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1 Exchangeexchangeexchangeexchangeexchange SUMMER2010Q2 HELPING YOU BUILD, PRESERVE AND TRANSFER YOUR WEALTHAt ScotiaMcLeod, our knowledgeable advisors have helped many people successfullytransition through major life events, including early retirement, company restructuringor downsizing and unexpected layoffs. For some, the transition can be a frighteningconcept, particularly during times of economic uncertainty. At times like these,receiving the right financial advice can make all the difference and provide peace of mind. ScotiaMcLeodRetirement Planning Options: Pension Plans, Severance Payments and Retiring AllowancesBruce Moir Senior Product ManagerIf you think you may be receiving a severance or early retirementpackage from your company, thebenefits of starting to plan early canmake all the difference and providepeace of mind.

2 The decision on how tohandle your options on retirement canimpact your financial security for therest of your life. Therefore, if possible,these decisions should be planned inadvance, instead of under the pressureof tight deadlines as is the case in mostseverance to opt for early retirement or take your pension as a lump sum(also referred to as "commuting") is not a decision you may change , it is important to take thetime to consider all of your options and look at your entire family financialpicture. Discussing your options with a qualified financial advisor can helpyou navigate the tax issues, investmentdecisions and income options thatshould be looked at in order to makethe right decision for your : LUMP SUM ORMONTHLY PAYMENTS?Retiring employees or employees whootherwise leave their jobs are oftenfaced with a tough decision regardingtheir employee pensions.

3 In manyinstances, companies will offer theiremployees the choice between takingtheir pension in a lump sum form(commuting) or taking the pension inthe form of a monthly pay-out over aperiod of .. continued on next pageUnfortunately, in many cases very little support isgiven to the employee to help make this choice and,as a result, much stress ensues. This is unfortunategiven that the analysis can really be quite simple, ifthe right tools are , is one better off taking the lump sum payment(if it is offered), or sticking with the monthlypension? In assessing your options you need toconsider both qualitative and quantitative example:ADVANTAGES/ DISADVANTAGES TOCOMMUTINGYOURPENSIONA dvantages: Potential to pass remaining assets into yourestate upon death. A broader range of investment options andchoices.

4 Greater flexibility in tailoring your incomestream to meet your personal priorities andobjectives (within minimum and maximumlocked-in plan withdrawal rules). Potential opportunity to unlock some of the locked-in funds. Elimination of the risk associated with thecompany administering your pension : You are forfeiting your lifetime guaranteedpension. Deciding to commute your pension is irreversible. A potential tax liability can be associated withcommuting your pension. Introduction of investment risk - yourinvestment choices determine the growthpotential of your locked-in plan assets. Longevity risk what if you outlive your funds in your locked-in plan? May be giving up some additional benefits thatcome with being a member of a pension plan( health benefits, indexing with inflation).

5 The decision to take the lump sum value of yourpension or the monthly payments can affect yourfinancial security for the rest of your life. It isimportant to take the time to consider all theimportant variables, such as rates of return, lifeexpectancy and personal estate planning ANDRETIRINGALLOWANCESE mployees leave their jobs for a number of reasonson both a voluntary and involuntary basis. Anemployee may have been encouraged to retire earlythrough the offer of certain payments from anemployer. Additionally, an employee may have beenterminated by an employer due to the eliminationof a position or the closure of a the reason, terminated employees may beeligible to receive various types of payments fromtheir employers. The nature of the payments variesdepending on the reason for the termination ofemployment.

6 The rest of this article will brieflydescribe severance payments and how thesepayments can be sheltered from tax in whole or inpart, and for a period of time, as a retiring severance payment is compensation paid to aqualified employee who has his or her employment"severed." It may be paid to compensate anemployee for loss of seniority and job-relatedbenefits. It may also be paid in recognition of anemployee's long service. Severance pay is not thesame as termination pay, which is given in place ofthe required notice of termination of of severance pay is governed by the lawsof the province in which the employee resides and,in the case of federally regulated employers, byapplicable federal laws. Generally, the amount of theseverance payment depends on the length of theemployee s period of service with the employer andthe employee s regular wages for a regular workweek at the time of the termination of payments can be made in either a lumpsum or as a series of payments, subject to theemployer s willingness to structure the paymentsaccording to the employee s interests.

7 The decisionas to whether a lump sum or series of payments is preferable from the employee s perspective may depend on a couple of factors, including the employee s financial circumstances and theemployee s interest in a possible tax deferral. Aseries of payments is like receiving a salary and mayprovide access to other company benefits, includingpension benefits, during the period the series ofpayments is made. However, a lump sum paymentmay be preferred by the employee to pay off debt,or if the employee is concerned about the employer sability to meet on-going payment obligations over aperiod of payments are eligible for treatment as a retiring allowance for tax purposes in certaincircumstances. These payments may be eligible in whole or in part for transfer to a registeredretirement savings plan (RRSP) in the amountsallowed under tax allowances are payments made toemployees for the loss of employment in certaincircumstances or on retirement in recognition oflong service.

8 A retiring allowing is not the same as termination pay, which is given in place of therequired notice of termination of employment. Aretiring allowance may be paid over one or moreyears. Like ordinary employment income, if aretiring allowance is received as cash, it is subject to a withholding of income tax at the time ofpayment. This tax may be deferred if the funds are transferred directly to an RRSP for the year of receipt. You have up to 60 days after the end of the taxation year in which the payment wasreceived to contribute the eligible portion of theretiring allowance to an Revenue Agency (CRA) views a retiringallowance as a special RRSP contribution, so it hasno impact on a person s regular RRSP deductionlimit ( it can be made over and above normalcontribution limits).

9 At the present time, themaximum amount of retiring allowance a person can contribute to an RRSP is $2,000 per calendaryear (full or partial year) of service prior to 1996,plus $1,500 per calendar year (full or partial year)of service prior to 1989 (provided no "vested"pension plan contributions were made in the yearThis publication has been prepared by ScotiaMcLeod, a division of Scotia Capital Inc. (SCI), a member of CIPF. This publication is intended as a general source of information and should not be considered as personalinvestment, tax or pension advice. We are not tax advisors and we recommend that individuals consult with their professional tax advisor before taking any action based upon the information found in this publication. Thispublication and all the information, opinions and conclusions contained in it are protected by copyright.)

10 This report may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information,opinions, and conclusions contained in it be referred to without in each case the prior express consent of SCI. Scotiabank Group refers to The Bank of Nova Scotia and its domestic Trademarks of The Bank of Nova Private Client Group consists of private client services from The Bank of Nova Scotia, The Bank of Nova Scotia Trust Company, Scotia Asset Management , Scotia Asset Management Inc., ScotiaMcLeod FinancialServices Inc., and ScotiaMcLeod, a division of Scotia Capital Inc. Scotia Capital Inc. is a member of CIPF. Scotia Private Client Group is a registered business name of The Bank of Nova Scotia, The Bank of Nova Scotia TrustCompany, ScotiaMcLeod Financial Services Inc.