Pay less tax when transferring pension funds

Question from Serge, one of our readers : I am 55 years old and I have a defined benefit pension fund from my employer. I have been told that I will not pay tax when transferring to a LIRA, but I have doubts. After some research, I believe there is a cap, but I could save tax if I have unused contributions left, which I am not. There is still room in my TFSAs. Should I take fewer RRSPs and more TFSAs, in order to be able to transfer my pension fund to a LIRA while minimizing the tax impact?

Answer: There is a limit to the amount that can be transferred tax-free from your defined benefit pension fund to a registered pension plan.

“This limit is based on actuarial calculations which take into account, in particular, your life expectancy as well as the long-term outlook for the markets. The surplus that cannot be transferred directly to a registered pension plan will then be taxed, ”said Nicolas Brazeau, financial planner at TD Wealth Management.


People who have space in their RRSPs can use it to lower taxes, but you don’t seem to be.

“As for the TFSA, it would allow you to accumulate future returns tax-free, but would not reduce the immediate tax impact. I suggest that you check the terms and conditions that would allow you to transfer your pension fund instead, because for most defined benefit funds, the “normal” retirement age without penalty is often set at 65 ”, adds Mr. Brazeau.

As your needs are multiple and your questions are numerous, he recommends that you meet with a financial planner. “It is essential that you can fully appreciate the impact that your choices will have on your retirement,” he concludes.

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