Personal Finance

Wife is leaving nursing job - HOOPP pension question

  • Last Updated:
  • Nov 8th, 2013 12:04 pm
Tags:
None
[OP]
Sr. Member
Jul 17, 2006
950 posts
97 upvotes

Wife is leaving nursing job - HOOPP pension question

My wife has left her nursing position that she has been at a few years for another job whose pension is defined contribution so it's not transferrable. HOOPP has given us the option of a 28,000 dollar payment to a locked in transfer vehicle (which I assume would be our RRSP account at the bank), or keep the pension which would result in a payment of 258.11 dollars a month at retirement age.

I'm looking for opinions as to what is the best option. It seems to me best that we keep the pension payment, given that we'd require about a 10 percent return on investment to earn the 258 dollars a month if I were to invest the 28,000.

Anyone with any expertise or thoughts on my choices?
15 replies
Deal Addict
Feb 22, 2007
1756 posts
107 upvotes
Mississauga
would you rather have your financial advisor or yourself (if you do you're own investing) have control of the money and what happens with it? if so, then yes, take it out and put it into an RRSP account.

If you are not familiar with this stuff, and do not want any additional headaches of investing or watching your rrsp, then just leave it, and hope the pension does well when you are ready to retire so you have a nice monthly income
Deal Fanatic
Apr 23, 2009
5153 posts
676 upvotes
South of Ottawa
pardnme wrote:
Nov 7th, 2013 9:40 am
would you rather have your financial advisor or yourself (if you do you're own investing) have control of the money and what happens with it? if so, then yes, take it out and put it into an RRSP account.

If you are not familiar with this stuff, and do not want any additional headaches of investing or watching your rrsp, then just leave it, and hope the pension does well when you are ready to retire so you have a nice monthly income
What? A DB pension doesn't rely on market returns so the max she'll have is $258/month no matter what happens.

OP, you don't say how many working years your wife has left. I would think she could invest the $28K (it goes into a LIRA) and do much better than $258/month assuming there's a number of working years left.
Deal Addict
Feb 22, 2007
1756 posts
107 upvotes
Mississauga
he said defined contribution

and everybody get's a monthly number on their annual pension statment even though it is a DC plan.
Newbie
User avatar
Nov 2, 2013
17 posts
5 upvotes
check how much of the 28k you can actually transfer into the lira, chances are it will be a lot less (if the 28k is the hoopp value, maybe 20k?).
sorry, not sure if 28k is full value or not....
the cash out will be taxed at 20% above 5k.

also from what i understand, hoopp pays a fairly good % compared to others (eg omers).

it sounds like she has a lot of time left to work....
Thanked 0 times for 0 posts
[OP]
Sr. Member
Jul 17, 2006
950 posts
97 upvotes
pardnme wrote:
Nov 7th, 2013 11:51 am
he said defined contribution

and everybody get's a monthly number on their annual pension statment even though it is a DC plan.
Sorry, I didn't phrase it well. Her *new* pension is a DC plan, while her old (HOOPP) pension is a DB plan. I only mentioned the new pension to point out that I can't transfer it.

The 258 a month isn't going up except for inflation adjustments.
[OP]
Sr. Member
Jul 17, 2006
950 posts
97 upvotes
capitalism wrote:
Nov 7th, 2013 12:26 pm
check how much of the 28k you can actually transfer into the lira, chances are it will be a lot less (if the 28k is the hoopp value, maybe 20k?).
sorry, not sure if 28k is full value or not....
the cash out will be taxed at 20% above 5k.

also from what i understand, hoopp pays a fairly good % compared to others (eg omers).

it sounds like she has a lot of time left to work....
The 28k is the actual lump sum amount I can transfer into a LIRA, according to the HOOPP termination elections worksheet. She will be working probably about another 30 years give or take a few.
Deal Fanatic
Apr 23, 2009
5153 posts
676 upvotes
South of Ottawa
******* wrote:
Nov 7th, 2013 1:09 pm
Yes a DB plan is in fact a participant in the domestic, international and global financial markets except the individual pensioner does not face this risk (per say) rather the pension trust does. How else do you think the pension calculates what they foresee they will "contractually" need to pay out?
Huh? I never said a DB didn't participate in financial markets. I said the benefit does not change based on the market. And maybe I'm missing something in the way you worded this, but the pension does not calculate benefits based on financial markets, it's based on the employees years of service and salary.
[OP]
Sr. Member
Jul 17, 2006
950 posts
97 upvotes
******* wrote:
Nov 7th, 2013 1:09 pm
For example, if the OP is 30 and has 35 years until retirement (65), at a modest 5% rate of return over 35 years, the LIRA has the opportunity to grow to $154,500 from the estimated LIRA transfer value of $28,000. This amount alone would allow for a $648/month payment (pre-tax), indexed annually at 2% until age 95.

If the OP’s wife is 40 and only had 25 years until “normal” retirement, her LIRA, given the same parameters would have accumulated to approximately $95,000. This could pay out $398/month until age 95.

OP, if you can give some more detail, it may better help us direct you onto the correct path.
My wife is 34, the pension kicks in during the year 2039. She worked there 10 years approximately, about half full time and half part time.
Sr. Member
Jan 14, 2010
620 posts
173 upvotes
Is there any point also in considering if she will ever return to a HOOPP employer? I know many workers who did just this; opted out and worked in the community for a few years, then returned to either frontline work or managerial position in a hospital setting. I wonder if leaving it in will essentially put it 'on hold' for her to possibly contribute to later? Even on a casual basis (once a member of HOOPP all work schedules can contribute, not just full-time).
[OP]
Sr. Member
Jul 17, 2006
950 posts
97 upvotes
******* wrote:
Nov 7th, 2013 3:47 pm
If your wife is 34, she technically has 31 years until "normal" retirement. Given a 5% annual long term rate of return, the LIRA account will grow to $127,065 by age 65. Rebalancing at this point to a more conservative investment mix (4%) in retirement will allow for a sustainable indexed payout (2% annually) of $470/month until age 95.

If her pension kicks in during 2039, she has 25-26 years in which to grow these monies to match her pension start. At 5% over 25 years (as we are almost in 2014), shes looking at about $95,000. Using the 4% deferred return rate while in retirement, this should allow her a payout of approximately $315/month, indexed at 2% from age 60 to 95.

If she is capable of creating a moderate investment portfolio or if you have an advisor, I would, based on some assumptions, transfer the commuted value to a LIRA instead of leaving the money in HOOPP. Not only do you increase your monthly income by 22-82%, but you create the potential to pass on an asset that isn't reduced upon death.

Again this is just my opinion. Everyone's situation, risk tolerance, and long term investment knowledge differs so plan accordingly.
I appreciate you taking the time to do some math and figure out my options. When comparing the HOOP payouts with a LIRA are you taking into account that the 258 a month from HOOPP will be indexed to inflation and thus be higher when she retires? By my estimates more like 450 a month based on historical inflation amounts?

Not disagreeing with you, clearly you understand this better than I, just want to make sure it's an apples to apples comparison.
[OP]
Sr. Member
Jul 17, 2006
950 posts
97 upvotes
******* wrote:
Nov 7th, 2013 6:06 pm
If your wife keep's her HOOPP pension, the indexing does not start from today, but rather the day she begins receiving it. She stands to collect $258/month starting at age 59-60 (according to her earliest retirement) which begins indexing from that day forward. Her actual monthly payment will be $258/month when she begins her pension. The formula that HOOPP used to arrive at a $258/month payment has inflationary measures already taken into account.
Ok, thank you very much for the clarification. I wish the HOOPP paperwork we got explained things as clearly as you do.
Deal Fanatic
Apr 23, 2009
5153 posts
676 upvotes
South of Ottawa
******* wrote:
Nov 7th, 2013 3:30 pm
Actually the benefit very well can change if the market is a complete disaster for an extended period of time where by the pension becomes seriously underfunded and solvency is an issue. This account balance and forward looking data do have a very LARGE impact on future payments. The pension benefit formula is in direct relation to the financial stability of the plan. This is dictated, no doubt, by the markets.

Knowing what to expect at retirement is a main characteristic of a DB Plan. However, there are a few situations which may alter a DB participants expectations.

A company may change the terms of a pension plan or type of plan offered. For example, in 2008 Sears Canada froze their existing DB plan and introduced a new DC plan. For affected employees, any benefits accrued in the DB plan when it was frozen remain in that plan until the employee retires. Any future contributions would be made to the DC plan only. I know this does not apply to OP's wife's situation, but I'm merely making a point.

A company's or organizations bankruptcy may also affect pension recipients depending on the status of the plan at the time. If the plan is fully funded at the time of insolvency, there should be enough money to continue paying pensioners and to pay out a commuted value to non-retired employees (a large majority of Pension plans around are underfunded due to low interest rates and poor market returns over the past decade) However, if the plan is underfunded, employees will receive less than the promised amount. In some jurisdictions, the government provides a guaranteed minimum income to retirees. For example, in Ontario, the Pension Benefits Guarantee Fund insures pensions up to $1000/month. This guarantee may or may not apply to those who have left the plan prior to retirement and is also on a % basis. Just because the OP's wife's pension is below the $1000/month mark, does not mean she will still qualify for her full $258/month. GM is a great example of a DB plan that has been reduced, simply by changing the pension formula.

That said, regardless of HOOPP's underfunding or possible future underfunding, its a well run plan and doubtful that it will come to this, but the point is that NOTHING is guaranteed, regardless of what most folks think who have a cushy DB plan. The risks are even more when its a smaller private DB pension plan.
Ok, I get where you're coming from now. You do have a point, but if this pension or any other gov't pension became so underfunded that benefits dropped, it would be the least of the worries considering how bad the economy would be for that to happen.
Deal Fanatic
Feb 1, 2006
9491 posts
615 upvotes
Muskoka
Some good info from Wes, thanks. My wife is a nurse as well with 14 years in HOOPP, so of interest to me as well.

Curious why your wife is leaving nursing, when everyone else is trying to pile into the profession to get the secure high income and great pension?
[OP]
Sr. Member
Jul 17, 2006
950 posts
97 upvotes
Bullseye wrote:
Nov 8th, 2013 6:53 am
Some good info from Wes, thanks. My wife is a nurse as well with 14 years in HOOPP, so of interest to me as well.

Curious why your wife is leaving nursing, when everyone else is trying to pile into the profession to get the secure high income and great pension?
She's staying in the nursing field, just leaving the hospital. Income is the same in the new job, pension isn't as good but the 9-5 job works better with a family than shiftwork did.

Top