# Pension buyback



## summer (Jul 7, 2011)

I can buy back about 7-8 months of a waiting period from my employer (before I started in the pension).
Cost is $5100.
It would retire at the same age but I would get $80 more monthly in my pension.

FYI I am 36yrs old.

Is this worth buying? Seems like alot of money for such a small payback.


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## OhGreatGuru (May 24, 2009)

5100/80=63.75 months = 5.3125 years.

So, if you plan to collect your pension for more than 5.3125 years you are money ahead, ignoring the future value of the $5100.

To do a proper calculation of the cost you should probably calculate the future value of that $5100. In all probablity the benefit (increase in your pension) 20-25 years from now will be more than that $80. So to be fair you should project what that increase will be, but trying to project it can be difficult.


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## Baccalieu (Nov 9, 2011)

That $5,100 should be tax deductible. Even at the lowest tax bracket the net payout would be less than $4,000.


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## steve41 (Apr 18, 2009)

I gave you a 50K salary indexed at 2%, retiring at 65 with a $30K pension, indexed, not integrated with CPP. And a $100K RRSP currently saved. (5% ror, 2% inflation, living in BC, dying broke at 95 )

The result of buying the pension came within a few dollars annually-after tax. (a toss-up)


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## Daniel A. (Mar 20, 2011)

In a toss up situation I would take it, the extra service time credited could have meaning down the road.
There are situations out there where employers offer buyouts to employees based on service years & pension years = .


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## Baccalieu (Nov 9, 2011)

Daniel A. said:


> In a toss up situation I would take it, the extra service time credited could have meaning down the road.
> There are situations out there where employers offer buyouts to employees based on service years & pension years = .


Good point. My wife did that at age 55 to get in on a buyout. 
She bought back 14 years for $287 per month. Was really a good deal as she qualified for a 22 year pension and it gave 
her a yearly $3400 tax deduction for 15 years.


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## summer (Jul 7, 2011)

I will be buying this buy back with cash.
I want to be sure it's tax deductible though. This is what the website said: (but I dont understand the last paragraph)




Tax Implications of Buyback

Depending on when the service occurred, the Income Tax Act will dictate whether you can pay for your past service in cash or using registered funds. HOOPP will tell you which is required if you ask us for a buyback quote.

If you pay for your buyback with cash, you'll receive a past service pension adjustment (PSPA) which must be certified by the Canada Revenue Agency (CRA). The PSPA will reduce your RRSP contribution room. In some cases, CRA may require you to withdraw RRSP funds before you can make a purchase. Such decisions are up to you. You may choose to buy less service rather than withdrawing registered funds. Most buyback payments made in cash are tax-deductible.

If you pay for your buyback using registered funds – such as funds transferred from a registered retirement savings plan, the payment is not tax deductible.

It's also important to note that, in accordance with the Income Tax Act, in order for your regular RCA contributions to be tax deductible they cannot exceed those made by your employer on your behalf in a given tax year. Further, the Canada Revenue Agency (CRA) considers funds used to complete an RCA buyback as a contribution made by you. Therefore completing a RCA-related buyback may render your regular RCA contributions ineligible for a tax deduction in the year of the purchase. Please contact HOOPP if you have any questions.


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