Leaving Your Employer – Should You Take Your Pension?

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When you leave an employer, one of the biggest financial decisions you may face is what to do with your pension. For many employees and executives, the pension represents years of savings and future income security. But when offered the option to take the value of the pension today, it can feel overwhelming to decide whether to leave it where it is or transfer it out. Let’s walk through the key considerations so you can make an informed choice.

What is a Pension Plan?

A pension is a retirement savings arrangement set up by your employer. There are two main types: defined contribution and defined benefit. With a defined contribution plan, both you and your employer contribute money, and the balance depends on investment performance. With a defined benefit plan, your future income is pre-determined based on things like your years of service and average salary. Many Canadians leaving an employer with a defined benefit plan will be faced with the decision of whether to keep the pension or “commute” (cash out) its value.

Defined benefit pensions are attractive because they provide predictable lifetime income. This predictability can give peace of mind. On the other hand, defined contribution plans shift the investment risk to you, since your eventual income depends on how the funds grow over time.

Know Your Pension Options

When you leave your employer, your options depend on the type of plan. With a defined contribution plan, you’ll typically move the money into your own locked-in retirement account or buy an annuity that provides income for life. With a defined benefit plan, you can either:

  • Leave the pension with your former employer, collecting a guaranteed monthly payment at retirement.
  • Take the commuted value (the lump sum representing the present value of future payments) and transfer it to a locked-in retirement account.

Both options have trade-offs. Leaving the pension may give you peace of mind with guaranteed income for life. Commuting gives you control over the investments but shifts the risk to you. The decision also has implications for your family. Unlike a commuted pension, which can be passed on to heirs, most defined benefit pensions end upon death, except for survivor benefits that may be included.

Key Considerations Before Deciding

This decision is highly personal and depends on several factors:

  • Longevity: If you expect to live longer than average, staying in the pension may make sense because it ensures you don’t outlive your money.
  • Stability of the employer’s plan: Some pensions are well-funded, while others face challenges. If you have doubts about whether the company will remain strong enough to pay pensions in the future, taking the commuted value may provide more security.
  • Need for predictable income: A pension offers steady, reliable payments. If you’d feel more comfortable knowing exactly what you’ll receive each month, this could be valuable.
  • Market risk: If you commute your pension, your retirement income will depend on market returns. That could mean growth, but also the possibility of running out of money if markets perform poorly or if withdrawals are too high.
  • Estate planning: Pensions typically stop at death (with limited survivor benefits). If leaving money to your heirs is important, a commuted pension gives more flexibility.

It’s important to weigh these factors against your lifestyle, your other sources of income (such as CPP, OAS, RRSPs, or TFSAs), and your comfort with risk.

How Much Can You Transfer?

When you choose to take the commuted value, the Income Tax Act sets a maximum amount that can be transferred tax-deferred into a locked-in retirement account (LIRA). The formula depends on your annual pension amount and a factor based on your age. Anything above this maximum must be taken as taxable income in the year you leave your employer. This can create a significant tax bill. Planning ahead with strategies like using RRSP room or your spouse’s RRSP can help soften the tax hit. In some cases, contributing to a Tax-Free Savings Account (TFSA) may also be beneficial.

Unlocking Pension Money

Funds in a LIRA remain locked until retirement, but there are exceptions. Depending on your province, you may be able to unlock money earlier if you face financial hardship, move out of the country, or have a shortened life expectancy. At retirement age, a LIRA typically converts into a Life Income Fund (LIF), which provides a stream of income but still follows government rules for minimum and maximum withdrawals.
Some provinces allow partial unlocking of a LIRA once you reach a certain age, which can improve flexibility.

Additional Factors to Keep in Mind

There are also tax and income-splitting considerations. Pension income can often be split with a spouse, reducing household taxes. However, this benefit works differently depending on whether you keep the pension or commute it. If you keep your pension, income splitting is available immediately when payments begin. If you commute and move the funds into a LIF or RRIF, income splitting usually becomes available only at age 65.

Indexing and bridge benefits are also worth reviewing. Some pensions offer cost-of-living increases or bridge payments until government benefits like CPP or OAS begin. These can significantly impact the overall value of staying in the pension.

Final Thoughts

Deciding what to do with your pension when leaving an employer is one of the most important retirement choices you’ll face. Keeping the pension can give you guaranteed income for life, while commuting it offers flexibility and control, but with added risks and potential tax costs. The right decision depends on your personal goals, health, family needs, and comfort with investment risk.

If you’re unsure, take the time to speak with us before making your decision. A pension may be one of your largest assets, and the choice you make could shape your retirement for decades.

Leaving Your Employer – Should You Take Your Pension?

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When you leave an employer, one of the biggest financial decisions you may face is what to do with your pension. For many employees and executives, the pension represents years of savings and future income security. But when offered the option to take the value of the pension today, it can feel overwhelming to decide whether to leave it where it is or transfer it out. Let’s walk through the key considerations so you can make an informed choice.

What is a Pension Plan?

A pension is a retirement savings arrangement set up by your employer. There are two main types: defined contribution and defined benefit. With a defined contribution plan, both you and your employer contribute money, and the balance depends on investment performance. With a defined benefit plan, your future income is pre-determined based on things like your years of service and average salary. Many Canadians leaving an employer with a defined benefit plan will be faced with the decision of whether to keep the pension or “commute” (cash out) its value.

Defined benefit pensions are attractive because they provide predictable lifetime income. This predictability can give peace of mind. On the other hand, defined contribution plans shift the investment risk to you, since your eventual income depends on how the funds grow over time.

Know Your Pension Options

When you leave your employer, your options depend on the type of plan. With a defined contribution plan, you’ll typically move the money into your own locked-in retirement account or buy an annuity that provides income for life. With a defined benefit plan, you can either:

  • Leave the pension with your former employer, collecting a guaranteed monthly payment at retirement.
  • Take the commuted value (the lump sum representing the present value of future payments) and transfer it to a locked-in retirement account.

Both options have trade-offs. Leaving the pension may give you peace of mind with guaranteed income for life. Commuting gives you control over the investments but shifts the risk to you. The decision also has implications for your family. Unlike a commuted pension, which can be passed on to heirs, most defined benefit pensions end upon death, except for survivor benefits that may be included.

Key Considerations Before Deciding

This decision is highly personal and depends on several factors:

  • Longevity: If you expect to live longer than average, staying in the pension may make sense because it ensures you don’t outlive your money.
  • Stability of the employer’s plan: Some pensions are well-funded, while others face challenges. If you have doubts about whether the company will remain strong enough to pay pensions in the future, taking the commuted value may provide more security.
  • Need for predictable income: A pension offers steady, reliable payments. If you’d feel more comfortable knowing exactly what you’ll receive each month, this could be valuable.
  • Market risk: If you commute your pension, your retirement income will depend on market returns. That could mean growth, but also the possibility of running out of money if markets perform poorly or if withdrawals are too high.
  • Estate planning: Pensions typically stop at death (with limited survivor benefits). If leaving money to your heirs is important, a commuted pension gives more flexibility.

It’s important to weigh these factors against your lifestyle, your other sources of income (such as CPP, OAS, RRSPs, or TFSAs), and your comfort with risk.

How Much Can You Transfer?

When you choose to take the commuted value, the Income Tax Act sets a maximum amount that can be transferred tax-deferred into a locked-in retirement account (LIRA). The formula depends on your annual pension amount and a factor based on your age. Anything above this maximum must be taken as taxable income in the year you leave your employer. This can create a significant tax bill. Planning ahead with strategies like using RRSP room or your spouse’s RRSP can help soften the tax hit. In some cases, contributing to a Tax-Free Savings Account (TFSA) may also be beneficial.

Unlocking Pension Money

Funds in a LIRA remain locked until retirement, but there are exceptions. Depending on your province, you may be able to unlock money earlier if you face financial hardship, move out of the country, or have a shortened life expectancy. At retirement age, a LIRA typically converts into a Life Income Fund (LIF), which provides a stream of income but still follows government rules for minimum and maximum withdrawals.
Some provinces allow partial unlocking of a LIRA once you reach a certain age, which can improve flexibility.

Additional Factors to Keep in Mind

There are also tax and income-splitting considerations. Pension income can often be split with a spouse, reducing household taxes. However, this benefit works differently depending on whether you keep the pension or commute it. If you keep your pension, income splitting is available immediately when payments begin. If you commute and move the funds into a LIF or RRIF, income splitting usually becomes available only at age 65.

Indexing and bridge benefits are also worth reviewing. Some pensions offer cost-of-living increases or bridge payments until government benefits like CPP or OAS begin. These can significantly impact the overall value of staying in the pension.

Final Thoughts

Deciding what to do with your pension when leaving an employer is one of the most important retirement choices you’ll face. Keeping the pension can give you guaranteed income for life, while commuting it offers flexibility and control, but with added risks and potential tax costs. The right decision depends on your personal goals, health, family needs, and comfort with investment risk.

If you’re unsure, take the time to speak with us before making your decision. A pension may be one of your largest assets, and the choice you make could shape your retirement for decades.

OAS Clawback 2025: What Retirees Need to Know About the Recovery Tax

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OAS Clawback 2025

If you’ve worked hard to build your retirement income, the last thing you want is to see your government benefits clawed back. Yet for many Canadians, the Old Age Security (OAS) recovery tax—commonly called the OAS clawback—can quietly reduce this valuable benefit.

Here’s how the recovery tax works in 2025, what happens if you delay OAS to age 70, and the strategies we use to help our clients minimize or avoid the clawback.

What is the OAS Recovery Tax?

OAS is a monthly benefit available to most Canadians aged 65 and older. However, once your income exceeds a certain level, the government recovers part or all of your OAS through the recovery tax.

This is calculated based on Line 23400 of your tax return—net income before adjustments. In 2025, the clawback begins when your income exceeds $93,454. For every dollar above that amount, you must repay 15 cents of your OAS.

If your income reaches approximately $151,668 (age 65–74) or $157,490 (age 75+), you could lose your entire OAS benefit for the year.

How Much is the OAS Benefit in 2025?

From July through September 2025, the maximum monthly OAS payment is:

  • $734.95 for individuals aged 65–74 (about $8,820 annually)

  • $808.45 for individuals aged 75+ (reflecting a 10% enhancement introduced in 2022)

These amounts are indexed quarterly to inflation and are subject to clawback if your Line 23400 income exceeds the threshold.

What Happens if You Delay OAS Until 70?

You can choose to delay receiving OAS up to age 70, increasing your monthly benefit by 0.6% for each month deferred—a total boost of up to 36% if you wait the full five years.

While a higher payment may sound appealing, it can also lead to larger OAS repayments if your income—including CPP, investment returns, or pension income—exceeds the recovery threshold. Delaying OAS often makes sense for healthy individuals who expect to live into their late 80s or beyond and have lower taxable income during the deferral period.

How the OAS Recovery Tax Works

Example: Alan is 68 and receives the maximum OAS: $8,820 annually. In 2025, the clawback threshold begins at $93,454. Alan’s line 23400 income is $100,000—that’s $6,546 over the clawback threshold. As a result, he must repay: $6,546 × 15% = $981.90

This leaves Alan with $7,838.10 in OAS benefits for the year. If he earns more, the repayment increases proportionally. Once Alan’s income reaches around $151,668 (if aged 65–74) or $157,490 (if aged 75+), his entire OAS would be clawed back.

The recovery tax calculation is automatic and appears on your Notice of Assessment each spring, adjusting your OAS payments for the following July–June period.

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Strategies to Reduce or Avoid the OAS Clawback

The good news? There are practical ways to lower your Line 23400 income without compromising your lifestyle. Here are some of the strategies we use to help our clients keep more of their benefits:

Use a TFSA for Retirement Income

Withdrawals from a Tax-Free Savings Account (TFSA) don’t count toward Line 23400. Drawing income from a TFSA instead of taxable accounts can help preserve your OAS and reduce your tax burden.

Manage RRIF Withdrawals

RRIF withdrawals are fully taxable and included in Line 23400. If you don’t need the full minimum withdrawal, we may recommend delaying full RRSP-to-RRIF conversion or converting just part each year starting at age 65. This can help smooth your income and avoid large spikes.

Delay OAS or Split Withdrawals Over Time

If you’re planning to delay OAS, we’ll help ensure you’re not unintentionally stacking income in the deferral years. Likewise, we can help you spread RRSP-to-RRIF conversions over several years to avoid unnecessary spikes in income.

Pension Income Splitting

If you’re married or in a common-law relationship, you can split up to 50% of eligible pension income with your spouse. This reduces your taxable income and can keep you below the clawback threshold—especially effective when one spouse earns significantly less.

Choose Tax-Efficient Investments

Not all investment income is taxed equally:

  • Capital gains: 50% taxable; more clawback-friendly

  • Eligible dividends: grossed up for Line 23400 purposes, potentially triggering more clawback despite the tax credit

  • Interest income: fully taxable and the least efficient for minimizing clawback

We can help structure your investments to be as clawback-friendly as possible.

Donate Securities Instead of Cash

Donating appreciated publicly traded securities directly to a registered charity eliminates the capital gains tax, reduces net income, and supports a cause—all while lowering recovery tax exposure.

Defer Large Income Events

Selling a property, realizing a large capital gain, or cashing a pension lump sum can push you into full clawback territory. If possible, we can help you plan these events to spread them over several years or delay them to a lower-income year.

Consider Leveraged Investing

Some higher-net-worth clients use leveraged investment strategies—borrowing to invest in tax-efficient, capital-gains-producing assets. Interest may be deductible, and investment income can be structured to reduce Line 23400. This is a high-risk strategy and something we’ll discuss carefully if appropriate.

Talk to Your Financial Advisor

Everyone’s income, retirement timing, and tax situation are unique. That’s why we take the time to understand your goals, project your Line 23400 income, explore different scenarios, and build a personalized strategy designed to minimize the recovery tax while keeping your lifestyle in mind.

The OAS recovery tax can quietly chip away at your retirement income—but it doesn’t have to. With the right guidance and a plan tailored to you, it’s possible to keep more of what you’ve worked so hard to earn.

If you’re already retired or approaching retirement, now is the perfect time to sit down and talk. Together, we’ll review where you stand, explore your options, and build a strategy that keeps more of your income working for you. We’re here to help you make the most of your retirement—let’s get started.

Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or tax advice. Always consult a qualified professional regarding your specific situation. We are not responsible for any actions taken based on this content.

Sources: Old Age Security Payment Amount – Government of Canada: https://www.canada.ca/en/services/benefits/publicpensions/old-age-security.html

Old Age Security Pension Recovery Tax– Government of Canada: https://www.canada.ca/en/services/benefits/publicpensions/old-age-security/recovery-tax.html 

Tax Tips for Filing Your 2024 Income Tax Return

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The deadline for filing your 2024 income tax return is April 30, 2025. Stay informed about the latest tax changes and benefits available to maximize your savings and ensure compliance. This guide outlines the key updates and important deductions and credits separated into sections for Individuals and Families, and Self-Employed Individuals.

For Individuals and Families

Alternative Minimum Tax (AMT)

  • Increased minimum tax rate and basic exemption threshold.

  • Modified calculation for adjusted taxable income affecting foreign tax credits and minimum tax carryovers.

  • Limited value on most non-refundable tax credits.

Canada Pension Plan (CPP) Enhancement

• The standard CPP contribution rate remains at 5.95% for both employees and employers on earnings up to $68,500 (the Year’s Maximum Pensionable Earnings or YMPE) in 2024.

• Additionally, employees and employers each contribute an extra 4% on earnings between the YMPE ($68,500) and the Year’s Additional Maximum Pensionable Earnings (YAMPE) of $73,200 in 2024.

Home Buyers’ Plan (HBP)

  • Withdrawal limit increased from $35,000 to $60,000 after April 16, 2024, with temporary repayment relief available.

Volunteer Firefighters and Search and Rescue Volunteers

  • Amounts increased from $3,000 to $6,000 for eligible individuals completing at least 200 hours of combined volunteer service.

Basic Personal Amount (BPA)

• For 2024, the Basic Personal Amount (BPA) has increased to $15,705 for taxpayers with net income up to $173,205.

• For taxpayers with net incomes above this amount, the BPA is gradually reduced, reaching a minimum of $14,138 at incomes of $235,675 or higher.

Short-term Rentals

  • Expenses related to non-compliant short-term rentals are no longer deductible after January 1, 2024.

Popular Tax Credits and Deductions

Canada Training Credit (CTC) Eligible taxpayers aged 26 to 65 can claim this refundable tax credit to cover a portion of eligible tuition and fees for training or courses to enhance their skills.

Canada Caregiver Credit (CCC) This non-refundable tax credit supports individuals caring for family members or dependents with a physical or mental impairment. The amount varies based on the dependent’s relationship, net income, and circumstances.

Child Care Expenses Child care expenses, such as daycare, nursery schools, day camps, and boarding schools, are deductible if incurred to enable a parent or guardian to work, pursue education, or conduct research.

Disability Tax Credit (DTC) The DTC provides a non-refundable tax credit for individuals with disabilities or their caregivers to reduce the amount of income tax payable. Applicants must have a certified disability lasting at least 12 months.

Moving Expenses Deductible moving expenses include transportation and storage costs, travel expenses, temporary living costs, and incidental expenses incurred when relocating at least 40 kilometers closer to a new work location, educational institution, or business location.

Interest Paid on Student Loans Interest paid on eligible student loans can be claimed as a non-refundable tax credit. The loans must be under federal, provincial, or territorial student loan programs.

Donations and Gifts Donations made to registered charities or other qualified organizations qualify for non-refundable federal and provincial tax credits. Typically, you can claim eligible amounts up to 75% of your net income.

GST/HST Credit The GST/HST credit is a quarterly refundable payment designed to offset the impact of sales tax on low to moderate-income individuals and families. Eligibility is automatically assessed based on your annual tax return.

For Self-Employed Individuals

CPP Contributions

  • Enhanced CPP contribution rate for self-employed individuals.

Filing and Payment Deadlines

  • Tax Return Deadline: June 16, 2025 (June 15 is Sunday).

  • Balance due must be paid by April 30, 2025.

Reporting Business Income

  • Report income on a calendar-year basis for sole proprietorships and partnerships.

Digital Platform Operators

  • New reporting rules requiring platform operators to collect and report seller information.

Mineral Exploration Tax Credit

  • Eligibility extended for flow-through share agreements signed before April 2025.

Need Assistance?

If you’re unsure about your eligibility for specific credits or deductions, reach out to your tax consultant or tax advisor for personalized guidance. They can help you optimize your tax return, maximize your savings, and ensure compliance with CRA regulations.

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Defined Contribution vs. Benefit Pension Plan for Employees

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The Key Differences Between a Defined Benefit and Defined Contribution Pension Plan

As an employer, you may be thinking about offering your employees a pension plan. If so, you have two main options: a defined benefit pension plan and a defined contribution pension plan. A defined benefit pension plan offers your employees a set amount of money when they retire, whereas a defined contribution pension plan does not.

There are four key areas you should be aware of for pension plans:

  • Contributions

  • Investment Management

  • Costs

  • Employee Retention

We will walk you through each of these to help give you a better understanding of the differences between the two types of pension plans.

Contributions

In a defined benefit pension plan, both you, the employer, and the employee will contribute to the pension plan. The amount that you will have to contribute each year will depend on what kind of expenses the pension plan has, and the amount of funding it will require that year.

In a defined contribution pension plan, employees contribute a set amount each year into their pension. As an employer, you can choose to match or “top up” their contributions to a set amount that you define in advance.

For both types of plans, contributions are tax-deductible for the employee.

Investment Management

As an employer, you or your pension plan administrator will be responsible for managing the funds in a defined benefit pension plan. This applies whether the employee is actively contributing to the fund or has retired and is receiving funds from it.

With a defined contribution pension plan, you can let your employees choose how they want to invest their funds. This provides your employees with more flexibility and choice and takes the responsibility off you as the employer to manage pension funds. You will still need to arrange to have a selection of funds for your employees to select from.

Costs

In a defined benefit pension plan, an actuary will work with you (approximately every three years) to calculate how much money you will need to cover the pension expenses. The actuary must consider everything from cost of living adjustments to how many employees will be retiring.

In a defined contribution plan, the costs will be lower as less active management is required. Employees will receive whatever amount their investments are worth when they retire.

Employee Retention

Both types of pension plans will help attract and retain employees. Since a defined benefit plan builds in value each year, it is more likely to attract employees interested in staying with your company for a long time. A defined contribution plan will still attract employees – but the pension will be less appealing than a defined benefit plan would be.

The Takeaway

A defined benefit plan will cost you more to set up, maintain, and administer, but offers your employees more stability in their retirement. A defined contribution plan will give you and your employees more flexibility and cost you less to run.

Either type of plan will help you attract and retain employees.