On June 15, 2004, the Canadian Institute of Actuaries (CIA) announced that an updated Standard of Practice for Determining Pension Commuted Values has been confirmed by the Board of Directors at its Annual Meeting. We informed you of this impending change to the way your commuted value (CV) pension option is to be calculated and its potentially severe impact on the size of your lump sum payout. To read the urgent message we posted, click What's New on the menu bar and login.
The new method of calculating your CV will come into effect February 1, 2005. Because of these changes, it is now imperative that you get knowledgeable advice when considering your pension options. For example, you should definitely want to know what the dollar amount of your commuted value would be under the old and the new standard. If you are planning to retire in two or three years, you need scenario work done now to show you these differences under different interest rate environments.
You will also need to know what steps can be taken to help protect you from adverse interest rate changes after you have commuted. Some of the risk management techniques are highly complex and beyond the capabilities the average mutual fund or portfolio manager.
The vast majority of defined benefit plan members are not aware that their pension options are being so changed. Unions are likewise fairly in the dark. For more information, and to read our letter to the Canadian Institute of Actuaries, go to the What's New page and register.
Please contact us to discuss our advisory services. We want to help.
What About Pensions
We talk about pensions here. That is not to say that you should start worrying about your retirement the day you start working, as some self claimed 'experts' would try to persuade you. That is bad marketing trying to disguise itself as financial planning, and does a disservice to the rest of your life by ignoring the necessity for new minds to explore. Too much 'Worrying' about later years would get in the way of more important particulars, such as the the pursuit of your formative years. However, there is a big difference between worrying and planning.
Life is basically defined by its restrictions and freedoms. These two forces are bi-polar on the surface, but highly complimentary in their subtleties. How you deal with this competitive jousting will shape you. You have more freedom if the shackles of just surviving are lightened. This requires some measure of financial comfort.
It takes time, planning and execution to arrive at this state. So what is wrong with working towards it? Nothing! But working towards it does not mean slavish worry towards it dominates. That is counter intuitive because what is the financial security worth if you have sacrificed important developmental aspects of your life's progress in a dogged pursuit of just one phase of it.
For example, if you are a member of a defined benefit pension plan and do not yet qualify for an immediate pension, you can retire and take control of your pension by taking it out as a lump sum? A member with 30 credit years and an average "best five" salary years of $60,000 can expect a lump sum pay out in the area of $500,000. This is called the Commuted Value or CV. It is your least understood and yet most important pension option.
There are a number of very good reasons to inform yourself of your CV option. Some highlights are:
Members of defined contribution plans have serious decisions to make, the most important being what to do with their pension upon retirement. Where and how do you want to invest it, and don't think annuitizing your pension is a solution because it is definitely not.
What we do at Armquest and Associates is make the decision making experience, if not enjoyable, at least not a discomfort. And after all, why shouldn't it be enjoyable. Many of you are potentially better off financially than you realize, so learning why should not be like going to the dentist, or taking a math exam.
To help you, we have arranged with our selected Investment Managers for them to offer free portfolio reviews. Please click on the link for more information.
"Seg" Funds-if you are considering these as an appropriate investment for your CV pension, read Investing the CV Funds.
Commuted Value and Shortened Life Expectancy-you have some special options. Read WHAT'S NEW or click here to send us a message. Please include your phone number.
Individual Pension Plans (IPPs) - There is a lot more you should know about IPPs than we find you are generally being told.