Copycat Annuity vs usual Defined Benefit Pension Plan

If you are planning on retiring and you have a defined-benefit pension with your employer, you have more than just the typical 2 options on how you want to handle your pension money.

Most think that they are limited to either:

  • Leaving it with your previous employer and having them pay you for the rest of your life, or

  • Commuting the pension (cashing out in a lump sum)

This is where option number 3 comes in - a “Copy-cat Annuity.”

What is a Copy-cat Annuity?

A copy-cat annuity mirrors your employer’s pension plan, dollar for dollar.

When you go with a copycat annuity from a Canadian insurance company, it has to be exactly what your employers pension plan offered you.

You get the same pension for life, instead of being paid out by your employer for your life (risky in cases of your employer going bankrupt), the insurance company is the one who pays you for the rest of your life.

There is also the chance when you get a copycat annuity, the insurance company can possibly provide you a bonus “surplus cash”. This is surplus money that your employer sends the insurer, which isn’t needed in order to fulfill the copy-cat annuity.

Copy-cat Annuities are not the same as a commuted value option:

Unlike when you commute the value as a lump sum and invest the money. A copycat annuity will be paid to you for life and is professionally managed by the insurance company.

Notable features of a Copy-cat annuity:

  • Matches your pension exactly

  • Possible lump sum of surplus cash

  • Professionally managed by insurance company

  • Same income guarantees if you pass-away for your spouse or another beneficiary

If you are considering a copy-cat annuity for retirement or are unsure if your employer has a Defined Benefit Pension Plan - let’s chat!

-Riley

Riley Leffler