The Hidden Risks of Leaving Pension Funds with Large Providers: How to Take Control of Your Retirement Savings

I frequently meet with clients who are unaware of their options associated with retiring, switching jobs, or leaving their pensionable funds with large financial providers like Sun Life, Manulife, London Life, and Desjardins.

Many Canadians change jobs throughout their careers or simply retire and leave their funds with the pension provider. While this might seem convenient, it can create a number of issues down the road - issues that could significantly impact your financial plan.

Some Problems I have Seen Over The Years

One of the biggest challenges with leaving pension funds with large providers is the lack of personalized financial planning. These big institutions tend to send out one statement a year with little to no follow-up, leaving you with little insight into how your money is being managed, or how you eventually get access to it.

Without proper guidance, it’s easy to fall into a situation where your pension funds are not aligned with your financial goals, leading to potential underperformance and lost opportunities.

Here are a few common problems many Canadians face when their pension

funds are left dormant at old providers:

1. Being Invested in the Wrong Portfolio

   Many people don’t realize that they could be invested in a portfolio that doesn’t match their current or future financial goals. For example, if you’ve moved on from a job and left your pension with your old employer, you may still be invested in a fund that is too aggressive or too conservative for your needs. This can result in subpar returns over time, cutting into your retirement savings when you need it the most.

2. Lack of Financial Advice and Planning

   When you leave your pension with a large provider, the likelihood of receiving personalized financial advice diminishes significantly. These large providers typically offer little more than a yearly statement, which doesn’t do much to help you plan for the future. Without regular check-ins or a detailed strategy to help you meet your retirement goals, you might miss out on opportunities to optimize your savings or adjust your portfolio as your life circumstances change.

3. Limited Access to Your Funds

   Another common issue is the lack of understanding around how to access your pension funds when you retire or switch jobs. For instance, many people are unaware that they can transfer pensionable funds into a Locked-In Retirement Account (LIRA), which functions similarly to an RRSP. This option allows you to maintain control over your retirement savings and gives you more flexibility in choosing your investments. In fact, at age 55, you have the option to unlock up to 50% of the funds in a LIRA in Ontario, which can provide you with additional spending flexibility in retirement. However, many people are unaware of this option, leaving them with fewer choices than they might have had otherwise.

The Golden Handcuffs: Breaking Free from the Big Providers

Many Canadians are unknowingly trapped by what I like to call "golden handcuffs." This term refers to the feeling that you're stuck with the large pension provider simply because it seems like the most convenient option.

The good news is that you have more control over your pension funds than you might think. By transferring your old, or non-contributing pensionable funds into a more flexible investment vehicle, like a LIRA or an RRSP, you open up a world of possibilities.

You can work with a financial planner to ensure that your investments align with your long-term goals and adjust your portfolio as needed. Moreover, you gain the flexibility to choose where your funds are invested, potentially increasing the chances of higher returns and ensuring that your retirement savings are working as hard as they can for you.

What Should You Do with Your Pension Funds?

If you're currently in a situation where you're not actively contributing to your pension, here are a few options available to you:

1. Get a Full Review of Your Pension Funds

   Work with a financial planner to understand exactly where your pension funds are invested and whether the portfolio matches your goals and risk tolerance. You might be investing too conservatively, or taking on more risk than necessary.

2. Consider Transferring to a Locked-In Retirement Account (LIRA)

   If you have the option to transfer a portion of your pension into a LIRA, this could give you more flexibility in how you manage and access your funds in retirement. There may also be non-locked in contributions which you may be able to take as cash or add directly to your RRSP if you have the available room. Many clients I have worked with do have RRSP room available to them, which allows the money to grow tax sheltered, while also receiving a sizeable tax refund for making the contribution.

3. Unlock 50% of Your LIRA at Age 55

   If you're 55 or older, you may be able to unlock up to 50% of your LIRA funds in Ontario, offering you more flexibility with your spending as you enter retirement. This could be a valuable tool for those looking for extra cash flow during their retirement years.

4. Seek Personalized Financial Planning

   A comprehensive financial plan that takes into account your full picture - pension funds, RRSPs, TFSAs, and other investments; which can help you make informed decisions about how to best allocate your resources for maximum growth and stability.

Take Control of Your Retirement Future

Leaving your pension funds with a large provider may feel like the easiest option.

By understanding the options available to you, seeking proper financial advice, and taking action to ensure your pension is properly aligned with your goals, you can set yourself up for a more secure and prosperous retirement.

If you have any questions about your pension or would like to explore your options, I’m here to help. Contact me to schedule a free consultation and take the first step toward better managing your retirement savings today.