# Pension commuted value down nearly 40k in 6 months - cash out or not?



## Scivias (Dec 18, 2018)

Hi, first off.. I am 33, single, no dependent, worked in the federal government for 5.5 years and went on leave for 3 years. During the leave I racked up $52k in deficiency, which I paid back in full (in hindsight I didn’t have to do that if I had decided to keep my pension with the feds till age 60, as my deficiency amount to pay back has no interest and I can pay back when I’m age 60). Then I started my new job with the provincial govt, I started a pension transfer but was in limbo and unsure what to do, dragged this decision out nearly six months, and when my federal administrator recalculated my commuted value this month she said it’s 40k less that what she quoted me back in June. I still can do a last min opt out and leave the pension with the federal government , or do the transfer to the less desirable provincial plan and take the excess cash (no rrsp and small lira room) and pay a hefty tax on the access amount (excess cash payout calculated in June was $150k but a new calculation shows barely $100k). I’m so conflicted and unsure what to do, does anyone have any tips for me? 

P.s. I was told by transferrring full years of fed service I would be able to retire 3.5 yrs earlier with my current employer. Not sure if this is worth the whole move and paying $$$ on excess amount. Any advice appreciated thank you


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## OnlyMyOpinion (Sep 1, 2013)

Welcome to CMF.
Not a lot of context provided, but based on what you've said it sounds like leaving it with the fed plan makes the most financial sense. I can understand trying to consolidate and/or get some cash out of small pension amount rather than leaving it behind. Just keep track of it over the years - don't forget its there. Eventually you will be a nice little monthly amount from an above-average, secure plan. Some diversity in your retirement income sources is a good thing to have.


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## Scivias (Dec 18, 2018)

OnlyMyOpinion said:


> Welcome to CMF.
> Not a lot of context provided, but based on what you've said it sounds like leaving it with the fed plan makes the most financial sense. I can understand trying to consolidate and/or get some cash out of small pension amount rather than leaving it behind. Just keep track of it over the years - don't forget its there. Eventually you will be a nice little monthly amount from an above-average, secure plan. Some diversity in your retirement income sources is a good thing to have.


I did some rounding in the previous post (didn't include my deficiency payment in the calculation) but here are the actual numbers: I was in limbo about transferring my pension or not, and as I dragged this decision for half a year, I was told that the commuted / transfer value of my federal pension fund (9 years of service) as of June 2018 was $223k, while as of Dec 2018 was $188k (and possibly lower based on actuarial calculation next month, if I do decide to take the commuted value).

The amount required by my current employer's pension (provincial gov) to port 8 years of service (there is 1 year overlap between the time i started with my new employer and when i officially quit my federal job) was calculated to be $72k.

With 8 years of service counted with the new pension plan I was told I can retire 3.5 years early with my current employer (unreduced pension). 

If I keep my federal pension, the monthly amount I would get was calculated as around $1,200 per month as of age 60 - they call this deferred annuity monthly benefit, effective indexing date 2018 January.

If I transfer my old fed DB pension to new prov DB pension, i will have about +/- $115k in excess, about 10% of which I can put into my LIRA, and as of 2017 I had $0 RRSP room (not sure how much i will get for 2018 but i assume not a lot). This additional $100k will, if i understand correctly, be taxed on top of my current salary and investment income (~$100k), so I will be taxed on $200k next year. 

I have just a couple of days to decide and still unsure what to do...

Any feedback would be appreciated, thank you


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## cheech10 (Dec 31, 2010)

It's unlikely that you'll be able to do better than the federal pension on a risk-adjusted basis going forward, fully guaranteed and indexed to inflation. And the additional tax hit for transferring the excess makes the comparison even worse. Another vote for leaving it with the feds plan.


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## Thal81 (Sep 5, 2017)

I'm going to offer some thoughts since like you I have a federal pension, and even though I'm still employed, I've been tracking the commuted value because I intend to leave this job in 2 to 4 years. My commuted value has fallen from $427k to about $375k in the last 6 months, so I know what you're talking about.

You're right that the tax on the excess value will hurt, that $100k excess will be taxed at your marginal rate, so from what you've said about your income, you'll pay 40-45% of that in taxes. Ouch. From the calculations I've done for my case, I know it's possible to beat the differed pension value by investing that money yourself, but it means getting at least average market returns and be disciplined with the investments. Also, it means taking on the investment risk, while the differed pension is essentially guaranteed (the federal pension plan is solid).

Your other option is to transfer the pension to the provincial DB plan. You should do your own research on this, but I've been told that the federal pension is generally better than the provincial ones. Also, the: "you can retire 3.5 years early from your 8 years of fed pension" sounds like crap to me.

So I think your best option is to take the differed pension. $1200/month at 60 years old indexed as of 2018 means you'll never have to worry about rent in your old age. Combined with the prov pension from your new job and your personal investments (which you seem to have plenty of), you'll be a fat cat with no worries in the world.

cheers


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## Scivias (Dec 18, 2018)

Thanks everyone for your input - i am also swaying towards keeping the federal pension but I am kicking myself for making the stupid mistake of scraping up $52k (big sum for me) to make up for the leave buyback when I could have postponed that payment to just before retirement with zero interest! Sigh.... But I guess what is done is done, thank you for your feedback


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## hfp75 (Mar 15, 2018)

Keep the fed pension.....


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## latebuyer (Nov 15, 2015)

It appears bond yields have dropped. Is that what the commuted value is based on?

https://m.investing.com/rates-bonds/canada-5-year-bond-yield

I would keep federal govt pension too, but i'm curious.


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## latebuyer (Nov 15, 2015)

I found this article

https://business.financialpost.com/...might-be-slipping-away-as-interest-rates-rise

It looks like the time to take commuted value has passed.


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## GreatLaker (Mar 23, 2014)

latebuyer said:


> It appears bond yields have dropped. Is that what the commuted value is based on?
> 
> https://m.investing.com/rates-bonds/canada-5-year-bond-yield
> 
> I would keep federal govt pension too, but i'm curious.


Yes, commuted value is based on a mix of 7-year and long-term Government of Canada bond yields. You can find more information in section 3500 of this document:
http://www.cia-ica.ca/docs/default-source/standards/sp030119e.pdf?sfvrsn=0


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## My Own Advisor (Sep 24, 2012)

Another vote for the same reason: "It's unlikely that you'll be able to do better than the federal pension on a risk-adjusted basis going forward, fully guaranteed and indexed to inflation."

DIY or do whatever you need with the rest of your portfolio but I would definitely keep the return liability with the pension. The more, secure, guaranteed fixed-income for your portfolio the better.


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