Lump-sum pension payments
You may be able to receive a lump-sum payment in lieu of a monthly pension. Here's what you need to know about eligibility, tax considerations and more.
You may be eligible to receive a lump-sum payment of your pension. This could apply if:
- You ended your employment with an employer participating in BC's Public Service Pension Plan before your earliest retirement age and are transferring your pension’s commuted value to a registered retirement savings vehicle
- You have an illness or disability that has shortened your life expectancy
- You are a limited member and your former spouse (the plan member) has reached their earliest retirement age
- You are a limited member and your former spouse (the plan member) has removed their funds from the plan
- You are the beneficiary(ies) of a plan member
- The commuted value of your pension benefit is less than 20 per cent of the year’s maximum pensionable earnings in the year you apply for your pension, making you eligible for a small benefit refund
If you are eligible for and choose to receive a lump-sum payment, it will usually be transferred to a locked-in retirement savings vehicle such as a LIRA (locked-in retirement account) or other eligible retirement plan.
The Income Tax Act limits the amount you can transfer to a locked-in
retirement savings vehicle. This means any part of your lump-sum payment over the limit must be taken as a cash payment. Once we receive all required documents, we will send you a cheque for the cash payment portion of the lump-sum payment.
We will deduct income tax from the cash payment portion of the commuted value not transferred to a locked-in retirement savings vehicle. We deduct tax at the following rates for Canadian residents, where applicable:
- 10 per cent for payments of $5,000 or less
- 20 per cent for payments of $5,000.01 to $15,000
- 30 per cent for payments of $15,000.01 or more
If you are not a Canadian resident, 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).
To help you fully understand any of these tax implications, you may wish to speak with an accountant or financial adviser.