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This tool provides you with information related to your options when leaving the Public Service.
This tool is provided for information purposes only and is not a legal document establishing your rights and/or obligations. In the event of a discrepancy with the Public Service Superannuation Act, Public Service Superannuation Regulations , or any other relevant legislation, the legislative provisions shall take precedence.
NOTE: In Weighing Your Options, the expression "years of service" refers to "pensionable years of service" as defined in the Public Service Superannuation Act , which establishes the Public Service Pension Plan (PSPP).
The choice you make when leaving the Public Service could have a significant financial impact on your retirement income. As a member of the Public Service Pension Plan (PSPP), you have a number of rights and options. It is your responsibility to become familiar with them.
Take the time to become educated about your plan. Visit the Links page for links to pension dedicated sites. Do not hesitate to phone the various service offices to find out more. Carefully read the documents that are provided by your employer ("Your Pension and Benefits Statement", for example). For more detailed information regarding your pension or to find out more about your plan, contact your compensation advisor.
This tool is designed to assist you in making informed decisions about your options when you leave the Public Service. It includes a brief description of your available options and some points to consider before making a decision. Calculation tools, examples and useful references are also included to assist you in making an informed decision.
Everyone has different needs depending on their financial, family and professional situation. The information offered in this tool does not dictate which option is best. Rather, it invites you to consider key factors that may influence your decision.
Your options vary depending on your years of service, your age at the time of your departure and your reason for leaving. Note that the maximum contributory period is 35 years. (If you were a member of the Canadian Forces or the Royal Canadian Mounted Police, then different conditions may apply regarding your pensionable service. Ask your compensation advisor.)
You can increase your years of service by buying back eligible periods of previous service. Visit Increasing your Pension to find out more about buying back service.
At least 2 years of service
Less than 2 years of service
If you have at least 2 years of service, you may be entitled to a variety of options, depending on your age when you leave. To find out what options you could be entitled to, consult the following descriptions. Then, go through the Steps Towards Making a Decision and consult the Formulas and Methods , if needed.
A Pension Transfer involves the transfer of your accrued pension credits while employed in the federal Public Service . When you leave the Public Service to go work for an employer who has a pension transfer agreement (PTA) with the Government of Canada, you can transfer your pension credits and have them recognized by your new employer’s pension plan.
This is a lump sum amount (a one-time payment rather than a monthly allowance) that is transferred to a locked-in registered retirement savings plan, a registered pension plan or to a financial institution to buy a life annuity. Eligible contributors who leave the Public Service before age 50 may opt for a transfer value. A transfer value is equal to the actuarial value (in current dollars) of the pension to which you would have been entitled at age 60.
A Deferred Annuity is a pension that will become payable to eligible plan members at age 60 .
An annual allowance is a permanently reduced pension. It is payable to plan members who are between 50 and 60 years of age. The reduction is applied to account for the early payment of a retirement pension.
An immediate annuity is a pension payable at age 60 (normal retirement age) and payable to plan members who are at least age 55 and have at least 30 years of pensionable service. Eligible plan members who are deemed disabled under the Public Service Superannuation Act (PSSA) may also be entitled to an immediate annuity.
If you have less than 2 years of service, generally you are eligible for one of the following options:
Return of Contributions
Regardless of your age or your reason for leaving the Public Service, you or your eligible survivor or children are generally entitled to a return of your contributions with interest, if applicable ( see: Return of Contributions in "Formulas and Methods" ). Since you have less than 2 years of service, you are not entitled to a Transfer Value or other benefits under the Public Service Pension Plan (PSPP).
A Pension Transfer involves the transfer of your accrued pension credits while employed in the federal Public Service . When you leave the Public Service to go work for an employer who has a pension transfer agreement (PTA) with the Government of Canada, you can transfer your pension credits and have them recognized by your new employer’s pension plan. Read the information under Pension Transfer in Step One to learn more.
By following these four steps, you will be better equipped to make a decision or to discuss your options with your compensation advisor and/or financial advisor.
Step 1: Knowing your options (points to consider)
Step 2: Estimating your benefits
Step 3: Understanding your financial needs
Step 4: Preparing a comparison table
There are many points you may consider before choosing an available option. These include: protection in cases of disability, protection against inflation, your future health and dental care, or possible re-employment in the Public Service. Take the time to become familiar with the factors associated with your options before you make a decision.
Pension Transfer
Transfer Value
Deferred Annuity
Annual Allowance
Immediate Annuity
When to ask for a pension transfer: A request for a pension transfer under a Pension Transfer Agreement (PTA) between an employer and the Government of Canada may be made only within the timelines set out in the existing PTA.
Who has a Pension Transfer Agreement (PTA): A pension transfer agreement is an agreement that the federal government may enter into with employers who meet certain criteria established by the Public Service Superannuation Act .
What to transfer: The purpose of a PTA is to transfer the actuarial value (in current dollars) of your accrued pension credits and related pensionable service from one pension plan to another. The formula for calculating this amount is described in each individual PTA.
Comparing pension plans: You should examine the provisions and benefits of your new employer’s plan and compare them to those of the PSPP to determine if it is in your best interest to transfer your pension credits, rather than opting for a deferred annuity, for example. Factors, such as health and dental care, should be carefully examined. The PSPP is a defined benefit plan, which in this case, means that your pension benefits are set and paid based on the provisions of the Public Service Superannuation Act. For a general description of your pension plan, see Getting to Know your Pension Plan.
When to make your option: You must choose whether you want a transfer value within one year of your departure from the Public Service. However, you must be younger than age 50 when you leave. If you do not make a choice within that time limit, then you are deemed to have opted for a deferred annuity.
Why is the valuation date important: The valuation date is the date from which a transfer value is calculated. The valuation date corresponds to the date when you leave the Public Service or the date on which you opt for the transfer value, whichever is later.
What happens to the pension amounts payable under the Retirement Compensation Arrangement (RCA): When you opt for a transfer value, you receive not only the actuarial value of your Public Service Pension Plan (PSPP) pension credits, but you must also receive the value of the pension amounts payable under the RCA, if applicable. The RCA portion of the transfer value is paid directly to you and is taxed at source.
Where must the funds be transferred: The Income Tax Act places annual limits on the amounts that can be paid into tax-sheltered pension vehicles (see the calculation of limits related to a transfer value in "Formulas and Methods "). The Transfer Value amount which falls within the Income Tax Act limits must be moved directly into a registered pension plan, a locked-in registered retirement savings plan (RRSP where withdrawals are regulated and fixed in the form of an annuity), or a financial institution in order to purchase an annuity.
If your total Transfer Value amount exceeds the limits defined by the Income Tax Act , then the funds that are in excess of the limits will be paid to you in cash and will be taxed at source. However, if you have not exceeded your RRSP limits, then you may ask that all or part of the taxable portion of your Transfer Value be moved into an RRSP.
All the pension vehicles that your Transfer Value can be transferred into have withdrawal rules in accordance with the Pension Benefits Standards Act, 1985; the Pension Benefits Standards Regulations, 1985 and the Income Tax Act . Ask your tax and/or financial advisor about these rules.
What is the tax impact: Any tax you pay will reduce the capital that you have available to invest for your retirement. You may ask the offices of the Canada Revenue Agency for assistance.
What happens to your insurance plans: If you opt for a transfer value, then you are no longer a member of the PSPP. Therefore, you are no longer eligible to participate in the Public Service Health Care and Dental Care Plans nor the Pensioners’ Dental Services Plan, and you no longer have disability coverage. You may, however, ask to participate in the Supplementary Death Benefit (SDB) plan, but conditions and additional costs apply. To learn more, visit Protecting Your Survivors and Death and Bereavement.
What happens if you are re-employed: If you again become employed in the Public Service and a PSPP contributor, then you may be able to reinstate all or part of the pensionable service for which you were paid the transfer value(s). Consult Reinstatement of Transfer Value Service for more information.
When must you make your option: You must make a pension option within one year of leaving the Public Service. If you do not make a choice within that time limit, then you are deemed to have opted for a deferred annuity.
What about inflation: A deferred annuity is fully indexed as of the most recent date you leave the Public Service in order to maintain your purchasing power throughout your retirement. Your total pension amount is indexed according to the consumer price index (CPI). Read additional information about indexing.
Protection in case of disability: If you opt for a deferred annuity and become disabled as per the definition described under the Public Service Superannuation Act (PSSA) after your departure from the Public Service but before age 60, then it is important that you inform the Superannuation Directorate. You could, therefore, be eligible for an immediate annuity on grounds of disability. This benefit is indexed annually and reduced as soon as you begin collecting Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) disability benefits or at age 65.
Possibility of Conversion before age 60: A deferred annuity can be converted to an annual allowance at any time between ages 50 and 60. An annual allowance is a permanently reduced pension (see the calculation formula of the annual allowance in "Formulas and Methods " and the points to consider for an annual allowance in "Step 1 ").
Reduction at age 65: Your pension will be reduced at age 65 as a result of the integration with the CPP/QPP (or as soon as you receive a disability pension from the CPP/QPP). See CPP/QPP integration formula in Formulas and Methods and read additional information about the co-ordination of the Public Service Pension Plan with the Canada Pension Plan or Quebec Pension Plan
What happens to your insurance plans: If you opt for a deferred annuity, then you are still considered a PSPP member. As such, you or your eligible survivors may apply to join the Pensioners’ Dental Services Plan (PDSP) and the Public Service Health Care Plan (PSHCP) when you begin receiving a PSPP benefit. Certain conditions apply. Learn more on My Benefits.
Protection in the event of death: Your PSPP offers you a form of decreasing term life insurance and several types of benefits in the event of your death. You can find out more about this topic on Protecting Your Survivors.
Protecting your survivor: If you are entitled to a deferred annuity, then your eligible survivor may receive a benefit in the event of your death. A survivors’ benefit normally comes to half (50%) of a pension (before any reductions). See the survivor's benefit formula in "Formulas and Methods ". This survivor's benefit is fully indexed on an annual basis for the rest of your survivor’s life.
Protecting your children: If you are entitled to a deferred annuity, then your eligible children may receive a child’s allowance in the event of your death. A child’s allowance is 20% of the survivor’s benefit for each of your children, up to a maximum of four children. If there is no survivor or if the survivor does not receive any survivor’s benefits, then the child’s allowance is 40% of the survivor’s benefit for each child, up to a maximum of four children (see the child allowance calculation in Formulas and Methods). This allowance is fully indexed on an annual basis until your child, according to the definition of child under the Public Service Superannuation Act (PSSA), reaches 18 years of age, or later if he or she is a full time student and is deemed to be a dependant child under the PSSA and its regulations.
Supplementary Death Benefits: The Supplementary Death Benefit (SDB) Plan offers a form of decreasing term life insurance. The death benefit under this plan is paid to your designated beneficiary. The benefit amount is twice your annual salary, rounded up to the nearest $1,000. This original benefit amount decreases by 10% annually, starting at age 66. You may also be entitled to a paid-up benefit of $10,000, beginning at age 65 and for the remainder of your life.
If you opt for a deferred annuity when you leave the Public Service, you may ask to participate in the Supplementary Death Benefit (SDB) plan, but time limits, conditions and additional costs apply. To learn more, visit Protecting Your Survivors and Death and Bereavement .
What happens if you are re-employed: If you again become employed in the Public Service and a PSPP contributor, then your pension will most likely be recalculated based on the pension credits accrued during your period of re-employment and indexed as of your new departure date. For more information, consult re-employment in the Public Service.
When to make your option: You can make your option upon leaving or after you have left the Public Service with a deferred annuity. The annual allowance is a pension that is permanently reduced to take into account the early payment of your pension (see Annual Allowance in "Formulas and Methods "). An annual allowance becomes payable at any time from age 50 to 60. Under normal circumstances, this option cannot be reversed.
What about inflation: An annual allowance is fully indexed as of the most recent date you leave the Public Service in order to maintain your purchasing power throughout your retirement. Your total pension amount is indexed according to the consumer price index (CPI). Refer to indexing for additional information.
Protection in case of disability: If you opt for an annual allowance and become disabled as per the definition described under the Public Service Superannuation Act (PSSA) after your departure from the Public Service, then it is important that you inform the Superannuation Directorate. In that circumstance, your annual allowance could be suspended and you could become eligible for an immediate annuity on grounds of disability. This disability benefit is indexed annually and reduced at age 65 or if you begin collecting Canada Pension Plan(CPP) / Quebec Pension Plan (QPP) disability benefits.
Reduction at age 65: Your annual allowance will be reduced at age 65 as a result of the integration with the CPP/QPP (or as soon as you receive a disability pension from the CPP/QPP). The CPP/QPP reduction for an annual allowance will be based on the same formula as if you had opted for a deferred annuity. See the CPP/QPP integration calculation in "Formulas and Methods". Refer to co-ordination of the Public Service Pension Plan with the Canada Pension Plan or Quebec Pension Plan for additional information.
What happens to your insurance plans: If you opt for an annual allowance, then you are still considered a PSPP member. As such, you or your eligible survivors may ask to become a member of the Pensioners’ Dental Services Plan (PDSP) and the Public Service Health Care Plan (PSHCP). If you begin receiving an annual allowance within 30 days of your departure from the Public Service, then your PSHCP automatically continues, but at a different contribution rate than for Public Service employees. Certain conditions apply. Learn more on My Benefits.
Protection in the event of death: Your plan offers you a form of decreasing term life insurance and several types of benefits in the event of your death. Remember that if you are receiving an annual allowance (reduced pension) when you die, the survivors benefits will be calculated based on your unreduced pension. You can find out more about this topic on Protecting Your Survivors.
Protecting your survivor: If you opt for an annual allowance, then your eligible survivor will receive a benefit in the event of your death. A survivors’ benefit normally comes to half (50%) of a pension (before reductions). See the Survivor Benefit formula in "Formulas and Methods ". This survivor's benefit is fully indexed on an annual basis upon your death and for the rest of your survivor’s life.
Protection for your children: If you opt for an annual allowance, then your eligible children will receive a child’s allowance in the event of your death. A child’s allowance is 20% of the survivor’s benefit for each of your children, up to a maximum of four children. If there is no survivor or if the survivor does not receive any survivor’s benefits, then the child’s allowance is 40% of the survivor’s benefit for each child, up to a maximum of four children (see the Child Allowance calculation in "Formulas and Methods"). A child’s allowance is fully indexed on an annual basis until your child, according to the definition of child under the Public Service Superannuation Act (PSSA), reaches 18 years of age, or later if he or she is a full time student and is deemed to be a dependant "child” under the PSSA and its regulations.
Supplementary death benefits: The Supplementary Death Benefit (SDB) Plan is a form of decreasing term life insurance. The death benefit under this plan is paid to your designated beneficiary. The benefit amount is twice your annual salary, rounded up to the nearest $1,000. This amount decreases by 10% annually, starting at age 66. You may also be entitled to a paid-up benefit of $10,000, beginning at age 65 and for the remainder of your life.
Your membership in the SDB Plan is automatically extended if you receive your annual allowance within 30 days of your departure. Therefore, you remain entitled to the $10,000 paid-up benefit. If you opt for an annual allowance more then 30 days after you leave the Public Service, then you may still apply to participate in the SDB plan, but time limits, conditions and additional costs apply. To learn more, visit Protecting Your Survivors and Death and Bereavement.
What happens if you are re-employed: If you again become employed in the Public Service and a PSPP contributor, then your annual allowance will be
suspended. Your pension may be recalculated based on the entitlements accrued during your period of re-employment and the past annual allowance you received. The
pension you will be entitled to will be indexed as of your new departure date.
For more information, consult re-employment in the Public Service.
When to make your option: You are entitled to an immediate annuity when you reach 60 years of age (with at least two years of service) or when you reach 55 years of age with at least 30 years of service. If you continue working, you will still contribute to the Public Service Pension Plan (PSPP). If you have earned 35 years of pensionable service, however, you will only contribute to the indexing portion of the benefits.
What about inflation: An immediate annuity is fully indexed as of the most recent date you leave the Public Service, in order to maintain your purchasing power throughout your retirement. Your total pension amount is indexed according to the consumer price index (CPI). Refer to indexing for additional information.
Protection in case of disability: If you opt for an immediate annuity and become disabled as per the definition described under the Public Service Superannuation Act (PSSA) after your departure from the Public Service, then it is important that you inform the Superannuation Directorate. In that circumstance, your immediate annuity will not change, but it will be reduced at age 65 or if you begin collecting Canada Pension Plan (CPP) / Quebec Pension Plan (QPP) disability benefits. The disability benefit is fully indexed annually.
Reduction at age 65: Your immediate annuity will be reduced at age 65 as a result of the integration with the CPP/QPP or as soon as you receive a disability pension from the CPP/QPP. For additional information, see CPP/QPP Integration in "Formulas and Methods " or refer to: co-ordination of the Public Service Pension Plan with the Canada Pension Plan or Quebec Pension Plan.
What happens to your insurance plans: If you opt for an immediate annuity, then you are considered a PSPP member. As such, you or your eligible survivors may ask to become a member of the Pensioners’ Dental Services Plan (PDSP) and the Public Service Health Care Plan (PSHCP). However, if you begin receiving an immediate annuity within 30 days of your departure, then your PSHCP automatically continues, but at a different contribution rate than for Public Service employees. Certain conditions apply. Learn more on My Benefits.
Protection in the event of death: In the event of your death, your plan offers you several types of benefits and a form of decreasing term life insurance. If you are entitled to an immediate annuity, then your eligible survivor and children could receive a benefit. You can find out more about this topic on Protecting Your Survivors.
Protecting your survivor: If you are entitled to an immediate annuity, then your eligible survivor may receive a benefit in the event of your death. A survivors’ benefit normally comes to half (50%) of a pension (before reductions). See Survivor Benefit in "Formulas and Methods ". This survivor's benefit is fully indexed on an annual basis and for the rest of your survivor’s life.
Protection for your children: If you are entitled to an immediate annuity, then your eligible children may receive a child’s allowance in the event of your death. A child’s allowance is 20% of the survivor’s benefit for each of your children, up to a maximum of four children. If there is no survivor or if the survivor does not receive any survivor’s benefits, then the child’s allowance is 40% of the survivor’s benefit for each child, up to a maximum of four children (see Child Allowance in "Formulas and Methods "). A child’s allowance is fully indexed on an annual basis until your child, according to the definition of child under the Public Service Superannuation Act (PSSA) reaches 18 years of age, or later if he or she is a full time student and is deemed to be a dependant "child under the PSSA and its regulations.
Supplementary Death Benefits: The Supplementary Death Benefit (SDB) Plan is a form of decreasing term life insurance plan. The death benefit under this plan is paid to your designated beneficiary. The benefit amount is twice your annual salary, rounded up to the nearest $1,000. This initial benefit amount decreases by 10% annually, starting at age 66.
Your membership in the SDB Plan is automatically extended if you receive your immediate annuity within 30 days of your departure. You also remain entitled to the employer's $10,000 paid-up benefit.
What happens if you are re-employed: If you again become employed in the Public Service and a PSPP contributor, then your immediate annuity will be suspended. Your pension may be recalculated based on the entitlements accrued during your period of re-employment and indexed as of your new departure date.
Consult re-employment in the Public Service for more information.
Many tools are available to help you determine the value of the various benefits to which you may be entitled when leaving the Public Service. The "Formulas and Methods " section will also show you how your benefits are calculated. Estimating your future pension in order to compare your options is a key step in your decision-making process. Using the tools provided, calculate your future pension with different years of pensionable service and different average salaries. This will allow you to construct estimates for your pension and can be used to compare your various options.
"Your Pension and Benefit Statement"
Use the data in your most recent personal statement to determine your pension entitlements.
The Pension Benefits Calculator
This calculator allows you to estimate what your immediate annuity, deferred annuity, annual allowance and transfer value could be. It also estimates the reduction, which will be applied at age 65 because of integration with the Canada Pension Plan (CPP)\Quebec Pension Plan (QPP).
This tool allows you to estimate what it would cost for you to buy back a period of previous service and the impact that buyback will have on your future pension.
There are a number of people who can help you in making the right choice for your situation.
Your compensation advisor. Do not hesitate to contact your advisor, who can provide you with information and assistance.
A Canada Revenue Agency official. The tax consequences that apply to pensions is a major consideration in your retirement planning.
Your private sector financial advisor or planner. Consult the "Links" page to find out more about choosing a financial advisor.
Most likely, your Public Service salary is currently your main source of income. Your budget consists of your employment income minus your total monthly expenses. Those expenses include work-related expenses (i.e. transportation, clothing, lunch, etc), fixed expenses (i.e. home, insurance, rent, food, etc.) and other expenses (i.e. professional fees, medicine, recreation, unforeseen expenses, etc.).
In order to make the right choice from among your plan’s options when you retire, it may be useful for you to estimate your financial requirements after you leave the Public Service. You first need to decide what you plan on doing when you retire. Are you going to participate in activities such as travelling, sports, school, etc? Are you going to work? Will you work full-time, part-time or just occasionally?
When you have an idea of what your lifestyle will be, you will be in a situation to estimate a provisional retirement budget and determine whether your future income [Public Service Pension Plan (PSPP), Canada Pension Plan (CPP) / Quebec Pension Plan (QPP), registered retirement savings plan (RRSP), Old Age Security (OAS), savings, etc.] will be enough to cover your future expenses.
When you calculate your benefits, remember that retirement benefits are taxable, that they will be reduced at age 65, and that your needs will change with age. You might also want to consider your life expectancy when determining how long you will need your pension income. Refer to the life expectancy table below as an indicator, but remember that these figures represent approximate averages that do not take into account your personal situation (i.e. your state of health, your heredity, your lifestyle, your activities, etc.).
Life expectancy table (Source: Statistics Canada - 1999)
| In Canada | Male | Female |
|---|---|---|
| Life expectancy at birth | 76.3 yrs | 81.7 yrs |
| Life expectancy at age 65 | 81.5 yrs | 85.3 yrs |
If you have been through the previous steps, you know what you are entitled to. You have considered the pros and cons related to the options that interest you. Hopefully, you have calculated your approximate benefit amounts. But have you considered working a few more years and evaluated the impact this will have on your future pension? This may be an important factor in deciding when to retire.
To get a clearer picture, you can prepare a table comparing your options using several scenarios. Depending on the selected scenarios and the assumptions made to build your table, a comparison table can give you an idea of the long-term differences in benefits.
The comparison table for Ms. X was built based on the data regarding the calculation of Ms. X’s transfer value that is provided in "Formulas and Methods ".
Several assumptions must be made before building this type of table. The assumptions that apply to your table could be quite different from the example provided. To simplify the example of Ms. X, the assumptions have been kept to a minimum and do not take into account such factors as other sources of income Ms. X may have upon retirement. If you have an accurate idea of your budget upon retirement, then you can draw up a much more accurate comparison table.
The more assumptions there are, the more complex the table becomes. Nevertheless, a comparison table can be helpful in illustrating the various scenarios and options over a long time period. With such a table, you will be better equipped to make the right decision for your situation.
You can use the following formulas to determine your future pension. In the case of complex calculations, the methods used have been described briefly. Don't forget that you need to add indexing to these amounts and subtract any tax and other deductions (Supplementary Death Benefit (SDB) Plan, Public Service Health Care Plan (PSHCP), etc).
Pension (Immediate Annuity and Deferred Annuity)
Annual Allowance
CPP/QPP Integration
Survivor Benefit
Child Allowance
Return of Contributions
Pension Transfer
Transfer Value
Pension formula for periods of full-time service
| 2% | X | Number of years of pensionable service | X | Average salary of 5 consecutive years of highest paid service |
Pension formula for periods of part-time service
| 2% | X | Number of years of pensionable part-time service | X | Average salary of 5 consecutive years of highest paid service based on a full-time salary | X | Assigned part-time hours / standard full- time hours |
Example (full-time):
| Age at departure in 2003 | 55 years |
| Average salary (best 5 consecutive years) | $60,000 |
| Years of pensionable service | 25 years |
| Pension payable at age 60 | $30,000 (2 % x 25 x $60,000) |
| Pension payable from age 65 (or earlier if a disability pension is paid by the CPP/QPP) | $23,269.50 ($30,000 - $6,730.50) |
| CPP/QPP Integration Reduction $38,460 = AMPE 2003 (see note in "CPP/QPP integration formula") | $6,730.50 (0.7% x 25 x $38,460) |
An annual allowance is a reduced pension payable to contributors who are between 50 and 60 years of age with at least two years of pensionable service. The reduction applied to the pension is calculated according to age and/or service.
(applies to contributors between 50 and 60 years of age with less than 25 years of service)
Reduction of 5% for every year you are under age 60 (rounded to the nearest one tenth of a year).
(applies to contributors between 50 and 60 years of age with at least 25 years of service)
| If the contributor is between 50 and 54 years of age: the highest of the following two percentages will be used: | If the contributor is between 55 and 60 years of age, the lesser of the following two percentages will be used: |
|---|---|
|
A reduction of 5% for every year you are younger than age 55 (rounded to the nearest tenth of a year)
or A reduction of 5% for every year that your pensionable service is less than 30 years (rounded to the nearest tenth of a year) |
A reduction of 5% for every year you are younger than age 60 (rounded to the nearest tenth of a year)
or A reduction of 5% for every year that your pensionable service is less than 30 years (rounded to the nearest tenth of a year) |
| Age at departure or age when option was made | 55 years old (in 2003) |
| Average salary (best 5 consecutive years) | $60,000 |
| Years of pensionable service | 25 years |
| Pension that would have been payable starting at age 60 | $30,000 (2% x 25 x $60,000) |
| Reduction (according to Annual Allowance Formula 2) | $7,500 (25% x $30,000) |
| Annual allowance payable from age 55 | $22,500 ($30,000 - $7,500) |
| Annual allowance payable from age 65 (or earlier if a disability pension is paid by the CPP/QPP) | $15,769.50 ($22,500 - $6,730.50) |
| CPP/QPP Integration Reduction ($38,460 = AMPE 2003, see note in "CPP/QPP integration formula") |
$6,730.50 (0.7% x 25 x $38,460) |
| 0.7% | X | Years of pensionable service | X | The lesser of the following two amounts: AMPE for 5 years prior to your retirement or Average salary of 5 consecutive years of highest-paid service |
Note: that the CPP sets the yearly maximum pensionable earnings (YMPE) and the average of the YMPE (AMPE) for the five years preceding retirement is used in the calculation of the reduction at age 65 (or earlier if a disability pension is paid by the CPP/QPP).
| 1% | X | Number of years of pensionable service of deceased contributor | X | Average salary of 5 consecutive years of highest-paid service of the deceased contributor |
The survivor benefit comes to 50% of your pension (prior to reductions from an annual allowance and/or integration with CPP/QPP).
20% x Survivor Benefit (per child for up to 4 children)
If you have more than 4 eligible children, then they will share 80% of the survivor benefit.
40% x Survivor Benefit (per child up to 4 children)
If you have more than 4 eligible children, then they will share 160% of the survivor benefit.
| Your unreduced pension | $20,000 per year |
| Your eligible survivor is entitled to: | $10,000 per year |
| If you have no more than four children, | |
| then each child is entitled to: | $2,000 per year or $4,000 if there is no survivor |
| If you have more than four children, | |
| then the children share the maximum of: | $8,000 per year or $16,000 if there is no survivor. |
A contributor who leaves the Public Service with less than two years of service is entitled to a return of contributions. A return of contributions consists of the contributions made by the employee plus any applicable interest (interest can never be less than zero percent).
The methods and actuarial assumptions used to determine the transfer amount vary according to the terms of the Pension Transfer Agreement (PTA) entered into between the Government of Canada and employer.
A transfer value calculation takes into account a variety of elements. It is based on the economic and demographic assumptions made by actuaries. The calculation takes into account any accumulated indexing, the probability of a person becoming disabled, the projected survivor benefit and child benefit amounts, the current interest rate (not indexed) at the valuation date. If there are any overdue amounts then those will be deducted from the total (e.g. the buyback of former service).
The Income Tax Act places limits on the amounts that can be paid into pension vehicles used for a transfer value.
The tax limits related to a transfer value are calculated as follows:
Pension reduced at age 65 x 9
Example of the calculation of a transfer value:
Here are the identical data for Ms. X and Mr. Y and the actuarial assumptions:
| Pensionable service: | 20 years |
| Average salary (best 5 consecutive years): | $60,000 |
| Deferred annuity at age 60 (in 2003 $): | $24,000 |
| Deferred annuity payable at age 65 (in 2003 $) | $18,615 |
| Date of birth: | 1955/01/02 |
| Termination date: | 2003/01/02 |
| Valuation date and payment date: | 2003/01/02 |
| Maximum non-taxable pension at age 65 x 9 ($18,615 x 9): |
$167,535 |
Estimate of a transfer value:
| Non-taxable portion of the TV | Taxable portion of the TV | Total Transfer value (before tax) | |
| Ms. X | $167,535 | $60,389.48 | $227,924.48 |
| Mr. Y | $167,535 | $53,635.58 | $221,170.58 |
Tax impact:
Ms. X will have to transfer her non-taxable amount ($167,535) into her approved pension vehicle. The taxable amount ($60,389.48) will be paid to Ms. X in cash and will be taxed at source. However, if she has not exceeded her RRSP limits, then she may ask that all or part of the taxable portion of her Transfer Value be moved into an RRSP.
Assuming that she receives the taxable amount in cash and pays 50 percent tax on it ($30,194.74 in tax), she would end up with $30,194.74.
In this section, you will find a comparison table for Ms. X based on four scenarios:
Scenario 1: Ms. X departs with a transfer value
Scenario 2: Ms. X departs with a deferred annuity
Scenario 3: Ms. X earns 25 years of service and receives an annual allowance
Scenario 4: Ms. X earns 30 years of service and receives an immediate annuity
The transfer value amount has been estimated (see Transfer Value in "Formulas and Methods " for the transfer value of Ms. X).
The assumptions in the following case have been kept to a minimum and do not take into account factors such as the other sources of income Ms. X may have when she retires, survivor benefits, etc.
The reduction related to the integration of the Public Service Pension Plan (PSPP) with the Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) that normally applies at age 65 was estimated, but the amount actually received from the CPP/QPP was not estimated in any of the scenarios. In this example, Ms. X will see all of her benefits reduced at age 65. Her deferred annuity, her annual allowance and her immediate annuity will be reduced by $8,900.58, $12,112.24 and $15,254.08 respectively. Her transfer value was also calculated based on a CPP/QPP integration reduction of $5,385 at age 65 (see Transfer Value in "Formulas and Methods ").
In scenarios 3 and 4, a rate of salary increase had to be set to take into account the probability that the salary will increase over the years based on the rate of increase under collective agreement provisions, on promotions, etc. In this example the assumption is that, at ages 53 and 58, Ms. X will have salaries of $72,999.17 and $88,814.66 respectively.
The maximum yearly pensionable earnings (YMPE) is set by the CPP annually and the average YMPE over the five years preceding retirement (the AMPE) is used in the calculation of benefits at age 65 in this table. Thus, a hypothetical AMPE had to be set for scenarios 3 and 4, which refer to years 2008 and 2013.
| Pensionable service: | 20 years |
| Average salary (best 5 consecutive years): | $60,000 |
| Age in January 2003: | 48 years |
| Assumed rate of salary increase: | 4% |
| Assumed rate of increase in the MPE: | 4% |
| Assumed inflation rate: | 3% |
Ms. X opts for a transfer value at age 48 (January 2003)
The amount of Ms.X transfer value is $227,924.48 (see calculation of a transfer value for Ms. X in "Formulas and Methods").
Ms. X opts for a deferred annuity at age 48 (January 2003)
At that time, her deferred annuity was worth $24,000. In 2015, when the deferred annuity will become payable, it will be worth $34,218.26, since it will have been indexed at an average annual rate of 3%. It will continue to be indexed for the rest of her life.
Ms. X works until age 53 and opts for an annual allowance (January 2008)
At that time she'll have 25 years of service to her credit and her average salary for the 5 consecutive years of highest-paid service is estimated at $72,999.17. Her annual allowance at age 53 is $27,374.69. In this scenario, a 25% reduction of her pension was applied (5% X 30 years - 25 years). See the formula for an annual allowance in "Formulas and Methods ".
Ms. X works until age 58 and opts for an immediate annuity (January 2013)
At that time she will have 30 years of service to her credit and her average salary for the 5 consecutive years of highest-paid service is estimated at $88,814.66, which entitles her to an immediate annuity of $53,288.79. See the Basic Pension formula under "Formulas and Methods".
The following table does not take into account the amounts that would be payable under the Public Service Pension Plan (PSPP) to Ms. X's eligible survivors. Furthermore, the tax amount that would normally be payable at source is not factored into the following data.
|
Pension Benefits and Annual Annuities |
|||||
|---|---|---|---|---|---|
| Age | Year |
Scenario 1 |
Scenario 2 |
Scenario 3 |
Scenario 4 |
| 48 | 2003 | 227,924.48 | |||
| 53 | 2008 | 27,374.69 | |||
| 54 | 2009 | 28,195.93 | |||
| 55 | 2010 | 29,041.81 | |||
| 56 | 2011 | 29,913.06 | |||
| 57 | 2012 | 30,810.45 | |||
| 58 | 2013 | 31,734.77 | 53,288.79 | ||
| 59 | 2014 | 32,686.81 | 54,887.45 | ||
| 60 | 2015 | 34,218.26 | 33,667.42 | 56,534.08 | |
| 61 | 2016 | 35,244.81 | 34,677.44 | 58,230.10 | |
| 62 | 2017 | 36,302.15 | 35,717.76 | 59,977.00 | |
| 63 | 2018 | 37,391.22 | 36,789.29 | 61,776.31 | |
| 64 | 2019 | 38,512.95 | 37,892.97 | 63,629.60 | |
| 65* | 2020 | 30,767.76 | 26,917.53 | 50,284.41 | |
| 66 | 2021 | 31,690.79 | 27,725.05 | 51,792.94 | |
| 67 | 2022 | 32,641.52 | 28,556.80 | 53,346.73 | |
| 68 | 2023 | 33,620.76 | 29,413.51 | 54,947.13 | |
| 69 | 2024 | 34,629.38 | 30,295.91 | 56,595.54 | |
| 70 | 2025 | 35,668.26 | 31,204.79 | 58,293.41 | |
| 71 | 2026 | 36,738.31 | 32,140.93 | 60,042.21 | |
| 72 | 2027 | 37,840.46 | 33,105.16 | 61,843.48 | |
| 73 | 2028 | 38,975.68 | 34,098.32 | 63,698.78 | |
| 74 | 2029 | 40,144.95 | 35,121.27 | 65,609.74 | |
| 75 | 2030 | 41,349.29 | 36,174.90 | 67,578.04 | |
| 76 | 2031 | 42,589.77 | 37,260.15 | 69,605.38 | |
| 77 | 2032 | 43,867.47 | 38,377.96 | 71,693.54 | |
| 78 | 2033 | 45,183.49 | 39,529.29 | 73,844.34 | |
| 79 | 2034 | 46,539.00 | 40,715.17 | 76,059.67 | |
| 80 | 2035 | 47,935.17 | 41,936.63 | 78,341.47 | |
| 81 | 2036 | 49,373.22 | 43,194.73 | 80,691.71 | |
| 82 | 2037 | 50,854.42 | 44,490.57 | 83,112.46 | |
| 83 | 2038 | 52,380.05 | 45,825.29 | 85,605.83 | |
| 84 | 2039 | Etc. | Etc. | Etc. | |
In this comparison exercise, Ms. X learns that she can estimate the value of her future PSPP pension benefits and eventually those of her survivors.
As for her Transfer Value, Ms. X has to ask her pension manager some questions such as: Can she choose an immediate life annuity? A deferred annuity? At which age can she begin receiving money? How much would her life annuity amount to? Are there survivor benefits? Etc.
After having those questions answered, Ms. X could be in a position to estimate her rate of return on her investment outside the PSPP she has to earn in order to obtain the pension she needs. Afterwards, she can add an annual amount in her Comparison Table under Transfer Value.
Public Sector Pension Investment Board
Web site of the Board responsible for investing employer and employee pension contributions.
Group Benefit Plans Page of the TBS Web site regarding the Public Service Health Care Plan, Public Service Dental Care Plan, Disability Insurance Plan and Public Service Management Insurance Plan.
Canada Pension Plan (CPP) and Old Age Security (OAS)
Web site with information regarding CPP and OAS.
Quebec Pension Plan (QPP)
Quebec Pension Plan (QPP) Web site.
Canada Revenue Agency
Web site concerning income tax on pensions and other useful information such as the publication: When You
Retire .
Your Pension Plan
Electronic version of the brochure Your Pension Plan describing the main elements of the Public Service Pension Plan (PSPP) governed by the Public Service
Superannuation Act .
Superannuation Manual (SAM)
Electronic version of the SAM describing compensation
advisors’ roles and responsibilities with respect to the administration of the Public Service Superannuation Act .
The main provisions of the Public Service Pension Plan are included in the following:
Public Service Superannuation Act
Public Service Superannuation Regulations
Other legislation provides for supplementary retirement benefits for eligible employees:
Supplementary Retirement Benefits Act
Special Retirement Arrangements Act
Retirement Compensation Arrangements Act, No. 1
Retirement Compensation Arrangements Act, No. 2
In the event of a separation or divorce, legislation provides for the division of pension benefits:
Pension Benefits Division Act
Pension Benefits Division Regulations
For practical explanations of the process and eligibility requirements of the pension benefits division, consult the Pension Benefits Division Act Kit.
To learn more about pension regulations and acts, visit the Justice Canada site, Consolidated Statutes and Regulations, and search using the word "pension" to find all of the legislation dealing with pensions.
Resource person and other links
Your compensation advisor
Your financial advisor
There are numerous useful information on retirement within the links of the Social Development Canada Web site. Look for instance at the document: Choosing a financial advisor (PDF Format)
