Why multiple pension plans can mean multiple tax challenges (2025)

Canadians with multiple workplace pensions may face myriad tax challenges if they don’t plan their withdrawal strategies ahead of time.

They may end up with multiple pensions after switching jobs if the first pension doesn’t transfer over easily to the next one. Others may have worked in a different country for a period of time.

One challenge for advisors when calculating clients’ monthly spending needs is how pensions pay out, says Cody Weber, owner and certified financial planner (CFP) at Basic Financial Services Inc. in St. Catharines, Ont. For example, one pension may pay out every month, while another may have a more hybrid approach, paying out less consistently.

“It’s hard to know how much is coming in every month, so clients struggle with structure,” Mr. Weber says. He helps clients put that structure in place for what he calls “their retirement paycheque.”

Gross versus net income is another consideration with pensions, as some workplace pensions don’t deduct taxes, he says. In client meetings, he gets out his white board, writes down all the sources of income, the amounts for each and the ensuing tax implications.

As a ballpark, he notes that if the client is earning $70,000 from multiple pensions, for example, they will need to withhold around $13,000 for taxes. The tax number should always be verified with the client’s tax preparer, he adds.

Multiple workplace pensions also need to be co-ordinated with Canada Pension Plan (CPP) and Old Age Security (OAS) benefits as well as with the withdrawal of investments from registered and non-registered accounts, Mr. Weber says.

Ideally, clients want to avoid or limit any OAS clawback, which starts at net income of more than $93,454 in 2025.

He offers the example of a 65-year-old who receives income from two pension plans but needs more money to match his budget. The client turns to CPP and OAS to make up the budget shortfall.

Mr. Weber says a better strategy might be to postpone CPP and OAS until age 70 and withdraw from the client’s registered accounts instead to reduce the overall lifetime tax bill depending on their health and other factors.

In the case of married and common-law couples, pension income splitting can help reduce taxes, says Anna Golan-Reznick, CFP at Objective Financial Planners Inc. in Markham, Ont. A client can split up to 50 per cent of their eligible Canadian pension income with their spouse.

“Unfortunately, not all foreign pensions qualify for income splitting,” she says.

Foreign pensions add additional complexity because the minimum eligibility age for taking the pension differs depending on the country, Ms. Golan-Reznick adds. For example, clients with a 401(k) workplace pension from the U.S. will have minimum withdrawals beginning at age 73. Another nuance is that 401(k) withdrawals can be split, but income from a U.S. individual retirement account (IRA) can’t.

Penalties for early withdrawals also need to be factored into planning, Ms. Golan-Reznick says. She notes that 401(k) plans have a 10-per-cent penalty if clients withdraw before they’re 59-and-a-half years old.

Still, despite the penalty, withdrawing early may work in the client’s favour.

“It’s better to look at those distributions when you’re in the lower tax bracket,” she says. “The goal is to maintain a consistent income level in the lowest tax bracket possible.”

Another wrinkle with multiple pensions is filing different income tax returns if one of the pensions comes from outside Canada.

Patrick Caffrey, financial advisor at Raymond James Ltd. in Vancouver, notes that foreign pensions often have a 25-per-cent withholding tax. The pension’s taxes will need to be included as a foreign tax credit on their Canadian tax return.

Ms. Golan-Reznick says that in some situations, withholding taxes can be reduced by a tax treaty. In the case of a U.K. pension, for example, if the client submits documentation proving Canadian residency, they may eliminate the withholding tax.