Pension Transfer Value / Lump Sum Pymt [Merged]

[yamahaguitarguy]

How many years in the cf do you work to get your full pension? I believe the u.s is 20 years.

 

[George Wallace]

How many years in the cf do you work to get your full pension? I believe the u.s is 20 years.

There are topics on Pensions already.  There is no such thing as a "FULL" pension.  You can max out at about 70% (just off the top of my head) after 35 years.  You used to need 20 years or be 45 years of age, whichever came last, to get a 50% pension and then that increased in increments with every year served past that.  Now you have to serve 25 years to get a pension.

One of our SME's can further clarify the percentages and criteria required to draw a pension.

 

[yamahaguitarguy]

There are topics on Pensions already.  There is no such thing as a "FULL" pension.  You can max out at about 70% (just off the top of my head) after 35 years.  You used to need 20 years or be 45 years of age, whichever came last, to get a 50% pension and then that increased in increments with every year served past that.  Now you have to serve 25 years to get a pension.

One of our SME's can further clarify the percentages and criteria required to draw a pension.

ah ok, I'm only 18 so I have little knowledge on pensions.

 

[mad dog 2020]

The term "Full Pension" is so confusing.  The average plan is 2% per year. At one time the max was 35 years and you stopped paying into your plan as it would top out at 70%.  If you were still working, most boy soldiers would just put that monthly pension into an RRSP.
That changed several yrs ago  and there is no max now.
Some unions like teachers and police have an increased personal contribution and get a return at higher than the standard 2%.
The key to a pension is when you can depart with an unreduced annuity or without penalty. So your plan could be 20/60 which is 20 yrs service and 60 yrs of age at 40% for the 20 yrs.  The forces had a 20/40 for awhile. I got this one 40% at 41. 
Some plans are 25 and out.  The Forces has had a variety of plans.
Just pay attention!!    If you go too early all you get is a return of contributions.
And if you are close to the end hang in there as there can be a penalty imposed and it could be 5% for the first yr and 2% for each other year so to leave 2 yrs early it could cost you for a long time.  Remember unreduced annuity.
I have this discussion at my new work and you would be surprised how many people think that all of a sudden they can bargain for a "Full Pension" @ 25 yrs. Sorry but who will make up the difference for a 70% pension at 25 yrs service. That is a 20% difference at the best 5 years.  Especially if the employee did not increase their contribution from the beginning.
You would be amazed at the amount required to make up the difference.  I know a guy who never paid into his pension for his first 9 yrs employment. When he tried to incorporate his prior time for his retirement and pay it off. They were asking for over $20,000 cash up front.  I pay $25 per pay for 18 yrs to make up for my first 2 yrs.
Note: if you are a reserve ask about your time for pension. It used to be calculated at 1/3 time if you apply in the first year as a reg and 1/4 if you apply later.

 

[turretmonster]

"That changed several yrs ago  and there is no max now. "

Got a reference for that sparky? I'm pretty sure the 35 year max for CF pension contributions still is effect to a max of 70%

confusing post...

TM

 

[Eye In The Sky]

So simple version:  25 years service for a pension, which is 50% of the average of your "best 5 years" of pay.

Every year service after 25, your pension would increase 2%, to a maximum of 70% of "best 5 years".  Theoretically you can serve beyond 35 years but you can't increase your pension beyond the 70%.

Coles note version.

* this applies to, I believe, NCMs and General Service Officers, maybe some others but may not apply to all Commissioned Officers.

 

[mariomike]

At one time the max was 35 years and you stopped paying into your plan as it would top out at 70%. 

"Contribution rates — 35 years of service":
http://laws-lois.justice.gc.ca/eng/acts/C-17/page-2.html#h-7

Some unions like teachers and police have an increased personal contribution and get a return at higher than the standard 2%.

That's called a "Supplemental Plan":
http://www.omers.com/pension/employers_supplemental_plan.aspx

 

[mad dog 2020]

Thanks for the translation. Cheers

 

[yamahaguitarguy]

This is going to be a really stupid question but say you got out after 25 years at 50 percent pension how much would you receive a month? Would it depend what rank you were when you were serving?

 

[PMedMoe]

This is going to be a really stupid question but say you got out after 25 years at 50 percent pension how much would you receive a month? Would it depend what rank you were when you were serving?

Yes.  It's based on your best five years.

 

[George Wallace]

This is going to be a really stupid question but say you got out after 25 years at 50 percent pension how much would you receive a month? Would it depend what rank you were when you were serving?

Yes.

 

[Pat in Halifax]

This is going to be a really stupid question but say you got out after 25 years at 50 percent pension how much would you receive a month? Would it depend what rank you were when you were serving?

I am not sure YGG understands what the 50 % is (50% of what?). As Moe said, it is based on your best five years. It is 50% of your annual salary (minus things like sea pay or PDL) for the highest paid 5 years. So (and this is just to keep the math simple), you do 25 years and retire as an MWO/CPO2 making $70K a year. Lets say too (for simplicity's sake), your pay was the same your last five years at that $70K. Your immediate annuity would be $35K. Now, if you get out at 25 years minus a day (or anytime under the 25 years) and you were on an IE25 TOS, you will pay a penalty; 20 years will NOT necessarily be a 40% annuity. As well, your annuity will not be immediate; you do not start receiving your pension at release but will at age 65 (Someone here knows the nitty gritty on the last point).

This is actually a fair question. I never really got a grasp on this stuff until I was in around 12-15 years. Maybe I was in a minority but the thought of being debt free and able to actually retire was so far out there, I just couldn't (didn't?) try to grasp the concept of it.

 

[captloadie]

One of the points that younger members need to be clear on is the 25 year mark represents the point they get an immediate annuity. Since the pension rules changed and were severed from terms of service, everyone who does 2 years plus a day, but less than 25 yos is entitled to a deferred pension (unreduced at age 60, or as early as age 50 with a reduction), or a transfer of the value to a registered plan. There is no longer a return of contributions after the 2 year mark.

There is still the 35 yos/70% of earnings cap.

 

[old fart]

........ Now, if you get out at 25 years minus a day (or anytime under the 25 years) and you were on an IE25 TOS, you will pay a penalty; 20 years will NOT necessarily be a 40% annuity. As well, your annuity will not be immediate; you do not start receiving your pension at release but will at age 65 (Someone here knows the nitty gritty on the last point)......

This bit is incorrect..."20 years will NOT necessarily be a 40% annuity".....

Someone who remains eligible for an immediate annuity (pension) at the 20 year point...will get a min of 40%...and NEVER LESS.  If however they accept IPS and then get out before 25 years of service are completed they will pay a 5% penalty per year as you state but will never get less than the 40%.

I remember checking into that years ago...the point stuck....

 

[dapaterson]

The short answer:  Pensions are complex.  The terms and conditions have minor details that may have major impacts on you, so ensure you are well-informed well in advance of retirement.

Ideally, CF members would go to retirement sessions by the time they have 10 years in service, to start thinking and making plans.

 

[Pat in Halifax]

All this said, even when we are paying 50%, show me ANY investment/RRSP/Mutual Fund that will guarantee you 100% return on contributions over a 25 year period...every year. Really, all you have to do is follow some pretty simple rules and enjoy yourself. There truly is 'No life like it'!

And apologies if I misled anyone re the pension below 40% after 20 years service. OF thanks for pointing that out.

Pat

 

[Occam]

So the money vested in the "plan" is pretty much useless until I am 65+ years old if I release?
Thats useless I'm 25 now and would much rather use the money towards schooling or something.

Hardly "useless"...it'll have 40 years to accumulate value so that you're not destitute in your senior years.  That, and I'm fairly sure that the money in the transfer value isn't just your contributions, there's a component that's an employer contribution as well that isn't "yours" to touch yet.

You'll have to find other funding for your schooling.

 

[dapaterson]

Your transfer value will (usually) consist  of two amounts: A larger amount that is tax sheltered, and a smaller amount, in excess of that, which is taxed in your hands on receipt.  (Retirement Compensation Account amounts are unusual for those with lower pay).

Per the Public Service pension benefit calculator:

Transfer Value
If you leave the Public Service before you reach age 50, you may take your earned pension benefits as a transfer value rather than as a future monthly pension. A pension transfer value is a lump sum equal to the value of your future pension benefit (deferred pension). If you choose this option, you must do so within one year after leaving the Public Service.

In accordance with limits specified in the Income Tax Act, a transfer value may be divided in three amounts:

Amount within tax limits
This is the amount that will be transferred on a tax-sheltered basis to a retirement pension plan or vehicle that you choose. The limit is calculated as follows: the annual pension payable at age 65 (plus applicable indexing) x 9. This portion of the transfer value is not paid to you directly. Instead, it must be transferred to one of the following:

another registered pension plan, or
a locked-in Registered Retirement Savings Plan (RRSP) that complies with the requirements of the Pension Benefits Standards Act, 1985 (PBSA) (Canada) and that is administered in accordance with the requirements of those provisions; or
a financial institution to buy an annuity.

Amount in excess of tax limits
Where a portion of the transfer value exceeds the tax limit, the payment will be made directly to you and that amount becomes part of your taxable income. If you have sufficient contribution room in your Registered Retirement Savings Plan (RRSP), no tax will be deducted on the amount that you transfer to your RRSP. A T4A will be issued to you and your financial institution will provide you with a receipt for tax-filing purposes.

Amount under a Retirement Compensation Arrangement (RCA)
If your average salary is in excess of the Public Service Superannuation Act (PSSA) maximum contributory threshold in any year, the transfer value calculation will include two amounts: the value of the pension benefit which would be paid under the PSSA and the value of the benefit which would be paid under the Special Retirement Arrangements Act (Retirement Compensation Arrangement). The RCA transfer value cannot be transferred to a tax-sheltered vehicle; it must be paid directly to you and taxed as required by the Income Tax Act.

The amount of a transfer value can vary widely depending on prevailing interest rates. When you know your termination date, you can obtain an estimate of the transfer value of your pension through your compensation advisor.

The exact amounts depend on your average salary, your age, current interst rates, actuarial tables... in short, they are complex calculations.  Generally estimates are only valid for a few months, because minor changes in the input data can make major changes in the outputs.

 

[dapaterson]

If you have contribution room, the amounts in excess of limits can be rolled into RRSP - and that will not be locked in.

Amounts, as I stated before, will vary depending on a number of factors.  As I'm not an actuary, I won't pretend to have the full understanding of the math used to make those determinations.

 

[Fishbone Jones]

'Amount in excess of tax limits' is what these individuals who released after their IE is done (4 years).. so it ended up being like $20,000 or so? How did they obtain that.. was their RRSP full? I have like 20k contribution room on my RRSP.

Go ask your Orderly Room. They are in the best position to explain your finances as they can have all your data right in front of them.