2011-09-15_PensionMaximization

Defined Benefit Pension Plan participants enjoy a formula-based retirement benefit factoring contributory service, highest average salary and age; though benefit entitlements are not in fact strictly guaranteed. Actuaries apply standardized mortality figures and historical returns data to actuarially define how much capital will in fact be required to fulfill ongoing obligations. Any change in Plan assumptions can result in a requirement for increased premiums and/or the potential for reduced benefits – slower than anticipated economic growth, reduced fixed and/or variable returns assumptions, shifting demographics and trending longer-life spans could all weigh on future benefits.

Moreover, actuaries for the Plan also take into account the expected mortality of all Plan participants; in an effort to balance and fund current and future Plan obligations – from an actuarial perspective, some members are expected to live longer than assumed mortality while others will unfortunately pre-decease. Net of any payment guarantees and/or survivor benefits, the Plan has no obligation to refund residual commuted values to a deceased member’s beneficiaries or estate – rather, residuals are recycled by the Plan for the benefit of members who survive assumed mortality. It is not uncommon that 50% of associated commuted value will remain after the maximum 15 years of guaranteed benefits payments – preserving residual commuted values for survivor (income) needs and/or for estate & legacy planning purposes is a priority for many DB Plan participants.

Pension Maximization & Preservation

Often by selecting a single-life pension benefit option in combination with a permanent life insurance policy, otherwise surrendered commuted values can effectively be replaced. Moreover a single life pension benefit option can return $100 - $600 more per month as compared to the various joint survivor pension benefit options; yielding the potential for a substantially increased net retirement income. Other important benefits include:

An opportunity to perhaps protect and significantly increase survivor benefits. Upon passing of an insured, the 100% tax-exempt death benefit from life insurance, may be used for any purpose, though more often proceeds are applied to the purchase of an (life) annuity in support of survivor income needs. Because an annuity is taxed more favorably than employment or pension incomes (approximately 20% tax inclusion as compared to 100% inclusion for taxable pension income,) the resulting after-tax survivor income benefit may be enhanced.

Where a pensioner survives expected mortality, self-owned insurance coverage may be lapsed and premiums recycled in support of retirement lifestyle needs, or more typically coverage may be re-purposed for estate and legacy planning goals; creating an additional cash asset to offset taxes and final expenses and to provide for liquidity needs.

From an investment standpoint, at life expectancy, the Return on Investment (ROI) is not only fully guaranteed and 100% tax exempt, but is typically more than double that of other guaranteed fixed return investment solutions (term deposits, GICs, bonds etc.)

Contact us today to arrange for a comprehensive analysis of your various pension benefits options and to explore whether the Pension Maximization & Preservation strategy is appropriate for your particular situation and goals.



September 15, 2010 Maximizing & Preserving Defined Benefit Pensions Defined Benefit Pension Plan participants enjoy a formula-based retirement benefit factoring contributory service, highest average salary and age; though benefit entitlements are not in fact strictly guaranteed. Actuaries apply standardized mortality figures and historical returns data to actuarially define how much capital will in fact be required to fulfill ongoing obligations. Any change in Plan assumptions can result in a requirement for increased premiums and/or the potential for reduced benefits – slower than anticipated economic growth, reduced fixed and/or variable returns assumptions, shifting demographics and trending longer-life spans could all weigh on future benefits. Moreover, actuaries for the Plan also take into account the expected mortality of all Plan participants; in an effort to balance and fund current and future Plan obligations – from an actuarial perspective, some members are expected to live longer than assumed mortality while others will unfortunately pre-decease. Net of any payment guarantees and/or survivor benefits, the Plan has no obligation to refund residual commuted values to a deceased member’s beneficiaries or estate – rather, residuals are recycled by the Plan for the benefit of members who survive assumed mortality. It is not uncommon that 50% of associated commuted value will remain after the maximum 15 years of guaranteed benefits payments – preserving residual commuted values for survivor (income) needs and/or for estate & legacy planning purposes is a priority for many DB Plan participants. Pension Maximization & Preservation Often by selecting a single-life pension benefit option in combination with a permanent life insurance policy, otherwise surrendered commuted values can effectively be replaced. Moreover a single life pension benefit option can return $100 - $600 more per month as compared to the various joint survivor pension benefit options; yielding the potential for a substantially increased net retirement income. Other important benefits include: An opportunity to perhaps protect and significantly increase survivor benefits. Upon passing of an insured, the 100% tax-exempt death benefit from life insurance, may be used for any purpose, though more often proceeds are applied to the purchase of an (life) annuity in support of survivor income needs. Because an annuity is taxed more favorably than employment or pension incomes (approximately 20% tax inclusion as compared to 100% inclusion for taxable pension income,) the resulting after-tax survivor income benefit may be enhanced. Where a pensioner survives expected mortality, self-owned insurance coverage may be lapsed and premiums recycled in support of retirement lifestyle needs, or more typically coverage may be re-purposed for estate and legacy planning goals; creating an additional cash asset to offset taxes and final expenses and to provide for liquidity needs. From an investment standpoint, at life expectancy, the Return on Investment (ROI) is not only fully guaranteed and 100% tax exempt, but is typically more than double that of other guaranteed fixed return investment solutions (term deposits, GICs, bonds etc.) Contact us today to arrange for a comprehensive analysis of your various pension benefits options and to explore whether the Pension Maximization & Preservation strategy is appropriate for your particular situation and goals.	Dale Swan, CSWP, CFP, FMA, FCSI ScotiaMcLeod Wealth Advisor Life Underwriter ScotiaMcLeod Financial Services Direct: 604-661-7455 Toll-free: 1-800-263-8637 Fax: 604-661-7494 dale@swanprinciple.ca dale_swan@scotiamcleod.com ScotiaMcLeod 650 West Georgia Street Suite 1100, PO Box 11615 Vancouver, BC V6B 4N9 Visit My Website

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