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Copycat Annuities



We are often asked by a client if they should take the commuted value of their defined benefit pension plan or keep it in place.

This question cannot be answered easily. There are many things to consider. Can an individual plan be created that will promise the same or better guaranteed income? Is the client giving up a retiree benefits package? Will the client’s spouse be affected by the decision? And so on. 

I used to think that there were only three options for the client:

  1. Leave the money in the plan

  2. Transfer the money to a LIRA and potentially pay tax on any money exceeding the maximum transferrable amount

  3. Transfer the money into another employer pension plan

But, there’s a fourth option, a Copycat Annuity. A copycat annuity is not a specific product. It’s a payout annuity that meets the rules set out in the tax act. Specifically, that it replicates the rights for the plan member under the pension plan.

Here’s a good article from Advisor.ca on this subject. The transfer of a pension usually occurs when an employee has left their employer. The employee will get a letter detailing the options they have with respect to keeping or moving out their pension money. Here's an article from the Globe and Mail that recently spoke about a GM employee using this exact tactic for his defined benefit pension.       

To get a quote for a copycat annuity, share a copy of this letter with the insurer and the life insurer and they will see if they can build an annuity that matches the terms of DB pension plan. In the past, I’ve used Canada Life and Sun Life for copycat annuities.

It’s an interesting solution for clients who are contemplating commuting their DB pension plans.

I look forward to your comments.

And, please remember there is a Money Monday on March 18th at the Markham office. Empire Life and Canada Life will be presenting. I hope to see you there.

Take care,

Scott Edgington Regional Wealth Manager, Ontario Qualified Financial Services scott.edgington@qfscanada.com

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