As Canadian Armed Forces (CAF) members your CAF Pension is a key component to achieving long-term financial security upon release.
Preparing for retirement or release can be overwhelming. In the majority of cases, it’s the first time you get to see all the information, documents and processes pertaining to your pension and options available. You and your spouse may be confused, frustrated and even stressed.
SISIP Financial Planners, Bonnie Naccarato and Tim Lafontaine understand this better than most. They have studied every aspect of the CAF Pension and advised countless CAF members how make the most of it. We sat with them to get some insights and answers to your questions:
“How does a pension transfer work? Why would I want one?”
: “It really comes down to what you are planning for your future. Perhaps you will release at retirement age and simply enjoy having a guaranteed, indexed pension for life. Alternatively, you’ll release earlier and want to transfer or defer your pension.” In this case, here are three possible scenarios:
- Deferred Annuity with the CAF
: “The option doesn’t require a member to do anything, in fact, if you don’t select an option, it is automatically assumed to be a deferred annuity
.” This means that you keep your pension with the CAF and start drawing on it when you become eligible, for life.
- Transfer Value
: “In this scenario, you transfer your pension savings to your own personal investment account where the value is locked-in. This allows you to choose how to invest it, bearing in mind the rules governing the withdrawal of assets.
Other factors to assess include how much tax you will pay, what rate of return you are likely to achieve and how comfortable you will be taking-over control of your finances as opposed to the peace of mind of a guaranteed income within a pension plan.”*
- Pension Rollover
Bonnie: “If you are going from the CAF to another job in the public service, you may be able to transfer or “roll over” your CAF pension to your new employer’s plan. You may find it better to stay in the CAF pension and start drawing on it to supplement your income while you work at your new job and build up a second pension there.”
Bonnie Naccarato, PFP®, CFP®, SISIP Financial Planner, SISIP Financial, CFB Kingston
Tim Lafontaine, CFP®, SISIP Financial Planner,SISIP Financial, CFB Trenton
Tim: “But you really need expert assistance. We recently helped someone come out thousands of dollars ahead by doing a blend of transferring some pension money to their RRSP and using some of it to buy into the plan at their new employer.”
“What financial planning concerns should I know about?”
Both planners agree that much of the financial advice in the media doesn’t necessarily apply to CAF members.
Bonnie: “For example, while RRSPs are great for many civilians, for CAF members who already have a defined benefit pension plan, it’s wise to ensure that the RRSP contributions will actually achieve the advantage of a tax deferral. This means, timing the withdrawal of your RRSP income at retirement, when marginal tax rates are expected to be lower.
However, this is not always the case. Depending on your unique scenario, you may want to use your RRSP contribution room under the Home Buyer’s Plan, the Lifelong Learning Plan for you or your spouse, or save your RRSP contribution room for a future pension transfer. Either way, it’s important that you don’t trigger penalties for over-contributing. Following generic advice could be costly for our members.”
Tim: “Tax planning is the critical component for many CAF members. Because of the pension, the goal isn’t necessarily to maximize your ‘nest egg’, but to draw your retirement income in the most tax-efficient manner possible.”
With this type of planning, you can both defer and decrease tax.
“Where should I turn for pension advice?”
Bonnie: “SISIP Financial advisors are experts on the topic of CAF pension transfers. From the complexities of pension commutation calculations to the options available depending on your goals and situation, we know how to analyze the different options and help you understand which one is right for you.
Tim: “At SISIP Financial, we get to work with you from early on in your career. Our mandated role is to “provide tailored advice and product solutions that enhance the financial health and security of the members of the CAF community and their families”. We do so by helping members arrive at a place of understanding and confidence in the choices they are making for their future.
*In this case, you will not be restricted by the 50% reduction at death or the loss of the bridging benefit.
This article is intended for general information purposes only.
The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This article was written, designed and produced by Financière SISIP Financial for the benefit of Financière SISIP Financial a trade name registered with FundEX Investments Inc., and does not necessarily reflect the opinion of FundEX. The information contained in this article comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities.
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SISIP Financial, February 16, 2021