A Transfer Value is an estimate of the lump sum amount which would be required today to fund a particular amount of pension benefit normally payable in the future. The Transfer Value is calculated at your "valuation date". The Valuation date is your date of termination or the date you make an option for a Transfer Value, whichever is later.

The Transfer Value is arrived at using "demographic" and "economic" assumptions. "Demographic assumptions" include the probability of your being alive in each year in the future, and the probability of a child, student, or disability benefit being paid to you, or on your behalf. These probabilities are based on the actual experience of the pension plan, and are reviewed every three years. The probability of being survived by a spouse is also a factor, and these assumptions are derived from Statistics Canada information.

"Economic assumptions" pertain to the "real rate of return" that the lump sum payment could be expected to earn. The real rate of return is the difference between the gross interest rate and the rate of inflation. These assumptions are based on recommendations by the Canadian Institute of Actuaries in respect of fully indexed pension plans and reflect current market conditions as well as expected long term rates. The value of the lump sum payment is "discounted" to account for the fact that the benefit will be payable in a lump sum today, rather than monthly over your and any eligible survivor's lifetimes; the lump sum is expected to earn interest from the date of payment until you would have received a pension benefit if the funds had remained in the pension plan.

The interest rates for this calculation for the first 15 years are based on the current return on real return Government Bonds, and after that, at a rate of 3.25 %.

General rule: If you are "vested", and less than age 50 at termination of employment you will be entitled to choose a Transfer Value. The Transfer Value option is "irrevocable" and must be made within one year of termination of employment.

Transitional rule for employees who ceased employment prior to April 30, 1997: If you are vested and were less than age 50 at the later of June 20, 1996 and the date you ceased to be employed, and are not in receipt of any other benefit under the Public Service pension plan, you may opt for a Transfer Value or change a Deferred Annuity option to a Transfer Value.

You will have until April 30, 1998, or six months after being advised of this new option, whichever is later, to make this option.

Other Circumstances: If you are a Correctional Service employee, or an Air Traffic Controller, with the necessary operational service credit, you may be eligible to opt for a (reduced) Annual Allowance as early as age 45. As long as you are less than age 50 at date of termination, you may opt for a Transfer Value. However, the Transfer Value will be valued on the Deferred Annuity payable at age 60; you should carefully compare the benefits of a Transfer Value against an early Annual Allowance before completing an option.

You are encouraged to consult with a Financial Consultant before making an option for a Transfer Value.

Special computer programs have been developed to perform the Transfer Value calculations. These programs are continually verified by the Office of the Superintendent of Financial Institutions (OSFI) to ensure their accuracy.

The Transfer Value calculation itself is a complex process, and is quite lengthy to compute since it involves a great number of factors and tables. Your Compensation Specialist is not in a position to calculate the value manually or to provide you with the tables used in the calculation; the factors and tables are simply too lengthy to be made generally available. A simplified explanation of the process follows to provide a general understanding of how the Transfer Values are determined.

The Transfer Value is based on the Deferred Annuity that would be payable at age 60, and takes into account the following factors:

Salary and Service: The Deferred Annuity is based on your average pensionable salary (6 best years) and pensionable service. If you have a past service election, only the paid-up service will be included in the Transfer Value payment (see Section 8 on past service elections).

Canada Pension Plan (CPP) or Quebec Pension Plan reduction: The CPP or QPP reduction is applied to account for the integration of the PSSA and CPP/QPP contributions and benefits.

Pension Indexing: Pension indexing, both future indexing and indexing between your date of termination and date of valuation, is included in the value of your benefit.

Demographic and Economic Assumptions: Demographic and economic assumptions are applied (see section 1).

Interest: Interest, based on the quarterly rate applied to the pension fund, is added to the payment to cover the period from your valuation date to the first of the month the payment is made.

Other factors

Leave Without Pay (LWOP): Any outstanding contributions for periods of pensionable LWOP will be recovered from the Transfer Value.

Past Service Elections: Any "default" in election contributions will be recovered from the Transfer Value. A "default" is the amount of payments that were required, but not paid, from the election date until the "valuation date". However, future election payments will not be recovered from the Transfer Value.

Pension Division: If your pension has been subject to a Pension Division on marital breakdown, the reduction that would have applied to your pension will be taken into account in determining your Transfer Value payment.

Your Compensation Specialist will be able to provide you with an estimate of your Transfer Value, or other benefits payable under the pension plan.

The estimate will be based on the information available at the time the estimate is computed. A Transfer Value estimate can vary (sometimes significantly) from the actual payment for a number of reasons including:

Economic Assumptions: The interest used in the actuarial calculation, as described in section 1, to discount the lump sum is updated monthly, to reflect current market conditions. The interest can have a significant impact on the Transfer Value calculation. If the interest rate has increased between your estimate date and your valuation date, the value of the lump sum will decrease, conversely, if the interest rate has decreased between your estimate date and your valuation date, the value of the lump sum will increase.

Leave Without Pay: Contributions required for periods of LWOP which have not been paid at valuation date will be deducted from the Transfer Value. The final amount of the Transfer Value can vary depending on whether all LWOP contributions have been paid at your valuation date.

Note: The Transfer Value Estimate does not reflect LWOP deficiencies; information regarding deficiencies is available from your Compensation Specialist. You must subtract the deficiency from the Transfer Value estimate to determine the actual Transfer Value payable.

Past Service Elections: Past service contributions made between your estimated termination date and the actual valuation date will increase the "paid-up" elective service, and therefore increase the value of the Deferred Annuity used in the Transfer Value calculation.

Any default in elective service payments required will be deducted from the Transfer Value. A default is an elective service payment required but not paid. A default could occur, for example, if you had been on LWOP and had not made the required monthly past service payments, or past service payments were not correctly deducted from your salary.

Note: The Transfer Value Estimate does not reflect past service defaults; information regarding defaults is available from your Compensation Specialist. You must subtract the default from the Transfer Value estimate to determine the actual Transfer Value payable.

Deferred Annuity: Your Compensation Specialist should also provide you with an estimate of the Deferred Annuity that would be payable at age 60 if you left your funds in the Public Service Superannuation Account.

You will be asked to complete several forms when you decide to make a benefit option. The option for a Transfer Value is "irrevocable", so you should ensure that you have all of the information necessary for you to make an informed decision about your options.

Option form: You must complete a PWGSC-TPSGC 2011, Notice of Termination and Option for Benefit - Employees with Two or More Years of Pensionnable Service, to indicate your choice of benefits under the pension plan.

Certification of locked-in RRSP: As described in Sections 6 and 7, the Transfer Value payment, subject to income tax limits, must be deposited to a locked-in retirement vehicle. If you choose to deposit your Transfer Value to a locked-in RRSP, your Financial Institution must complete the PWGSC-TPSGC 2347-18, Certification of Lock-in for Purposes of the Public Service Superannuation Act, to certify that they will administer the funds in accordance with the lock-in provisions of the Pension Benefits Standards Act, 1985.

Income Tax Form: Tax form T-2151, which will be available through your financial institution, must be completed and provided to the Superannuation Directorate. This form is required by Revenue Canada to verify that the funds are transferred from a Registered Pension Plan (e.g. the PSSA) to an RRSP.

Transfer to Another Registered Pension Plan or to an Insurance Company: If you choose to direct your payment to another Registered Pension Plan, or to a Life Insurance Company for the purpose of purchasing a life annuity, the Superannuation Directorate will provide you with the necessary information and/or forms to complete.

Payments Outside the Income Tax Limits: If a portion of your payment is outside the tax limits described in section 7, you must also provide payment instructions regarding this portion of the payment. This payment will (normally) be made directly to you.

If you have available RRSP "room", you may wish to transfer these funds to an RRSP. In this case, the funds do not have to be transferred to a locked-in RRSP. To issue the payment to the RRSP without deducting tax at source, you will need a "tax-waiver" letter from your District Tax Office. You must also provide Superannuation Directorate with a letter advising the name of the Financial Institution, account number and address of your RRSP holder. Income Tax form T-2151 is not required for this portion of the transfer.

Subject to Income Tax limits (described in Section 7), the Transfer Value must be paid to a "locked-in retirement vehicle", either to an RRSP to be administered in accordance with the Pension Benefits Standards Act (PBSA), to another Registered Pension Plan or to a financial institution for the purchase of a life annuity. IT IS UP TO YOU TO DECIDE WHERE YOU WISH YOUR FUNDS TO BE TRANSFERRED, in accordance with these requirements.

You should explore your options with your Financial Institution to determine the best approach for your personal situation. The Financial Institution must ensure that the terms of the PBSA are followed, but there are a variety of vehicles and payment structures that may be available to you depending on where you choose to deposit the Transfer Value funds. The arrangements you make will determine when you can access your funds, but you must keep in mind that the funds are intended to purchase a continuing pension benefit, so they will not be available to you in a lump sum.

Your Compensation Specialist will provide you with the forms required to advise the Superannuation Directorate of where you wish your funds to be deposited.

You are encouraged to consult with a Financial Consultant before you decide where to deposit your funds.

The Income Tax Act (ITA) places certain restrictions on the amount of a pension benefit that can be transferred on a tax sheltered basis to a registered pension vehicle. The limit, for employees less than age 50, is the annual pension payable at age 65 (plus applicable indexing) X 9.

The breakdown between the portion of the Transfer Value that is "within" and "outside" the tax limits will be provided by your Compensation Specialist with your Transfer Value estimate. In many cases, the full payment will be within the tax limits, however, for older plan members, it is possible that a portion of the payment will be in excess of the applicable tax limits.

Transfer Value Within Tax Limits: The portion of the Transfer Value "within" the tax limit will be deposited directly to the locked-in vehicle you have chosen. No T4A (or Relevé 2) will be issued and the financial institution should not issue a tax receipt.

Transfer Value Outside Tax Limits: The portion of the Transfer Value "outside" the Tax limits will be paid directly to you and will be taxed. You should be aware that, because the payment is made in a lump sum, the tax deducted at source may not be sufficient to cover your full tax deduction requirement, and it is possible that you will owe additional tax when you file your year-end return. A T4A (and Relevé 2 if applicable) will be issued for this portion of the payment.

If you have sufficient RRSP "room" and transfer this portion of your payment to an RRSP, (as described in section 6), no tax will be deducted from the payment, but a T4A (and Relevé 2, if appropriate) will be issued and your Financial Institution will need to provide you with a tax receipt for tax filing purposes.

Following are two examples of how the tax limits may affect a Transfer Value payment:

Example 1

$186,636.42 will be transferred to a locked-in vehicle.
$ 16,512.71 will be paid directly and taxed at source.

Example 2:

$ 16,765.16 will be transferred to a locked-in vehicle.

If you have made an election to purchase past service, only the portion of service which has been "paid-up" at your valuation date will be included in the Transfer Value payment.

Elective service payments, except for defaulted payments as described in section 4, cannot be deducted from the Transfer Value payment, they must be made BEFORE your valuation date.

Estimates of elective service paid to date: Your Compensation Specialist can provide you with an estimate of the elective service that has been "paid to date" and of the amount that would be required to pay your elective service in full. The estimates will be based on the contributions that were "required" to be made. If you have not paid the elective service installments required (i.e. there is a default in your payments), or you have made additional cash payments that the Compensation Specialist is not aware of, this information may not be properly reflected on your estimate. When the Transfer Value payment is finalized, the Superannuation Directorate will base their calculations on verified records.

Paying the balance of your elective service: Payments towards the cost of elective service will increase the total pensionable service included in the Transfer Value calculation, and will usually increase the Transfer Value payment. You should verify with your Compensation Specialist that the additional election payments will in fact increase the Transfer Value amount before making the additional payments.

Elective service payments can be made in a variety of ways:
i) an increase to the monthly deduction from salary;
ii) a cash payment towards the cost of the election, by forwarding a cheque or money order to the Superannuation Directorate;
iii) a transfer of funds from a Registered Retirement Savings Plan (RRSP) directly to the Public Service Superannuation Account, through the Accounting Section of the Superannuation Directorate;
iv) a direct payment from retiring allowances.

You should carefully consider the income tax consequences of past service contributions. Your District Taxation Office can assist in determining the tax deductible limits of elective service payments.

Note that the print-out of the Transfer Value Estimate does not take into account any past service defaults. Any default will be deducted from the Transfer Value before payment is made.

Where you have any outstanding Superannuation deficiencies for a period of pensionable Leave Without Pay, which have not been paid at your termination date, the deficiencies will be recovered from the Transfer Value payment.

In order to maximize the Transfer Value payable to your RRSP, you may want to pay your deficiencies in cash, or from any retiring allowance payments.

If you do not want to count your LWOP for pension purposes, you must complete a PWGSC-TPSGC 2480, Election not to Count Leave Without Pay as Pensionable Service, within the applicable time limits and before terminating employment.

Note that the print-out of the Transfer Value Estimate does not take into account any LWOP deficiencies. If you have any LWOP deficiencies they will be deducted from the Transfer Value before the payment is made.

It is up to you to choose the benefit you believe is most appropriate under the pension plan. A Transfer Value option, like any other option made under the pension plan, is irrevocable.

The Transfer Value payment can be a substantial amount of money but you must remember that this money will not be accessible to you as a lump sum. You should carefully consider the type and amount of future pension benefits that can be purchased with those funds and compare those benefits to the Deferred Annuity before making an option. The Transfer Value option will not be the best alternative for every employee; each member must make the personal decision that he feels is best considering personal circumstances. Following are some things you should consider before making your option:

a) A Transfer Value payment is in lieu of any other benefits payable under the PSSA. If you choose a Transfer Value, there are no survivor benefits payable under the PSSA. On the other hand, if you choose a Deferred Annuity, an (eligible) spouse would be entitled to a benefit equal to one-half of your unreduced DA, and any (eligible) children would be entitled to a child or student benefit of one-tenth of your DA.

b) If you choose a Transfer Value you assume responsibility for all future investment decisions, administrative arrangements and decisions on when and in what form income is to be received (within the lock-in constraints) related to the Transfer Value funds.

c) The rate of return made by funds invested in a locked-in vehicle depends on the rates of return that are available over time in the market place as well as the investment decisions of the member, which will in turn determine the eventual level of income available for you and your dependants. The investment risk is your full responsibility. There is no guarantee that the eventual pension income will be equal to the Deferred Annuity, associated survivor benefits and pension indexing had the assets been left in the PSSA.

d) The benefits associated with entitlement to a Deferred Annuity under the PSSA include full indexing calculated from the date of termination of employment, the option of choosing an annual allowance between age 50 and 60, entitlement to an unreduced pension in the event of disability (as defined in the PSSA) prior to age 60, entitlement of eligible survivors to an allowance, and the potential of a minimum benefit payment.

e) A Deferred Annuity, unlike a Transfer Value, includes all elective service, even where the service is not fully paid at your termination date; a member entitled to a Deferred Annuity has the option of paying elective service arrears and contribution deficiencies by installment; contributions not recovered at the time the annuity commences are deducted from the annuity.

f) Coverage under the Public Service Health Care Plan is only available to PSSA pension recipients (members and survivors), and not to persons who choose a Transfer Value.

g) The portion of a Transfer Value in excess of the limits prescribed in the Income Tax Act is reported as income to the member and is taxable in the year in which it is paid. The tax requirements may limit the amount of the Transfer Value that is available to the member for investment purposes in a tax sheltered vehicle.

PSSA members in receipt of salary in excess of a specified annual threshold (for 1997, this threshold is $98,700.00) contribute to the PSSA in respect of salaries below the threshold and to an RCA in respect of salaries above the threshold. From a plan member's viewpoint, the only difference between the PSSA and RCA benefits is that any lump sum RCA benefit, either a return of contributions, or a Transfer Value, cannot be transferred to a registered retirement vehicle.

Decision regarding RCA benefits: If, at termination, your average salary is above the threshold for the year of termination, you will have to make a separate decision with regard to your RCA benefits. When you complete the PWGSC-TPSGC 2011 to indicate your choice of pension benefit, and if you choose a Transfer Value in respect of your PSSA benefits, you will have a separate option to complete in respect of your RCA benefits (on the same option form). You can choose either a Transfer Value in respect of your RCA benefits, or choose a Deferred Annuity in respect of your RCA benefits.

Transfer Value for RCA benefits: If you choose to receive a Transfer Value in respect of the RCA portion of your benefit, this amount cannot be transferred to an RRSP; it must be paid directly to you and taxed accordingly.

Deferred Annuity for RCA benefits: If you choose a Deferred Annuity in respect of your RCA benefits, the Deferred Annuity will be based on the service after December 15, 1994 and the difference between your full average salary and the salary threshold for your termination year. Following is an example of the Deferred Annuity calculation in this situation:

Example:

Information regarding RCA benefits: For specific details regarding the Deferred Annuity payable on the RCA portion of your benefit, you may wish to contact the Superannuation Directorate at 1-506-533-5710.