Pension or Lump Sum? Which is the Better Option for You?

 

If you’ve left employment and are considering your pension options, you may be trying to decide between collecting a monthly pension -- either now if you’re eligible or later if you’re not -- and transferring the lump sum value of your pension out of the plan.

 

These are both great options with their own advantages, and there’s no one option that’s right for everyone. Your decision should be based on personal factors such as your personality, relationship status, investment knowledge and comfort level, and your overall financial situation. CSSB staff are available to help you understand these options but can’t tell you which is the best for you. However, there are some things we suggest you consider when making your decision.

 

Some Reasons Why the Monthly Pension May Suit You Better

 

1.  Reliable Income

A monthly pension from the plan would be paid to you for your lifetime, no matter how long you live. If you have a spouse or common law partner and elect a pension type that continues to that person after your death, that pension would be paid for the survivor’s lifetime, no matter how long he or she lives.

 

The amount of pension you will receive each month is not affected by the fluctuations in the financial markets. You can budget each month based on a steady and reliable income, and you don’t need to worry about watching investment performance or making adjustments to your lifestyle as markets change.

 

2.  Security

The pension plan is a long term undertaking that benefits from having a large number of members and an expectation that it will continue to operate indefinitely.

 

Because of the size of the pension fund, the plan can take advantage of investment opportunities which individuals likely can’t, and it can invest at significantly lower costs. The plan can also diversify and not be overly concerned with market cycles or life cycles of members.

 

The plan does not operate for profit, and is sponsored by the Province of Manitoba. Its investments are managed by a team of dedicated professionals and its financial health is regularly monitored by the Board and its actuary. 

 

3.  Access to Retiree Group Insurance (if participating)

If you participate in the Public Service Group Insurance Fund at retirement and immediately commence your pension, you can continue your group insurance coverage into retirement without providing medical evidence. Group insurance coverage may provide access to life insurance coverage that is more affordable than at private rates or may not be available to you for health reasons.

 

4.  Access to Retiree Health Insurance

Monthly pension recipients may be eligible to participate in retiree health insurance coverage through Manitoba Blue Cross or the Manitoba Association of Retired Government Employees (administered by Johnson Inc.). This may provide access to better or more affordable health care coverage than can be obtained otherwise.

 

Some Reasons Why the Lump Sum Option May Suit You Better

 

1.  You have a shortened life expectancy 

The pension plan is designed to pay pensions for the life of the member, and with a survivor pension, pay a surviving spouse or partner for his or her lifetime after the pensioner dies. However, if you have a significantly shortened life expectancy, the lump sum option may provide a better overall benefit, greater flexibility in timing of income, and higher benefits for your spouse/partner or estate after your death.

 

2.  You have expertise in investing or want to increase your control over your money 

When you elect the lump sum option, you’re increasing your personal risk in exchange for possible potential rewards. This may make sense depending on your level of comfort with investments, your faith in your financial advisor, your other sources of income, or anticipated changes in your cash flow needs over time.

 

 

How Do You Decide?

If you’re uncertain about whether to elect a monthly pension or remove your funds from the plan, the first thing you should do is make sure you fully understand these options and what they mean for you. The staff at CSSB is here to help answer your questions, either by phone (204-946-3200 or toll free in Canada at 1-800-432-5134) or by email at askus@cssb.mb.ca.

 

You also need to look at your overall situation, including your finances, your desired lifestyle, your family situation, etc. You may want to seek the services of a professional financial advisor to help you with this review. A note of caution though…be careful of possible bias in any advice received. Advice from an accountant or financial analyst who charges only for his or her services may differ from that of someone who is being paid a commission for getting you to make certain investments.

 

You may want to contact your employer to determine if they offer assistance such as financial planning through an Employee Assistance Program (EAP program). You should also find out about any employer-sponsored benefits they may provide on termination and whether those benefits would be impacted by your decision.

 

In Closing…

This information should not be construed as personal advice. It is general in nature and is not exhaustive, but is intended to point out some information that may be useful in making your decision.

The Civil Service Superannuation Board of Manitoba

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Accessibility Information

 

Online member services and website information provided by the Civil Service Superannuation Board relate almost exclusively to the Civil Service Superannuation Fund and Public Service Group Insurance Fund plans. Any information on other plans the Board administers or for which it provides services would be identified as such, and only information identified as such or in an identified document applies to that particular plan. We recommend you get detailed personalized information from the Board before making any decisions. This website is meant to summarize our available information, requirements, procedures and policies on a general basis only. All persons making use of this site are reminded that The Civil Service Superannuation Act and its Regulations should be consulted for specific legislative requirements. 

 

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