Pension funds: What to do if you leave your job

Over the course of a career, things happen, such as job changes, layoffs, and company closures. In these situations, you might ask yourself what you should do with the pension or retirement plan you've accumulated with your former employer. We've outlined several options below to help you make the best decision for your situation and needs.  

Option 1:Transfer your savings to a locked-in retirement account (LIRA) or locked-in retirement savings plan (LRSP)

LIRAs (provincial) and LRSPs (federal) allow you to transfer amounts accumulated in your former employer's pension plan to an individual account. These savings are tax-sheltered and locked in. In other words, you can't contribute to or withdraw funds from the account before retirement, except in exceptional circumstances (e.g., non-residency in Canada for two years, shortened life expectancy, financial hardship, disability, death, minimal balance). 

These funds must be transferred to a life income fund (LIF) to begin drawing retirement income no later than December 31 of the year in which you turn 71. In the event of your death, the funds can be passed on to your spouse or estate, with no tax impact. However, if your beneficiary is someone other than your spouse or estate, there will be a tax impact.

Example: Julie is 45 and has left her job at a company where she had been contributing to a pension plan for over 15 years. After talking to a FlexiFonds mutual fund advisor, she decides to transfer her savings, free of charge, to a LIRA with FlexiFonds products. This gives Julie more control over her savings while allowing them to grow, tax-free. She can also choose a mutual fund that matches her investor profile, with a view to retirement. 

The FlexiFonds advisory team knows the ins and outs of LIRA and LRSP accounts, and can help you make decisions about your pension fund or retirement plan. 

Option 2: Keep the accumulated amounts in your former employer's pension fund 

If plan rules allow, you can also leave your savings where they are, so they continue to grow tax-free until you retire. While this may seem like the simplest solution, it does have certain limitations. Among other things, you'll need to keep your personal information up to date with the plan administrator, which can become complex over time or if the company changes hands, for example. What's more, if you are no longer working for the employer, it can become more difficult to keep up with pension fund communications. 

Option 3: Transfer the funds to your new employer's pension plan 

In some cases, your new employer will allow you to transfer funds from your old pension plan to your new one, with no tax impact. This option enables you to consolidate your retirement savings while allowing them to grow tax-free. However, it's important to find out whether this option is suited to your situation:

• How much will the transfer cost?
• What are the features of the new plan (e.g., defined benefits or defined contributions)? 
• Is the new plan indexed to the cost of living?

It's important to compare the two pension plans against your personal situation. The FlexiFonds advisory team is here to answer your questions and guide you through this process. 

Option 4: Transfer the funds to a traditional RRSP (if eligible) 

This option is available on one condition only: if the amount to be transferred is less than 20% of the maximum pensionable earnings (MPE). For example, the MPE for 2025 is $71,600, so the threshold for transferring to a traditional RRSP is $14,320. If this option is available to you, it may be worthwhile, as you'll have more flexibility with your savings. With an RRSP, you can make contributions and withdrawals at any time, although they are taxable. 

Take the case of Jerome, 38, who worked at a small business for a few years. At the time he left his job, he had accumulated $11,000 in his pension plan. Because this amount is less than 20% of the current MPE, he is eligible to transfer his funds to an RRSP. By choosing this option, he retains control over his savings and can contribute more in future years, as his career and needs evolve. The RRSP with FlexiFonds products would also be an ideal solution in this context. 

Option 5: Cashing out your pension savings  

You may want to consider this option if you have an urgent financial need and your funds are under the 20% MPE threshold, but keep in mind that any money you withdraw will be taxable. This means you'll have to add it to your annual income, which can increase the amount of tax you have to pay. If necessary, you can enlist the help of specialists such as the FlexiFonds advisory team. They will help you properly assess your options and the impact each will have on your finances. 

Time to review your investment strategy? 

When you get laid off or change jobs, taking the time to reflect and assess all your options can really pay off. Is it time for you to take stock of your savings strategy or make some changes? Have your goals changed? Has your risk tolerance shifted?

If you're thinking about your long-term savings or the best way to make them grow, our FlexiFonds advisory team is here to help, with simple solutions tailored to your reality.