Purchasing service. Getting more out of your pension

Transcription

1 Purchasing service Getting more out of your pension

2 Did you work part-time or on contract for a participating employer before joining the CAAT Pension Plan? Did you have an unpaid leave of absence during your membership in the Plan? If so, you have breaks in your pensionable service. Filling those gaps can increase your pension and could help you retire earlier. Is this pamphlet for you? Did you work for a non-caat Plan employer? The pamphlet Transferring pension service is for you. For pregnancy, adoption and parental leaves, refer to the pamphlet Pregnancy, Adoption or Parental Leave Growing your family. For members who earn more than $160,000 per year, certain Income Tax Act restrictions may apply. Contact the Plan directly for more information. A detailed legal description of the provisions of the Plan can be found in the Plan Text, which can be downloaded from our website. Should the information in this booklet, on our website, or any other source differ from the Plan Text, the Plan Text will govern. Effective September 1, 2018 This pamphlet explains the benefits you may be entitled to under the CAAT RCA.

3 Increase your pension with a service purchase Pensionable service is one of the factors used to calculate your pension. Generally, the more pensionable service you have, the greater your retirement pension will be. By purchasing any past periods of leave or other eligible service, you can increase your pensionable service and reach certain early retirement milestones sooner. Early retirement milestones the dates you become eligible for an unreduced or reduced pension depend in part on your total pensionable service. More pensionable service could mean retiring with an unreduced pension sooner or with a smaller reduction if you choose to retire with a reduced pension. A service purchase now could give you more flexibility when it s time to retire. Only you can decide if a service purchase is a good idea for you, and if it s a cost-effective way to increase your pension. See page 6-7 for a complete list of eligible service. 3

4 Pensionable service in the CAAT Plan When you purchase service, you create a larger lifetime retirement income for yourself from a secure and cost effective source. If there are periods of service you can purchase and you have the available funds, you might find that increasing your guaranteed pension is a good idea. Pensionable service is determined on a work day basis. Full-time members are credited with service for the period they made contributions or purchased service. The service for the year is based on the number of calendar days in a period in respect of which you made basic contributions through payroll deductions (excluding the breaks), divided by 365 (366 in a leap year). To ensure the full service credit, you would have to purchase any break periods. Is a service purchase worth it? What s in it for Kenneth? Kenneth is 46 years old and has 14 years of pensionable service in the Plan. He had two unpaid leaves of absence during the years he s worked for a participating employer. He plans to retire early and he wonders if it s worth it to buy the service in respect of his leaves. Having more service will mean a larger pension for Kenneth when he retires. It will also bring him closer to the unreduced early retirement milestones of the 85 factor (age + pensionable service = 85) or the 60/20 rule (age 60 and 20 years of pensionable service). If he retires early, his bridge benefit will also be larger due to the additional service. 4

5 Kenneth has choices There s a lot for Kenneth to consider before making the decision, including other, immediate uses for his money. He could take the money he would spend on the service purchase and contribute to his RRSP or another kind of savings vehicle. He ll be responsible for investing the money, paying the fees and any ongoing costs. His savings will fluctuate with the markets if the markets are low when he retires, his retirement income will be impacted. If he uses the money to purchase service in the Plan, he will be increasing his already guaranteed stream of lifetime pension payments. There are no fees associated with the CAAT Plan. Kenneth s pension will continue to grow as his pensionable service and earnings increase, and will be paid when he retires at no cost to Kenneth beyond his regular contributions. Kenneth won t have to worry about what markets are doing when he retires and he can plan his retirement with confidence. Kenneth s pension is guaranteed and will be calculated using a formula that is based on his earnings and pensionable service. Kenneth s service purchase is a safe, secure way to ensure higher income at retirement. It may even enable him to retire sooner on an unreduced pension. 5

6 What kinds of service can I purchase? I took time off from work without pay If you were away from work, with your employer s approval, and not paid, you can purchase the unpaid leave of absence. This includes any leave of absence that is a statutory leave defined under the Employment Standards Act, 2002 (ESA). I worked for a CAAT Plan participating employer before I joined the Plan You can purchase any and all time that you worked for a CAAT Plan participating employer before you joined the Plan as a member. This includes any Other Than Regular Full-Time employment. I took time off to care for a newborn or adopted child Pregnancy, adoption and parental leaves can be purchased through regular deductions by your employer from Supplementary Unemployment Benefit (SUB) Plan payments you receive during the leave period. You can also purchase the service when you return to work. Refer to the pamphlet Pregnancy, Adoption or Parental Leave to learn more. I previously left the Plan before vesting and received a refund of my contributions This is called non-vested prior service. When you return to work with a CAAT Plan employer and join the Plan, you can purchase the service from your previous period of membership. I previously left the Plan and received a transfer of the commuted value This is called vested prior service. If you return to work with a CAAT Plan employer and rejoin the Plan, you can purchase the service from your previous period of membership. I left my job and filed a grievance; I have returned to work If, before your grievance was resolved, your contributions were refunded or the commuted value of your pension benefit was transferred out of the Plan, you can reinstate the value of the service by repaying any amounts you received or transferred out when you return to work. The Plan will calculate the 6

7 cost, which will include interest charges. If this cost is more than the current worth of the amount you received, you can make up the difference. Pensionable service for lost time cannot be purchased if the grievance settlement is on a going-forward basis. I was laid off with recall rights and have been recalled While waiting to be recalled, if your contributions were not refunded or you did not transfer the commuted value of your pension benefit out of the plan, you can buy the layoff period as an unpaid leave of absence when you return to work. I had a work stoppage relating to collective bargaining You can purchase the period of work stoppage when you return to work. Time Limits You can choose to make a purchase any time until you leave your job or retire. If you don t meet the original payment deadlines, the cost that you ve been quoted will be recalculated based on your then-current age, earnings and years of pensionable service. Generally, as your age, earnings and years of pensionable service increase, so will the cost of the purchase. 7

8 Making a purchase In the first six months after the end of your break in service (or return to work), the cost of most leaves is based on contributions using the rates in effect at the time the leave occurred. For certain types of leave of absences that are protected under the ESA, the purchase is shared 50/50 between you and your employer if it is purchased within six months of the end of your leave. For all other unpaid leave of absences, you will pay two times your contributions (there is no contribution from your employer) based on the contribution rates in effect at the time of the leave. If you wait longer than six months, the cost of these leaves becomes the higher of the actuarial cost, or the contribution cost, based on contribution rates at the time of purchase. The actuarial cost is the value of the future pension in today s dollars and is based on your age, your current salary, and other assumptions such as long-term interest rates. 8

9 Impact on your RRSP room The Income Tax Act (ITA) sets the limits for tax-sheltered savings that you can accumulate in various types of retirement savings plans. The deemed value of the benefit you earn in the CAAT Plan reduces the amount you are allowed to save in your Registered Retirement Savings Plan (RRSP). Your RRSP contribution room is reduced by your Pension Adjustment (PA) amount, which is the deemed value of the pension benefit you earned in the previous year. When you purchase service earned after 1989, your PA for the years the service occurred has to be retroactively adjusted. This is called a Past Service Pension Adjustment (PSPA). The CAAT Plan obtains approval for a PSPA from the Canada Revenue Agency (CRA). A PSPA ensures that your RRSP room matches what it would have been had you been a contributing member at that time, rather than purchasing the service retroactively. Depending on whether you pay with cash or an RRSP transfer, the treatment of the PSPA is different. If you make the purchase with cash, the full amount of the PSPA is sent to CRA for approval. If you make the payment with an RRSP transfer, the PSPA is offset by the amount of your RRSP payment. If the PSPA is more than $50, it is sent to CRA for approval. PSPAs that are $50 or less can be disregarded. Did you know? The ITA places a maximum on the amount of post-1990 unpaid leaves of absence you can purchase. The total amount is 5 years, plus a maximum of 3 additional years for pregnancy or parental leaves. PAs have been used since A PA calculation or a PSPA is only required when the service to be purchased was earned after Different tax rules apply to purchases of service before Contact the CAAT Pension Plan if this applies to you. 9

10 How do I make a service purchase? Get started online For any service prior to your enrolment date, or leave purchased more than six months from the end of the leave, use the Actuarial Cost Estimator (ACE Tool) on our website to get a ballpark estimate of the cost of your service. Simply input a few pieces of information, such as your current age, current service and salary, and the ACE tool will provide you with an estimate of the cost of purchasing your past service. Once you have an idea of how much a service purchase will cost, you can better determine if you want to go ahead with the process. If you want to proceed, the ACE tool also gives you access to the form you ll need to use to get the required data from your former or current employer. After you ve completed the form and submitted it to the CAAT Plan, we ll calculate the actual cost of the service purchase and send you a formal quote. All other types of service: Your employer s Human Resources department can help you get started. Once you receive the cost of the service purchase from the CAAT Plan you ll be able to make your final purchase decisions. The average time to complete a service purchase is six to nine months. However, the process is complex and there may be delays, so some purchases may take longer to complete. 10

11 Purchasing service in the CAAT Pension Plan could be an important step in your retirement planning. We suggest you seek independent advice from a financial advisor, particularly around the tax implications of any service purchases. For more information, contact us. member@caatpension.on.ca Phone: Tollfree: Fax:

12 250 Yonge Street, Suite 2900 P.O. Box 40 Toronto ON M5B 2L7 Tel Toll Free P-SP E