Return of Contributions
The only superannuation entitlement available to a terminating employee with less than 2 years of pensionable service. The money the employee contributed to the pension plan is refunded plus accrued interest based on the annual rate of return of the Public Service Pension Fund (PSPF).
Employees retiring at any time at age 60 or over with two or more years of pensionable service; or after having reached age 55 with a minimum of 30 years of pensionable service are entitled to an immediate annuity. An immediate annuity is an unreduced superannuation benefit payable immediately after retirement. The benefit entitlement formula described in the previous section would be used to calculate the annual superannuation benefit entitlement.
Deferred Annuity and Annual Allowance
For employees with a minimum of two years pensionable service retiring prior to age 60 and at or after age 50 (except in cases of age 55 with a minimum of 30 years of pensionable service) the following two superannuation benefit entitlement options are available:
- a deferred annuity which is an unreduced superannuation benefit payable at the age of 60;
- an annual allowance which is a superannuation benefit payable as early as age 50 and subject to a permanent reduction factor.
The calculation used to determine the amount of a deferred annuity is the same as that used for the immediate annuity. Once payable at age 60, the deferred annuity will include accrued indexation adjustments.
There are two ways to calculate the annual allowance, depending how old the employee is and how many years of pensionable service she or he has.
Those who take the allowance before age 60 receive a deferred annuity reduced by 5 per cent for every year under 60, to the nearest one-tenth of a year, on the date when they choose the annual allowance.
An employee who is 54 with 23 years of pensionable service, who opts for an annual allowance, would have their reduction calculated as follows:
60 – 54 = 6 years x 5 p. 100 = 30 p. 100
The annual allowance would be 30 per cent less than the deferred annuity payable at age 60. If the deferred annuity was $31,500, the annual allowance would be $22,050.
Employees with 25 years or more of pensionable service who are 50 or older on the day they leave their job receive a reduced annual allowance too. To determine how much the allowance is reduced, choose the greater of:
- 5% for every year the employee is younger than age 55 - to the nearest one-tenth of a year - at the date of termination of employment or the date the retiree chooses the annual allowance, whichever is later;
- 5% for every year of pensionable service less than 30 years - to the nearest one tenth of a year.
For example, an employee/retiree aged 54 with 27 years of pensionable service, the reduction calculation would be:
55 – 54 = 1 years x 5% = 5%
30 – 27 = 3 years x 5% = 15%
The annual allowance would be equal to the deferred annuity less 15 per cent. If the deferred annuity was $31,500 per annum, the annual allowance would be $26,775.
If the employee is 50 and has 25 years or more of pensionable service on the date of termination of employment, the calculation conducted under formula 1) may provide a greater benefit than under formula 2). In these instances, the retiree receives the greater annual allowance.
For an employee/retiree aged 58 with 26 years of pensionable service, the annual allowance would equal the deferred annuity reduced by:
60 – 58 = 2 years x 5% = 10%
However, under Formula 2, the deferred annuity would be reduced by the following amount:
55 – 58 = -3
30 – 26 = 4 years x 5% = 20%
Formula 2 would reduce the retiree's annual allowance by 20 per cent. But Formula 1 would see her or his allowance reduced by only 10 per cent. The annual allowance is determined using the most beneficial formula.
Employees at least two years pensionable service who resign before age 50 can also receive a deferred annuity at age 60, or an annual allowance payable as early as age 50 and subject to a permanent reduction.
However, these employees can also receive a payout based on the benefits they would have received if they put the lump sum into another locked in pension plan. The lump sum is equivalent to the value of her or his future superannuation benefit entitlements calculated in accordance with actuarial assumptions prescribed under the PSSA. The employee's chosen pension plan must comply the Federal Pension Benefits Standards Act, or they must use the money to buy an annuity from a financial institution. The Income Tax Act limits the amount which can be transferred to a locked-in retirement vehicle without tax. Employees will have to pay tax on any transfer amounts that exceed the limit unless obtain a Tax Waiver Letter from CRA and/or the Ministère du revenu, Québec.
Employees should consider buying back any pensionable service for which they have not made contributions to increase the value of the transfer.
Employees have one year after they leave work to apply for the transfer value benefit.
Note: taking the transfer value option means you will not have access to other post-retirement benefits such as the Public Service Health Care Plan and Pensioners’ Dental Services Plan.
Retirement Due to Disability
Employees with at least 2 years of pensionable service who retire due to disability before they turn 60 receive an immediate annuity.
The PSSA defines “Disability” as a physical or mental impairment that prevents an individual from engaging in any employment for which the individual is reasonably suited by virtue of his or her education, training or experience and that can reasonably be expected to last for the rest of the individual’s life.
To qualify for “medical” retirement on these grounds, Health Canada must certify that the employee satisfies the PSSA definition of “disability”.
Once approved, the contributor receives an annuity based on her or his years of accrued pensionable service.
A retiree entitled to a deferred annuity who becomes disabled is also eligible to apply for an immediate medical retirement annuity.
Should a recipient of a medical retirement annuity be able to return to work, the immediate annuity is discontinued and converted to a deferred annuity payable at age 60 or, if the individual chooses, converted to an annual allowance after age 50.