Pension Eligibility at Age 60 - Workforce Adjustment and Pension Waivers

The purpose of this note is to provide general information regarding the waiver of an annual allowance reduction under the Public Service Superannuation Act (PSSA) for employees aged 55 to 59 who have at least 10 years of public service employment. In addition, some questions and answers are provided for further information.

Background

In 1998, the Treasury Board (TB) of Canada approved the criteria to be used to determine if an employee has involuntarily ceased to be employed in the public service for the purpose of eligibility for the waiver of the reduction in an annual allowance payable pursuant to the PSSA. Furthermore, the TB decision granted the authority to deputy heads (or equivalents) or their designated representatives to certify those employees who meet the eligibility conditions for the waiver.

Waiver Eligibility

In order to be considered for a waiver of the pension reduction under the public service pension plan, the Deputy Head must certify that the employee meets the following conditions:

  • is at least 55 years of age on termination date with at least 2 years of pensionable service to his or her credit;
  • must be entitled to an annual allowance;
  • has been employed in the public service for a period or periods totaling at least 10 years;
  • terminates involuntarily from the public service (under a workforce adjustment (WFA) situation or lay-off) and has not received a guarantee of a reasonable job offer; and
  • has not received an educational allowance.

For executives who are subject to the Directive on Career Transition for Executives, the following condition applies in addition to the conditions outlined above:

  • the executive must not have received a negotiated settlement that included compensation for a reduction in the amount payable under the public service pension plan.

Current Application: Pension Reduction Waivers & Work Force Adjustment

In cases where a termination is due to a WFA situation, TB has provided pre-approval of waivers to Public Works and Government Services Canada (PWGSC) so long as two general conditions are met:

  1. The relevant deputy minister certifies that the individual is a surplus employee as a result of a WFA situation and that he or she has met all the conditions (described above).
  2. The employee did not receive an educational allowance and was not in receipt of either a reasonable job offer or a guarantee of a reasonable job offer.

Deputy heads do not have the authority to approve waivers.  However, they have the authority to certify that individuals meet the conditions for a waiver.

The Pension Centre of PWGSC, as the administrator of the pension plan, will put the waiver of the penalty into effect, only for situations related to WFA. Cases of involuntary termination other than WFA must be submitted to the TB for approval.

Questions and Answers

You may want to know…

  • Q1. What is a waiver?

    A waiver is the removal of the normal reduction to an annual allowance (reduced pension) that is applied because the individual, at termination, did not meet the age and service thresholds to receive an immediate annuity (age 60 with at least 2 years of pensionable service or at least age 55 with at least 30 years of pensionable service).

  • Q2. Who can request a waiver?

    A waiver is considered for employees who terminate involuntarily (through lay-off and WFA, who are at least 55 years of age upon termination with at least 2 years of pensionable service, and have been employed in the public service for a period or periods totaling at least 10 years).

  • Q3. What is an annual allowance?

    An annual allowance is a reduced pension payable to a plan member who is between 50 and 60 years of age with at least 2 years of pensionable service.

    This reduction would normally be 5 percent for every year that the individual's pensionable service credit is less than 30 years or the age is less than 60 years.

    The reduction is to take into account early receipt of the benefit and is calculated according to age and/or service. An annual allowance is payable from the latest of the date of option, the date of termination or the plan member's 50th birthday.

    Figure 1: Pension Eligibility at Age 60 – Annual Allowance Reduction Formula
    Image displaying the Annual Allowance Reduction Formula. Text version below:
    Figure 1 - Text version

    Formula 1: If you have less than 25 years of service, the formula to use is as follows: 60 minus your age multiplied by 5 percent.

    Formula 2: If you have at least 25 years of service, the formula to use is as follows: 30 minus your years of service multiplied by 5 percent or 55 minus your age multiplied by 5 percent. If formula 2 is used, the greater reduction is applied.

    For plan members who are 55 years of age and over with at least 25 years of pensionable service, the reduction is calculated by comparing formulas 1 and 2, and the lowest reduction applies.

  • Q4. If a person qualifies for a pension waiver, how is his or her pension benefit calculated?

    The pension calculation applied in these cases is the same calculation used for all plan members under the public service pension plan.  Here is an example:

    Situation

    Robert is 56 years old and has 12 years of pensionable service upon ceasing employment in the public service due to a WFA situation. He chooses Option B – Transition Support Measurement payment, and is eligible to receive a waiver under the PSSA.

    Pension Entitlement

    With a waiver, Robert is entitled to an unreduced annual allowance under the public service pension plan. His pension benefit will be equal to 24 percent of his average salary or 15,600 dollars per year.

    Unreduced Annual Allowance equals 2 percent multiplied by 65,000 dollars multiplied by 12 years of pensionable service equals 15,600 dollars per year.

    Without the waiver, Robert would have had a 20 percent reduction to his annual allowance (5 percent for each year he is less than age 60 that is 60 minus 56 equals 4 multiplied by 5 percent equals 20 percent reduction). His pension benefit with the reduction would be 80 percent of the benefit he would have been entitled to at age 60 {15,600 dollars multiplied by 80 percent equals 12,480 dollars per year}.

    A plan member would not be entitled to receive a full pension worth 70 percent of his or her average salary unless he or she had accumulated 35 years of pensionable service at the time of ceasing to be employed in the public service and was also 55 or more at cessation.

  • Q5. What is the process for the approval of the waiver of the pension reduction?

    Upon receipt of requests for the waiver of the pension reduction, the Pension Centre verifies that the employee meets the age and service requirements and that the signature of the Deputy Head or delegated authority is valid. If these requirements are met, then the Pension Centre will put the waiver of the penalty into effect. As per the TB decision of 1998, deputy heads of departments or agencies were given the authority to certify that the employee meets the age, service and the WFA requirements, and has involuntarily ceased to be employed in the public service.

  • Q6. Can someone change his or her mind after all retirement paperwork is completed?

    The employer is under no obligation to rescind a resignation once it is accepted.

  • Q7. What happens if someone chose option A (priority for 12 months) and does not get a job offer after 12 months? Is he or she still eligible for the waiver of the reduction of the annual allowance?

    If the person is laid off (involuntary termination) and the Deputy Head certifies that the employee meets all the requirements, then the person would be eligible for the waiver of the reduction of the annual allowance. Individuals who involuntarily resign during the 12-month surplus period will still be eligible to receive a waiver.

  • Q8. What happens if someone chooses Option B (Transition Support Measure)? Is he or she still eligible for the waiver of the reduction of the annual allowance?

    Yes, an opting employee who has chosen the Transition Support Measure (Option B) is eligible for the waiver of the reduction of the annual allowance.

  • Q9. If an employee meets all of the eligibility criteria for a pension waiver, can the Deputy Head refuse to approve it?

    No. Deputy Heads do not have the authority to approve or refuse waivers. However, they do have the authority to certify that individuals meet the conditions for a waiver.

  • Q10. Are separate employers who have WFA programs similar to the WFA agreements in the core public administration subject to the same restrictions (requirements)?

    Separate employers who have WFA programs similar to the WFA agreements in the core public administration, e.g. Canada Revenue Agency, Canadian Food Inspection Agency and Parks Canada, are subject to the same restrictions as those set out for TB employers. In addition, separate employers must also ensure that their involuntary departure benefits are not greater than those offered to departments for which TB is the employer.

    Please note that the determination of what constitutes greater involuntary departure benefits is not based on the cash value of the benefits received by the employees.

    The following situations would preclude a non-TB employee from being eligible for a pension waiver:

    • They receive an educational allowance or a similar type benefit.
    • They refuse a reasonable job offer or are in receipt of a guarantee of a reasonable job offer.
    • They receive a surplus period greater than 12 months, i.e. 17 months.
    • They receive a Transition Support Measure that exceeds a maximum of 52 weeks of salary, i.e. 57 weeks.

    Any employee who receives involuntary departure benefits greater than those offered to employees in the core public administration would not be eligible to receive a pension waiver.

  • Q11. Will departments be charged the cost of the pension waiver?

    Departments will not be charged the costs of a pension waiver; the costs will be funded centrally.

  • Q12. Can an employee who chooses to alternate, also have access to the Pension Waiver?

    Employees choosing to alternate can have access to the pension waiver, but only when selecting Option B (Transition Support Measure).  They must also meet the other qualifying criteria for the waiver of the reduction of the annual allowance, as described above.

  • Q13. The PSSA includes a reference to a "partial" pension reduction waiver. Are there any scenarios where an employee would only be eligible for a portion of the penalty waiver?

    Although the provision contained in the PSSA provides for the waiver of the "whole or any part" of the reduction, we are not aware of past cases where the reduction was waived only in part.

  • Q14. Will employees whose pension reduction has been waived be eligible to include this amount for income splitting for income tax purposes?

    The Income Tax Act (ITA) imposes limits on amounts payable under a registered pension plan, including benefits payable for early retirements.  The Public Service Superannuation Regulations (subsection 80(1)) prescribe that the amount of the waiver cannot exceed the limitations set by the ITA.  The amount that exceeds this limitation is paid out of the Retirement Compensation Arrangement (RCA).  The RCA is an unregistered pension plan that provides benefits that exceed the allowable limits for a registered pension plan under the ITA.

    In accordance with the ITA and its Regulations, only those amounts that meet the definition of "pension income" qualify for pension income splitting. It is important to note that the definition of "pension income" in the ITA excludes any amounts that are paid out of an RCA. Therefore, for those employees who will receive a portion of their PSSA pension from the RCA, the amount paid from the RCA will not qualify for income splitting. This also includes situations of early retirement where the unreduced PSSA pension (pension waiver) exceeds the ITA limit; the amount exceeding the ITA limit becomes payable from an RCA.

    At the end of each year, retired members receive a Statement of Pension, Retirement, Annuity, and Other Income (T4A) indicating the amount of pension income they received for the previous year. In addition, retired members who receive a portion of their pension from an RCA also receive a separate Statement of Distributions from a Retirement Compensation Arrangement (T4A-RCA) indicating the amount they received from an RCA. In accordance with the ITA, the amount indicated on the T4A-RCA does not qualify for purposes of pension income splitting.

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