To celebrate Financial Literacy Month, a consortium of public sector defined benefit pension plan sponsors are releasing an informational video designed to educate their plan members about the risks associated with taking the commuted value out of their pension.
The animated video was produced by the British Columbia’s college, municipal and public service, WorkSafeBC, the Colleges of Applied Arts and Technology pension plan, the Ontario Municipal Employees’ Retirement System, the Ontario Pension Board, the OPSEU Pension Trust and the Teachers’ Pension Plan Corp. of Newfoundland and Labrador.
“This video collaboration serves to highlight the strength of Canadian pension plans and the importance of the defined benefit model we all continue to advocate for and its importance in protecting the pension promise to all of our respective members,” said Peter Shena, executive vice-president and chief pension officer at the Ontario Pension Board, in a press release.
After providing plan members with basic pension information, the video discusses the risks facing members who choose to extract the commuted value of a pension. “Taking money, known as the commuted value, out of your plan to invest elsewhere is a big decision. And once it’s done, it can’t be undone. And did you know you need to leave your current job to take the value out of the pension? There may be tax implications and a portion of your pension funds cannot be accessed until retirement.
“Taking out the value of your pension also means ending your membership in the plan and, in most cases, walking away from survivor benefits and any other health benefits in retirement that may be offered.”
The video comes nearly a year after changes to rules for calculating the commuted values of DB pensions came into effect. Compared to the previous rules, the changes provide more favourable commuted values for departing members during periods of higher inflation.