# Public Service Pension Plan Help?



## Lightningdrink (Jul 4, 2018)

Hi all,

I am fortunate to be working with a great employer and have access to the Public Service Pension Plan - which the largest defined benifit pension in Canada, if I am not mistaken.

Now, I have an option to buy back my pension for about 1.5 year when I was working contracts with the government. I started those at age 27 and I am 29 now.

I am undecided if I should do that - since my salary was modest when working in those contracts the buyback is $7,300 for 1.5 years of service.

The formula for a full pension is:

30 years service X .02 X average of five highest years.

However, one can only take a pension at 60 years.

Here are details: Public service pension at a glance - Canada.ca

However, the catch in my mind is that the formula is based on the five highest earning years. Suppose pensions two scenarios.

Scenario 1: 27 - 57 (five highest years 52 - 57)
Scenario 2: 29 - 59 (five higher years 54 - 59)

In this particular field which is related to academia/research, people continue working until well past 60 and I have noticed that the salary correlates very closely to age - because it is set on levels (partially seniority) and steps (number of years at a level). So suppose there is Scenario 3: 40-70. Would not 40-70 produce a higher pension since 65-70 is higher earning than 54-59? I understand that this field is different than most in that older ages seem to only produce a higher salary.

The other caveat is that I personally do want to retire - so I don't particularly want an early retirement date.

So given my particular circumstances, would it make sense to not buy back the pension? The argument for doing it is that you can retire earlier and that it is cheaper to buy back now when the average salary used for the buyback is low, but in my mind the average salary will likely be greater under scenario 2. However, the Public Service Pension plan is one of the better plans so most people are keen to buy back.

Does anyone know more about this? I have one year to make the decision.

I must admit that I am not an expert - but want to make the smart/rational choice.

Any advice and help?

Thanks,
Lightning


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## sags (May 15, 2010)

Buy back the pension time. It will only get more expensive as the years pass until it is too expensive to buy back.

My wife made the mistake of taking the commuted value of her pension when she moved from Saskatchewan to Ontario. She received $12,000 in total.

When the opportunity to buy back the service was introduced decades later she inquired about it but the cost was so prohibitive that it no longer made sense.

She lucked out that when she was ready to retire, the pension plan was offering a special "bridge" benefit and she recovered her lost pension.

Pension plans do change their rules from time to time. The special "bridge" benefit was discontinued for new retirees later.

Bottom line....years of service = amount of benefits. It is a guaranteed fixed income source whenever you do retire.

Check to see if your employer will also be contributing to the past service purchase.


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## sags (May 15, 2010)

For what it is worth........for all the commentary and debate that takes place around DB pensions, commuted values, or whatever.......I have never met anyone who said.....gee, I wish I didn't have a DB pension but lots of people who say they wish they did.


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## habsfan59 (Oct 23, 2012)

I agree with comment that buyback is an excellent "deal". We also did a "buyback" few years ago. As a side note, you can used RRSP to transfer funds from RRSP to pay the buyback: T2033 Direct Transfer Under Subsection 146.3(14.1), 147.5(21) or 146(21), or Paragraph 146(16)(a) or 146.3(2)(e) - Canada.ca


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## jlunfirst (1 mo ago)

I just find it mildly amusing some people think they can take their commuted pension especially if they have worked FTE for 15-35 years...and beat the market. Especially if the pension is indexed already. Yes there are some people who wished they never had a DBP. It depends how old the person.... more promise if one is their early 30's and leaves govn't employer.

I could never forget attending an information session, where 1 employee asking questions was practically panting in anticipation of cashing out her pension.

It wouldn't be frequent, someone was so savvy to double/triple their cashed commuted pension and keep it that way forever. No doubt, someone will chime in and say what a fantastic thing they did. Then they love trading/finances like some folks seem to in this forum. Good for them. 

I'd rather have such public sector pensions like little annuities (plus CPP) and then I can focus other parts of porfolio RRSP, TFSA and non-registered accounts to deal their bumps and dips.


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## HappilyRetired (Nov 14, 2021)

Lightningdrink said:


> However, the catch in my mind is that the formula is based on the five highest earning years. Suppose pensions two scenarios.
> 
> Scenario 1: 27 - 57 (five highest years 52 - 57)
> Scenario 2: 29 - 59 (five higher years 54 - 59)
> ...


How many years of service will you have at 60 years of age when you can retire? 30 years of service is an "unreduced" pension but it maxes out at 35 years. So, a 60% pension with 30 years or 70% with 35 years. If you will have less than 35 years at 60 I'd buy back the 1.5 years.


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## Ricehammer4416 (Jan 6, 2021)

This isn't a debate. Buy it back - you will not regret it in any which way what so ever. Buy it back and buy it back as soon as you can.


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## ian (Jun 18, 2016)

Buy it back. I suspect that the cost is low because interest rates are high.

Besides, you are buying it with pre tax income.


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## Lightningdrink (Jul 4, 2018)

HappilyRetired said:


> How many years of service will you have at 60 years of age when you can retire? 30 years of service is an "unreduced" pension but it maxes out at 35 years. So, a 60% pension with 30 years or 70% with 35 years. If you will have less than 35 years at 60 I'd buy back the 1.5 years.


Thanks for your replies and comments everyone, and thanks to HappilyRetired for noting that the pension is actually 35 years. I appreciate the comments here. The one point I wanted to clarify is that if I don't have intention to retire early is buying back lead to a lower pension amount? The reason being is that buying back would allow full retirement (assuming continue working in the field!) at 62 years. Not buying back would lead to full retirement at 64 years. However, since the pension is based on the highest five years - ending work at 64 would produce a higher pension than 62?

This is the main point, that buying back could lead to a lower pension (so what I suppose)... but this is combined with the fact that I don't want to retire earlier (I realize that people may say this could change but my personality is not really suited for retirement).

Thanks for the great posts though. One advantage I see of doing that is that the time horizon is long enough that things could change. For example, I could have an illness that prevents working or some circumstance that forced early retirement (layoffs - forced out of work etc. - although field is somewhat safe from that).

In which case, having more time in the pension would be better.

Thanks again for the comments everyone. I am still new to figuring pensions out, so I appreciate this.


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## HappilyRetired (Nov 14, 2021)

Lightningdrink said:


> Thanks for your replies and comments everyone, and thanks to HappilyRetired for noting that the pension is actually 35 years. I appreciate the comments here. The one point I wanted to clarify is that if I don't have intention to retire early is buying back lead to a lower pension amount? The reason being is that buying back would allow full retirement (assuming continue working in the field!) at 62 years. Not buying back would lead to full retirement at 64 years. However, since the pension is based on the highest five years - ending work at 64 would produce a higher pension than 62?
> 
> This is the main point, that buying back could lead to a lower pension (so what I suppose)... but this is combined with the fact that I don't want to retire earlier (I realize that people may say this could change but my personality is not really suited for retirement).
> 
> ...


A government job may only have raises of 2% or so. Working 2 years longer will increase your 5-year average by such a small amount that it's not worth it. You're giving up likely the 2 healthiest remaining years in your life for what could be pocket change.

You're 27 now so it's easy to say you'll want to work until 64 instead of 62. I guarantee that you will think differently at 60, even at 50.

I know several people that bought back fed pension years, all of them are glad they did. Some of them waited too long and bought it back a couple years before retirement. My friend bought 5 years at age 53 that gave him 30 years at age 55. Several years ago you could retire at 55 without penalty if you had 30 years. Had he not bought it back he would have had to work until 60 to avoid a pension penalty. He retired at 55, but even if he didn't he had the option to work longer and increase the years of service beyond 30.


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## Spudd (Oct 11, 2011)

A lot of people retire earlier than they planned, due to health problems. You could look at the buyback as buying insurance to let you retire earlier if you need/want to at a later date.


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## m3s (Apr 3, 2010)

Lightningdrink said:


> Now, I have an option to buy back my pension for about 1.5 year when I was working contracts with the government. I started those at age 27 and I am 29 now.
> 
> I am undecided if I should do that - since my salary was modest when working in those contracts the buyback is $7,300 for 1.5 years of service.
> 
> ...


That's a steal imo. They say money can't buy time. You're being offered 2 years for $7.5k

On the other hand you could probably invest that $7.5k and make more than 2 years salary over the next 30 years. So are you willing to trade the opportunity cost of say $100k for 2 years of your life back?

In 10 years you will wonder why you even thought about it for a minute


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## londoncalling (Sep 17, 2011)

If you wanted to scour the forum I posted comments when I was a bit older than you are currently about working to 65 or older. A decade later I am looking at how feasible being able to retire at 55 or sooner will be for us. Consider the expenditure insurance. It is money well spent. If it was a private plan I would caution looking into plan solvency etc but being a public pension the gov't will ensure their is not a pension shortfall for its workers. So far nobody has advised against a buy back or even cautioned on potential downside. If you can afford it, do it. Even if that means delaying other investment opportunities.


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