Thinking about early retirement?
What you need to know about the plan’s reduction rules and the rule of 85 if you’re planning to retire before age 65.
Knowing when to retire takes some mulling over. There are things to consider, such as your five highest years of salary, other investments you may have, the age you’ll collect other government benefits, your health and lifestyle, and your saving and spending habits. Even with all these things to consider, what your monthly pension amount will be is always top of mind.
Will my pension be reduced or unreduced?
Your pension amount is related to your age at retirement and years of contributory service. If you retire at age 65 or older, your whole pension will be unreduced no matter how many years of contributory service you earned. You can also retire with an unreduced pension as early as age 55 if you have 35 years of contributory service.
But what if you want to retire before 65 and don’t have 35 years of service? Here are a few things to keep in mind:
Age 60–64 – If you retire between age 60 and 64, and have at least two years of contributory service, your pension will be unreduced. If you have fewer than two years of service, your pension will be reduced for each year you’re under age 65.
Age 55–59 – If you retire between age 55 and 59, the rule of 85 will apply to service earned before April 1, 2018, and that portion of your pension may be unreduced (the portion from April 1, 2018, onward will be reduced). If the rule of 85 is not met, your pension will be reduced by a percentage for each year you’re under age 60.
Example for service earned on or after April 1, 2018
|Age*||Unreduced pension||Reduced pension|
|65+ (60+)||Any amount of contributory service||N/A|
|60—64 (55—59)||At least 2 years of contributory service||Fewer than 2 years of contributory service|
|55—59 (50—54)||At least 35 years of contributory service||Fewer than 35 years of contributory service|
|* Certain designated occupations have different retirement ages. For correctional employees and certain BC Ambulance Service paramedics, the normal retirement age is 60 and the earliest retirement age is 50. The age rules for these plan members are indicated in brackets in the table.|
What is the rule of 85?
It’s an age-plus-years-of-service calculation that helps determine if your early-retirement pension will be reduced or unreduced.
Under the new rules for BC’s Public Service Pension Plan, the rule of 85 will not apply to contributory service earned April 1, 2018, onward. (See Plan changes 2018 to learn more.)
This doesn’t mean the rule of 85 has disappeared entirely – it still applies to service you earned before April 1, 2018. Also, your total years of contributory service at retirement will be used to calculate whether the rule of 85 applies to your pre-April 1, 2018, service.
How it works
Let’s say you’re planning to retire at age 58 on April 1, 2020, after 27 years contributing to the plan. You have 25 years of contributory service before April 1, 2018, and two years of contributory service after April 1, 2018. All 27 years of contributory service are used to determine if you meet the rule of 85 on your pre-April 1, 2018, service.
Since your age plus total years of service equals 85, there’s no reduction to the 25-year portion of your pension earned before April 1, 2018. The two-year portion of your pension earned on and after April 1, 2018, is reduced by 6.2 per cent for each year you’re under age 60 (in this case two years, making for a total reduction of 12.4 per cent).
It’s important to note, your whole pension isn’t reduced by 12.4 per cent – just the two years that fall under the new rules (April 1, 2018, onward). To put it another way, in this example, only 2/27ths of your pension is reduced.
Final thoughts as you plan for early retirement
Keep in mind, if you only started contributing to the plan on or after April 1, 2018, the rule of 85 won’t apply to you. However, if you earned any service before April 1, 2018, your pension calculation will be based on your pre-April 1, 2018, service and your service April 1, 2018, onward.
There’s a lot to consider when thinking about early retirement. Understanding how your age and years of service affect your pension will help you plan with confidence.