • It does not require premiums to be paid after issue; and,
  • The transfer is made directly from the RPP to the annuity.

In addition to providing the same income benefits, there are several common elements of an RPP that a copycat annuity needs to match. These include:

  • Guarantee period
  • Reduction of income to spouse
  • Indexing

In Joanne’s case, we were able to offer an annuity that copied all the benefits and rights of her RPP, giving her the same monthly income at a single premium that was lower than her pension’s commuted value (the lump sum of future pension income).

As an added benefit, the difference between the annuity premium and the commuted value of her pension went right into her pocket. Although it was taxable, she still ended up with an extra cushion for her savings.

Above all, Joanne wanted security in retirement. By using her pension to purchase a copycat annuity, she could guarantee her income and retire with peace of mind.

Retirement is an exciting stage of life, but it’s important to make sure your income will be there when you need it. Our retirement strategy sessions give you a detailed roadmap for how to maximize your income in alignment with your values and vision for retirement.

If you’re approaching retirement and want to understand all the available options for your situation, book a call with us today.