by: Melissa Stewardson, Financial Security Advisor
Going through a separation, and negotiating the financial details, while trying to make a plan for rebuilding your future is hard……I know this because I’ve been through it! There are so many emotions being experienced during that time, making it difficult to make such big decisions in an objective, forward thinking way.
One of the biggest considerations for many couples during the negotiation of the Separation Agreement is valuation and splitting of pension monies, as part of a new family property valuation. In Ontario, pension plan Administrators (for example, OMERS, HOOPP and OTIP) are responsible for pension plan valuation, based on rules set out in the Pension Benefit Act. The separating parties must apply to the Administrator to have these calculations done on their behalf. Some pension plan Administrators charge a fee to prepare the calculations, and the separating parties will want to check confirm whether or not there are fees in their particular circumstances, and will also want to speak with their legal representative about sharing of the fees between the parties.
Pension valuations are highly regulated, and the Administrator is required to used standardized pension valuation forms, which are available at http://www.fsco.gov.on.ca/en/pensions/Family-Law/Pages/familylawforms.aspx.
Once the pension has been valued, the parties are then able to use these figures to determine how much of the pension, if any, will be included as equalization payment that may be made to one of the parties. Equalization payments can be made in various manners, and it’s always wise to consult with a family law expert to determine which manner is best in your personal circumstances.
In many circumstances, equalization payments include the transfer of funds from one ex-spouse’s pension. This is done by transfer, from the pension plan to the payment recipient’s financial institution of choice, with the funds being placed in a Locked-In Retirement Account, also know as a LIRA.
A LIRA is essentially an RRSP. At their core, both a LIRA and an RRSP have the same purpose – to help individuals to save money for retirement. LIRA’s are accounts that are designed to hold accumulated pension monies, outside of a pension plan. A LIRA allows you to personally manage the pension monies, very similar to how one could do with an RRSP.
There are some notable differences between the two types of investments:
· Holds money that you have contributed to the RRSP
· Contribution limitations are determined on an individual basis, and carry from year to year
· Withdraw of funds is possible, but is subject to taxation, and can be subject to other fees,
depending upon the investment details.
· Eligible for New Home Buyers Plan and Life Long Learning Plan
· RRSP rules are federal, and are uniform across Canada
· Holds vested pension monies – your own contributions and those of the employer
· Ongoing contributions are not permitted.
· Withdrawals are not permitted, except in very limited circumstances
· Not eligible for New Home Buyers Plan and Life Long Learning Plan
· LIRA rules are governed by provincial pension laws, except in certain circumstances where
the pension comes from a federally regulated sector.
A qualified financial professional will work with you to ensure that your investments are the right fit for you, taking into consideration factors such as timeline for growth, your tolerance for risk, and, if you are interested in Responsible Investing, what kinds of environmental/social/governance issues are important to you.
If you are going through a separation and feeling overwhelmed about the financial decisions you have to make, please feel free to reach out to me. I offer a free consultation and review of your current financial plan, and work with lawyers and other professionals to ensure that you’re taking steps to rebuild a solid future.