Skip to main content

A defined benefit pension plan is terrible thing to waste, yet many people seem quite open to it.

I’ve been surprised over the years at how many people seem interested in the idea of commuting their DB pension, which means taking the money in a single lump sum to invest yourself. Here’s the latest example: “I am 63 and retiring within the next two years,” a reader recently said in a query sent my way. “I have a DB pension and will have the option of taking the pension or receiving a payout. … As I await my pension options, are there key things I should consider in the decision to take the pension or take the cash?”

For a personalized answer to this question, see a financial planner. I suggest a fee-for-service planner who would charge a flat or hourly fee to provide an answer the reflects your wants and needs. Meantime, let’s look at some of the factors that go into this decision. Someone who already has ample retirement savings may prefer the lump sum rather than the pension because there’s more flexibility in how to use the money. DB pensions are paid monthly for life – there’s no way to make a big withdrawal to fund a trip or put a new roof on your house.

Story continues below advertisement

Commuting the pension might also make sense if you were worried about the financial solidity of your employer. The risk is that your employer goes bankrupt at a point in time where the pension is underfunded and cannot meet its obligations in full.

The reason to keep the pension is that it represents worry-free cash for life. Having a DB pension frees you from following the ups and downs of the stock and bond markets. There’s no risk you’ll freak out after a stock market crash and sell at a low point, thereby locking in losses that could have a serious long-term impact on your retirement savings.

The reason to see a fee-for-service planner about this pension question is to avoid the conflicts of interest that can arise when you deal with an adviser who is paid via fees or commissions related to investments. Commuting a pension can put a big whack of money in an adviser’s hands – and yours. Make sure you get an unbiased analysis of whether such a move makes sense.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter