Do I Lose My Pension if I Resign From My Job?

Cutting ties with a previous employment is frequently delightful, sometimes bittersweet, and other times downright unpleasant. Breaking links might also be difficult if you have a defined benefit pension. What happens to your pension plan if you quit your job before you're ready to retire? Will you receive the funds, and what should you do with them? Are there any tax implications to consider?

Some people would not consider quitting a job with a defined benefit pension in the past, but people change jobs much more frequently than in the past, and the types of benefits firms provide have evolved. If a better offer comes along before retirement, it is up to you to determine what to do with your pension.

Ways Not To Lose Your Pension If You Resign 

Following are the ways which will help you collect the pension money in case you resign from your job before the stipulated retirement date. 

• Defer Your Pension 

Assume you had a Defined Benefit Retirement Pension at your previous work but have now quit. Because retirement is still many years away, delaying your pension is enticing. You cannot contribute any more money with this choice, but you will receive a fixed monthly payout when you reach the eligibility date (this could be as early as the age of 55). Because you are no longer contributing to the pension, the amount you will receive when you begin collecting will obviously be less than if you had stayed in (not that you have a choice). This option is useful because it still provides you with a guaranteed income. The amount you will receive will be clearly stated in the documentation.

• Transfer Your Pension

As you'll see in the list above, you have a plethora of transferring possibilities. If you change jobs and the new business has a DB pension, you may be eligible to transfer your benefits to the new plan. The value and number of years provided would be determined by your past pension and what is currently available. Because the two pensions may have different values, it is not a simple 1:1 swap. Not every pension allows for a transfer, but if you have the possibility, this is certainly the best alternative.

• Take The Commuted Value of The Pension

Other transfer options are available for persons who do not want to defer and are unable to transfer to another pension plan. Which one you choose is determined by your own situation. Because I was only 38 when I quit, I elected to transfer to a Locked-in RRSP, also known as a Locked-in Retirement Account (LIRA). Transferring to a Life Income Fund (LIF), a type of Registered Retirement Income Fund, may be preferable for older persons (RRIF).

Can You Withdraw Your Pension if You Resign?

As previously stated, if you take the commuted value, you may exceed the limits set by pension rules. Any surplus funds will be deposited into your bank account as taxable income. Restricted Life Income Funds allow you to transfer up to 50% of your pension into a standard RRSP all at once. You may technically withdraw money from your RRSP, but you'd be taxed significantly and would lose that contribution room indefinitely.

Can You Lose Your Pension Upon Resigning?

Pensions are technically intended to be guaranteed. However, there are situations when things can go wrong. Some significant corporations, such as Nortel, have gone bankrupt in the past, making it hard for them to continue paying out retirees. Even Canada Post is having difficulty funding its pension plan right now.

Endnotes

A pension plan is always fantastic to have. If you have one, you will have a steady income when you retire. If you're going to quit your job, you should do so for a good reason. A higher title and higher pay may be worth it on their own, but it's not always about the money. You should think twice before quitting a job which provides you with post retirement security as you might not get the same benefits in the new job you’re joining. 

Also read 

Why Retirement Planning is Important?

Planning For Your Retirement? Consider These Factors NOW

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.