April 24, 2006
Railway Pension Plans and the "54/11" retirement proposals
Financial planners have recently been making retirement proposals to railway pension plan members - quit your job prior to your 55th
birthday (“54-11”).  Termination allows the member to transfer the lump sum value of their pension to a lock-in retirement vehicle.  
The member then controls investment of their pension funds for retirement.

The CAW believes that members should carefully review the risks and responsibilities of early termination.  If you do not have a lot of
investment experience, retirement may not be the best time to learn. In your senior years you have less time to make good on losses.  
You can invest conservatively to protect your principle funds, but the rate of return will probably be low and not add a great deal to your
retirement savings.

If you want to explore the option of terminating, see more than one financial planner and/or investment manager.  Clarify all your risks
and responsibilities.  Ask them to explain their fees on the initial investment and all subsequent transactions.  Do they provide
services on tax planning?  Make sure you know how they make their money on your money.

Keep in mind that railway pension plans provide a very decent benefit.  The pension is close to the maximum benefit allowed under
the Income Tax Act.  The plans are protected and provide members and their spouses with, essentially, a pay cheque for life.

Recently, CP Rail issued a good summary (below) on the pros and cons of early termination as a retirement strategy.  

(Click here to print a PDF copy)
CAW Retirement & Pension Planning Sessions for CAW rail members
Top
Retire with a monthly pension
Terminate prior to age 55 with lump sum
    Continue to earn income at your job, accrue pension
    service (to the maximum of 35 years), and maintain
    your health care coverage.  Retire when you are ready.
    Quit your job. Invest pension funds in locked-in
    retirement vehicle or purchase a lifetime annuity.
    Portion of monthly pension is indexed to 50% of
    inflation.
    Few monthly annuities provide inflation protection. You
    must consider inflation protection (as well as
    investment fees) in the rate of return you need when
    investing your pension funds.
    Peace of mind with guaranteed pension payments for
    your life and the life of your spouse.
    The risk of a changing investment market is on your
    shoulders. You or your spouse could outlive your funds.
    Health and life insurance benefits provided by company
    upon retirement or available to purchase on retirement
    No retirement health and life benefits from the company
    on termination. Health care benefits are expensive to
    purchase as an individual.
    Option for higher pension prior to payment of
    government pension (company pension reduced
    thereafter).
    Various options to draw down on locked-in pension
    funds or purchase a fixed monthly annuity.
    The company is responsible for investing the pension
    funds to provide you with the promised benefit. The ups
    and downs of the markets do not affect your pension.
    You are ultimately responsible for investing your
    pension funds. You should monitor your investments
    (or the choices your investor makes), review fees on
    transactions, balance your portfolio, research
    retirement income products, and assess tax
    implications.