The article “Should you transfer your DC pension plan to a discount brokerage?” was originally published in MoneySense on June 26, 2023. Photo by Ono Kosuki from Pexels.
“I have been with the same employer for nearly 20 years and have participated in the company’s DC RPP for nearly that whole time.
A few years back I consolidated the majority of my different investment accounts—RRSP, TFSA and unregistered—by moving them all to a discount brokerage. While I have no plans to leave my employer, I’d love to find a way to move the RPP funds to save on the fees. I’m looking to maintain the nature of the RPP but move it out into the discount brokerage so that I can take the MER from 1% or more down to 0.2% and save myself a few thousand dollars a year in fees.” Shawn
Can you withdraw or transfer money from an RPP?
It sounds like you are embracing do-it-yourself (DIY) investing, Shawn. It is not for everyone but is easier and more accessible now than ever. Saving on fees is a benefit. There are risks, though, like improper diversification, impulsive buying or selling, and not understanding a particular investment or product.
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.
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 Every plan is different, but pensions generally only allow transfers once a member is no longer active due to changing employers or retirement.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.
In the short run, Shawn, you may not be able to lower your fees for your workplace plan. You should at least make the contributions required to get all the matching contributions you can from your employer. If you are making any additional contributions that are unmatched, you could consider redirecting them to your self-directed accounts instead.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.