Many clients receive pensions through their work.  There are two types of pensions. 

Defined-Benefit Pensions pay you a stipend on a regular basis.  These pensions offer stability (so long as the company is viable) and peace of mind.  If one lives to a ripe old age, there is definite value in the pension.  There are, however, inherent risks to consider.  If you were to pass away, your pension would move to your spouse – if you have one – and your spouse would receive a greatly reduced pension (usually around -40%).  If you do not have a living spouse, then your pension disappears, leaving nothing for your loved ones.  There is also no flexibility on withdrawals which can make opportunities and crises difficult to manage.

You also have no control or ownership of your investments, as they are managed by the company. 

Many pensions will offer their membership the opportunity to commute their pensions.  This means you are given the value of your pension up front.  This allows you to take ownership of the pension, acquire complete flexibility with respect to payments, leave the entirety of your pension when you pass on, and invest the pension how you see fit.  There are, however, some drawbacks to commuting your pension.  You would assume the risk of the markets you are invested in, and there are immediate tax-implications upon moving the pension to your control.

The other main type of pension is a Defined Contribution Plan.  This is where you voluntarily put a portion of your regular salary towards a retirement plan and your company contributes to that investment.  It is important to make sure you are properly invested with the company handling the pension.  When you leave your job – whether for retirement or other reasons – this money can be moved to a personally-held account.  This will afford you control over the investment and a much broader toolset becomes available to you.

Pensions are complex entities, and the decisions made in their regard can have lasting and profound impacts on your quality of life and that of your family.