Should you transfer your DC pension plan to a discount brokerage?


You can make transfers between retirement accounts on a tax-deferred basis by completing paperwork at the receiving institution. However, there may be restrictions on making transfers between some accounts. 

Can you withdraw or transfer money from an RPP?

In your case, Shawn, you are looking to transfer from a registered pension plan (RPP), more commonly known as a defined contribution (DC) pension plan. When you transfer funds out of a DC pension, they can only go to another pension or to a locked-in RRSP. A locked-in RRSP or locked-in retirement account (LIRA) has restrictions on withdrawals that are in line with the restrictions on pension plan withdrawals—namely, no withdrawals before age 55, maximum annual withdrawals and limited exceptions. 

However, as an active member of the pension, I doubt you are eligible to make a transfer. Every plan is different, but pensions generally only allow transfers once a member is no longer active due to changing employers or retirement. 

Group RRSP accounts are different. I have seen some group RRSPs that allow transfers out to personal RRSPs even while the account holder is still working for the company. Sometimes, there may be restrictions, like only employee contributions can be transferred (not the employer’s matching contributions). 

So, I think you will be unable to make a transfer, Shawn, until you leave or retire. 

How much should you pay in mutual fund fees (MERs)?

Paying 1% in mutual fund fees is relatively good when the average mutual fund management expense ratio (MER) fee in Canada is closer to 2%. Some DC pensions and group RRSPs have more competitive fees in the 0.5% range, especially if the plan includes passively managed index funds

I think your best bet would be to try to manage your overall investments in the most efficient way. In other words, if you are buying individual North American stocks in your discount brokerage account, consider having an overweight to a global stock mutual fund in your DC pension. (“Overweight” means to hold a large proportion of an asset in your portfolio.) If there is a low-cost U.S. index fund offered in your plan, consider an overweight to U.S. stocks in the account. You would hold less of the asset class being overweighted in your pension than you would in your discount brokerage accounts. 

You could also talk to your employer about the investment fees. This may prompt them to speak to your pension provider to try to negotiate better fees for the employee group. If the current company cannot or will not offer lower fees, your employer could consider a switch to a more competitive alternative.

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