Defined Benefit Pension Plans (e.g. HOOPP and OMERS), Income Tax and Commuted Value
December 4, 2020
There is inaccurate and false information about pension plans and income tax circulating. It is governments, not pensions, that tax income.
What has happened is this – the Canadian Institute for Actuaries (CIA) has changed how commuted value is calculated for all defined benefit pension plans in Canada, including HOOPP. Commuted value is the lump sum you receive if you decide to pull out of the pension plan, e.g. after you resign. The changes by CIA took effect December 1 and may result in this lump sum being smaller than it would have been before.
HOOPP advises that “These changes have absolutely no effect on the pension payments you receive if you stay in the plan and collect pension cheques from HOOPP – now or in the future.”
There may be financial advisors who are using this change to try to get you to resign from your job and take your lump sum/commuted value – and give it to them to invest. While ONA knows this may be tempting, please know there are financial risks to this. It may cost you more in taxes than you realize, and it means you lose the guaranteed pension for life that HOOPP provides.
If you are thinking about taking your commuted value, ONA strongly urges you to call HOOPP’s member services to understand your options as they have a fiduciary duty to help you. You can reach them at 1-877-43-HOOPP (46677).
It is also important to know that if you resign in order to access your commuted value pension, you lose all your seniority and service with your employer. That means you lose access to your benefit plan, life insurance, paid vacation, and more.
You should always understand the full implications of your decision prior to making a significant life change. You should call your Bargaining Unit President if you have any questions or would like more information to understand advice you may be getting from others.