Learn about commuted value transfers
Find out what's involved if you transfer the commuted value of your pension to a locked-in retirement vehicle.
If you leave your job before you are ready to retire, you can keep your pension safe within the plan until you are ready to use it. Although you may have the option of taking the value of your pension out of the plan before retirement, it’s important to get all the facts before you act.
Taking your pension benefit, known as the commuted value, to invest elsewhere is a big decision, and once it’s done, it can’t be undone. There are many factors to consider, ranging from potentially costly tax implications to the impact that current financial market conditions could have on your investment if it’s removed from the plan.
If you are considering this, it is important to consult an independent financial advisor before proceeding. An independent advisor can provide the unbiased guidance you need to make the best financial choices for your future.
If you choose to transfer the commuted value of your pension, we will transfer it to a locked-in retirement vehicle. You can only choose this option if you are younger than the earliest retirement age.
When we calculate the commuted value, we guarantee the amount quoted until the guarantee date on your Termination selection statement. We must receive your signed selection and required documents by this date. If we don’t, and you are still eligible and would like to pursue this option, we will recalculate the commuted value of your pension. The recalculated value may be higher or lower, depending on interest rate fluctuations since the original calculation.
The BC Pension Corporation, following Standards of Practice prescribed by the Canadian Institute of Actuaries and approved by the Public Service Pension Board of Trustees, calculates the commuted value using the 2014 Canadian Pensioners Mortality Table with generational mortality projection using improvement scale CPM-B on a 50% male 50% female unisex basis.
We will not deduct income tax from any transfer to a locked-in retirement vehicle. However, the Income Tax Act limits the amount of commuted value payment that can be tax-sheltered. This means that any part of your commuted value over the limit must be taken as a cash payment and we will deduct income tax from it.
We deduct tax at the following rates for Canadian residents, where applicable:
- 10 per cent for payments of $5,000.00 or less
- 20 per cent for payments of $5,000.01 to $15,000.00
- 30 per cent for payments of $15,000.01 or more
If you are not a Canadian resident when we transfer the lump-sum payment, the amount of tax held back is based on your country of residence. Twenty-five per cent is a common amount.
The above flat rates are set by the Canada Revenue Agency. These rates do not represent the actual tax you may owe, which is calculated using your personal tax rate when you file your tax return for the year in which you receive the lump-sum payment.
Watch the video to learn more about how the decisions you make today can impact your retirement income in the future.
Why keep your pension benefit in the plan?
If you leave your job, you may consider transferring the commuted value of your pension out of the plan, but first be aware of the many advantages you enjoy as a plan member:
- Security for life: Your defined benefit pension plan is designed to provide you with a dependable source of income in retirement. Unlike other plans or investments (such as RRSPs), you don’t have to worry about outliving your assets or running out of money. You can enjoy the peace of mind and security of knowing you’ll receive your monthly pension payments for life.
- Investment management: As a member of the plan, your retirement fund is managed by BCI—one of the largest institutional investors in Canada. You can relax in the knowledge that your investments are in good hands, and your benefit is being professionally managed on your behalf. However, if you leave the plan, you take on all the risk for your future investment returns, as well as any fees related to managing your investment, and the responsibility of planning for a stable income in your retirement.
- Medical and dental benefits: When you retire, any extended health care and dental coverage you were receiving through your employer will stop. However, as a plan member, you can apply for extended health care and dental coverage when you apply for your pension. This can also include coverage for your spouse and eligible dependents. This option is only available to members who remain in the plan.
- Cost-of-living increases: Throughout your retirement, your pension may receive annual inflation adjustments to help it keep pace with the rising cost of living. These adjustments are not guaranteed, but once you receive an adjustment, it will be added to each component of your pension for as long as you receive it.
- Continuing benefits: If you die before your spouse (or other beneficiary), your pension can provide them with a monthly income for their lifetime, depending on the pension options you choose at retirement.
- Tax advantages: Although your monthly pension payment is taxable income, those taxes are spread out across your retirement, so they may be assessed at a lower rate. But if you transfer your benefit as a lump sum, a portion of it could be taxed all at once resulting in a large tax bill.
If you have any questions, contact the plan through My Account. And remember to keep your contact details up to date so we can reach you with important information about your plan.