Investing

Commute Historically High Pension To Buy Stocks?

  • Last Updated:
  • May 5th, 2020 3:55 pm
[OP]
Deal Addict
Jul 12, 2008
3021 posts
920 upvotes
GTA

Commute Historically High Pension To Buy Stocks?

"Unique opportunities sometimes come in extreme times.

The one detailed below on commuting the value of your pension won’t be an option for many, but for those with the ability to take advantage, it could meaningfully improve their retirement finances for years to come.

This opportunity is based on three fundamental facts.

First, the current or commuted value of your pension is much higher when interest rates on 5 Year Canadian Bonds are low. The five-year bond is trading near historic lows, at 0.57 per cent at the time of writing.

Secondly, you can use the paid-out pension money to buy some very solid long-term Canadian investments with dividend yields of six per cent or more."

https://business.financialpost.com/pers ... -a-pension

There are still some opportunities to switch in my industry? maybe a buyout soon for some people if it stays bleak enough? (250k plus, late 80's millennial)
5 replies
Deal Addict
User avatar
Aug 4, 2014
3336 posts
3497 upvotes
Toronto, ON
Great idea, except OSFI froze federally-regulated pension transfers to protect remaining members:
Portability transfer freeze

When a plan member either leaves a plan or the plan terminates, they can choose to transfer the commuted value of their accrued pension benefit to a locked-in fund or another pension plan if that plan is willing to accept it. This is known as a portability transfer.

However, the security of benefits for remaining members could be affected by the payment of full commuted values when the funded position of a plan has deteriorated significantly due to the current market volatility, says Gavin Benjamin, senior director of retirement at Willis Tower Watson.
OSFI temporarily freezes portability transfers, annuity purchases due to coronavirus

I legitimately quit my bank job end of January - and my (tiny!) DB pension transfer is stuck for more than a month, with no ETA of when it’ll be “unfrozen”..
[OP]
Deal Addict
Jul 12, 2008
3021 posts
920 upvotes
GTA
I saw the OSFI story before, mine is not covered by OSFI though. The 5 year is likely to be low for a while given all the borrowing that needs to be done but how long will stocks be cheap?
Deal Addict
Oct 21, 2014
1523 posts
1914 upvotes
Burlington, ON
freilona wrote: Great idea, except OSFI froze federally-regulated pension transfers to protect remaining members:



OSFI temporarily freezes portability transfers, annuity purchases due to coronavirus

I legitimately quit my bank job end of January - and my (tiny!) DB pension transfer is stuck for more than a month, with no ETA of when it’ll be “unfrozen”..
Were you able to lock in a commuted value?
Deal Addict
User avatar
Aug 4, 2014
3336 posts
3497 upvotes
Toronto, ON
Gungnir wrote: Were you able to lock in a commuted value?
Yep, they sent me the papers with all the numbers in February (before the rate cut, so would’ve been a bit more if it was a few weeks later) And after I completed all the forms, the transfer was supposedly ready to go out on April 3rd, so missed the freeze by a few days.. sigh But they promised me that they’ll pay interest on it for the duration of the freeze! Face With Tears Of Joy

Wonder if provincially-regulated plans did something similar, at “funds managers discretions”..
[OP]
Deal Addict
Jul 12, 2008
3021 posts
920 upvotes
GTA
Provincially it just needs to be approved by FSRA if the rate is unusual. Poloz was saying negative interest rates are possible as well so this might get better.

I will keep an eye on this play though as the job market looks awful at the moment at the macro level. Stocks tend to normally have deals if you look around well maybe not as great as now.

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