Financial Literacy

Payout or Pension?

Shortly after I moved to my current residence, I switched jobs. My previous line of work was slowly coming to a close, and I needed to make sure that I wasn’t left jobless, so I kept my eyes open for new employment. When the opportunity came, I took another job that offered longer term employment. While I’m glad I made that decision, and I’m happy to move forward, my previous employment had some excellent benefits – including a matching pension plan. Now that I am no longer employed by that company, I’ve been given 3 options for the money that was put into my pension plan, and to be honest, I’m not sure which I want to do. Here’s the options.

Transfer to Current Pension Plan or RRSP

If my current employment had a pension plan, I could transfer the balance to the new pension plan. This would be the easiest and most seamless option. Pretty much nothing would change – the money that I’d already saved would simply transfer into my next pension plan, and when I retired or left this employment the balance would be either moved or saved in the same fashion. If my current employment does not have a pension plan, which it does not, I can transfer the balance to an RRSP, which I would set up through my bank. Both of these options are good because they do not offer any cost or fee for the full balance transfers.

Keep the Balance, Wait for Retirement

The second option would be to not move the money at all. I could, instead, simply keep the balance that I have already accrued and wait for my retirement, at which point my pension would begin to pay out. According the documents that I received, because of the balance that I have in the pension plan, I would get paid approximately $1000 annually beginning in 2052. Probably not the best option in this case, as a grand in 2052 will probably not even cover basic monthly expenses, and waiting 40 more years may not be the best option for my current financial situation.


The third option is to get the balance paid out to me. Because the pension deductions were not taxed in the first place, I would have to pay income tax on the amount that I brought home. In addition, I would also have to pay a percentage fee in order to withdraw that money directly. This is definitely the most tempting option, as having a bunch of extra money suddenly is always a wonderful thing. Granted, we would also be losing the most money this way, and having the opportunity at our age to lock away a bunch of money for retirement is also quite tempting. There’s just so much that we could do with the cash with this option, while perhaps the least financially sound, is definitely the most appealing.

All in all, I’m not sure which the best option would be at this point. Having the extra cash on hand would be nice, even considering the extra taxes we would have to pay in order to do so. It would open up a number of possibilities. One of the options that we are looking into is moving it into an RRSP that would allow us to withdraw the funds through the Home Buyers Plan in order to purchase a home. It’s something that we’ve just heard of, and aren’t sure of the restrictions or options just yet, so we’ll have to do more research before we pull the trigger on anything just yet. What would you do in this situation? Have you dealt with a pension payout before? What did you do? Sound off.


  1. Carrie

    Thank you for this article, this is the same situation I am in, although I don’t have the option of buying into my current pension. I have until the beginning of June to decide what to do with my previous job’s pension and I am leaning more towards a payout. My last job and current jobs are contract and that money could be a very useful safety net if I am unable to find something once this contract is up. I am considering putting it into a tax free savings account so that I can either use it “just in case” or possibly use it to upgrade my education so that once my contract is up my job prospects will be better. I would love to hear what other people have considered.

  2. Greg

    I would transfer it to RRSP. Then I would have control of the money and where it is invested. It would also leave the payout option, as RRSP money can be withdrawn if you pay the taxes.

    My wife is in a similar situation. However, our plan is to move overseas in the next 5 years, where her income would be minimal or non-existent. At that time we’d withdraw just under the basic tax exemption amount.

  3. CF

    It’s happened to me twice now!

    The first time, I had to take a 1.5x contribution lump sum payout as I had only been employed for 1 year. It was taxed, as you mentioned in your article so that was a bit painful.

    The second time, I decided to roll the money into my RRSP. It was a relatively easy procedure and the bank took care of all the details for me.

  4. Marypat

    If you had a defined benefit pension and you take a payout of your pension you would transfer it into a LIRA. This is a locked in RRSP. You can choose where to hold it ie. through a bank or a brokerage but the funds must be transferred directly by your employer to avoid any tax implications. You can manage it yourself if you put it into a self-directed account, which was the choice we made. There are restrictions regarding withdrawal of funds from the LIRA so you do need to investigate these rules as you do not have access to the funds until you are older. If you decide to leave the pension money with your employer be certain that the company is viable for a long period of time. We transferred pension money from Nortel years ago and have been extremely happy with that decision in light of developments in recent years. Down the road we will transfer the money into a LRIF and there are ways to unlock a portion of the money at this time. Good luck!

  5. Mr. Risky Startup

    When you take cash out, pension company will withold 10-30% of your amount for taxes.

    HOWEVER, do not forget that any amount taken ads up to your other income. And, this extra income may push your entire income over certain level at which it does not make sense to take cash out.

    For example, if you are making $70k now, and then you take out $30k from your pension plan, you are automatically moved to the next tax level. You may find that you will owe $15k in taxes on the $30k cashout.

    You are much better to leave the money in Registered plan and borrow money for whatever you needed that money for. Or, better yet, borrow money for RRSP contribution at 2% (say $20k, if you have room), which may give you a $5k-$8k tax return. Then, use tax return for your purchases – it will be like 2% loan, but your RRSP will probably return more than 2%…

  6. Lisandra

    Who do I contact if I am waiting for my last check from my pervious employees. I received 1 3 years ago and I am waiting for the final amount as I was only able to take 10% out of it the first time. I want to contact someone to find the exact date I should be receiving it


  7. Gideon Razemba

    Is it possible for me to cash out if I have a defined pension plan with Sunlife through my employer? I plan on resigning my job and relocate overseas soon and need the money to help buy a house there.

    • Dee

      Gideon Razemba,
      Not sure when you plan to relocate to the overseas, but you can pay it out with Sunlife.

      I can talk toyou further if you like

  8. Jeff

    After working for just over a year somewhere I have decided to switch companies. Trying to figure out what option to take? Do you know what tax percentage would be deducted if I take a cash payout of $7000?

  9. Des

    I have to decide what to do with my pension from working for my old company. I have been given 2 options: Option 1 – leave the funds 85K in a deferred monthly pension, that will pay out $450 per month for 10 years. Option 2: transfer 45K of my pension into a LIRA
    The rest will be paid in cash, subject to withholding tax.

    Can i take all the cash and put it into an RRSP? Will that help in terms of taxes paid. I have enough room to put all the cash into my RRSP.

    Or is that RRSP room taken up by this LIRA?
    I just want the solution that will result in less tax, i dont need the cash, i just want it invested and to grow.
    What is the withholding tax amount on this amount?
    Any advice greatly appreciated.

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