Pensions

Once again, Jimmy has come up with an important list regarding those tempting, or not so tempting, Company Pension schemes.

Ten questions you should know the answers to before entering a company pension:-

1) What type of plan is it.
2) Who pays for it.
3) What is the benefits formula.
4) Is the plan indexed.
5) When can I retire.
6) Can I retire early.
7) On what terms.
8) What happens if I die.
9) May I make past service contributions.
10) Who gets any pension surplus.

We've found that some companies insist on you joining their pension scheme and they enforce control over your money, others give you the choice of enrolment and allow an element of self direction, others match your contributions or call them group RSP plans which remove company responsibility on the direction of your money.

The example from an Ontario company where my wife worked is, in my opinion, a fine scheme. The company offered the employees a group RSP plan with an initial 2% matched contribution, stepping to 3% after five years and 4% after ten years employment.

So, that's all good, joining the plan gives you an immediate 2% increase in earnings which rises the longer you're employed, the deposits are to a self directed RSP format where asset mix can be controlled by the employee via the internet and, on termination of employment, all funds can be transferred out to an individual RSP with no penalty or fees.

The flipside of that is the enforced pension plan, no contribution matching or employment increases, no control over how your money is invested and limited or no transfer ability if you change jobs. This is why that list is important, you should understand all aspects of the plan before you enrol.

Remember that Contributions to pension plans or group RSPs always affect your contributions to external RSPs, so, make sure you understand the consequences as there can be penalties if you over contribute to your personal plan.