A transfer value is a calculated amount that represents your accumulated pension benefit that would be payable in the future. You may choose to receive your accumulated pension in the form of a transfer value instead of future monthly pension payments when you leave the public service:
- Before age 50 with at least 2 years of pensionable service if you became a member of the public service pension plan on or before December 31, 2012; or,
- Before age 55 with at least 2 years of pensionable service if you became a member on or after January 1, 2013.
You must choose a transfer value within one year of ceasing to be employed in the public service (or one year of ceasing to be employed with your new employer following a divestiture from the public service, if applicable).
Because of the tax and financial implications, you may wish to consult a tax or financial advisor before choosing to receive a transfer value.
How the transfer value is calculated:
The amount of a transfer value benefit is the actuarial present value of your accrued pension benefits on valuation day (that is, the date your transfer value payment is issued). It is determined based on your indexed deferred annuity, which is calculated according to the pension formula set out by the plan, and will not be lower than a Return of Contributions.
The calculation of a transfer value considers several elements, including:
- Demographic assumptions used in the plan’s actuarial report;
- Interest rate assumptions established in the standards of practice published by the Canadian Institute of Actuaries;
- Probability of becoming disabled;
- Projected survivor benefit and child allowance amounts; and
- Probability of being survived by their spouse and children.
If you are buying back service through pay cheque deductions, only the service covered by payments made, or required to be made, up to the valuation day will be included in the transfer value calculation. If you pay the full or partial balance owing before the valuation date, the corresponding period of service will be included in the calculation. To do this, your final payment must be received by the valuation day. Any payments already in default will be deducted from the transfer value payment.
What happens to the pension benefits payable under the Retirement Compensation Arrangement:
When you choose a transfer value, the actuarial value of your public service pension will be paid out of the pension fund. If applicable, you will also receive the value of the pension benefits payable under the Retirement Compensation Arrangement. The Retirement Compensation Arrangement portion of the transfer value is paid directly to you, and you must pay income tax on this amount.
Limits for tax-sheltered transfers:
The Income Tax Act sets limits on transfer values that can be paid by a registered pension plan into certain tax-sheltered retirement vehicles. The portion of the transfer value that falls within this limit is known as the “in-limit” transfer value.
Where the funds must be transferred:
You must transfer the allowable “in-limit” amount of the transfer value to another registered pension plan (if the plan allows it), to a locked-in registered retirement savings vehicle, or to a financial institution to buy an annuity.
If a portion of the transfer value exceeds the limit set by the Income Tax Act, that portion, known as the “out-limit” amount, is considered taxable income. This amount will be paid to you in a lump sum, minus applicable tax. If you have not exceeded your personal Registered Retirement Savings Plan (RRSP) contribution limit, you can have all or part of the “out-limit” amount transferred to your RRSP.
Your transfer must follow applicable rules set under the Income Tax Act and pension benefits standards legislation. Ask your tax and/or financial advisor about these rules.
How transfer value payments are processed:
In most cases, once the Government of Canada Pension Centre receives your Pension Benefits Option Statement form and any required documents it will pay out 100% of the in-limit amount and no less than 95% of the out-limit amount. The balance of the out-limit amount is withheld, to a maximum of $5,000, pending receipt of finalized termination documentation. The Pension Centre will advise you on the expected time to issue the remaining balance. The Pension Centre may also exercise discretion in certain exceptional cases.
In cases where the amount of the transfer value is equal to a Return of Contributions, this amount will be paid in full.
Impact of taxes withheld:
Any income tax you pay will reduce the funds that you have available to invest for your retirement. You may ask the Canada Revenue Agency for assistance or discuss these tax implications with your tax and/or financial advisor.
Effects of re-employment in the public service:
If you choose a transfer value and become re-employed in the federal public service (after January 1, 2013), the post-2012 pension plan terms will apply to all pensionable service you accrue during your period of re-employment, and your retirement age will be age 65. Refer to Re-employment for more information.
In the event of death:
If you die before the transfer value payment is issued, the entire transfer value amount will be issued to your estate with tax deducted at source.
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