Buying Prior Service
If you have accrued pensionable service with another Registered Pension Plan (RPP), you might be able to increase your future PSPP pension by completing a process known as “Buying Prior Service”.
Examples of prior service with another RPP could include:
- Previous employment with your current employer
- Previous employment with an employer who participates in an eligible RPP
Your employer’s Human Resources department can provide information on which types of past employment are eligible for purchase. You can also contact us if you have any questions about Buying Prior Service.
Your payments for completing a Buying Prior Service transaction are tax-deductible within the maximum limits set under federal tax rules. You can only purchase prior service from a previous RPP to PSPP if you are able to take a payout of your benefits from that plan as a lump sum. You are not eligible to purchase this service until after your funds have been removed from the other plan.
Please note that restrictions apply to the purchase of service from a previous RPP earned before 1992. If you have service earned before 1992, please contact us.
Costs Associated with Buying Prior Service
The cost of prior service is based on the amount of money required today to fund your future pension for that period of service. This is known as an actuarial reserve costing and includes assumptions about potential interest changes over time, as well as your salary, age, and life expectancy.
If you are using funds from another RPP to purchase prior service, the value of the lump-sum benefit you receive from that plan may be less than the cost of buying the equivalent amount of prior service under PSPP. This means that you will not get credit for all of your prior service unless you pay for any resulting shortfall.
If the prior service is from a different employer, we will need information from them. Contact us or your employer’s pay and benefits coordinator for help in determining when this is the case. You can apply to buy a period of prior service through your employer’s pay and benefits coordinator.
Impact of Buying Prior Service on Your PSPP Pension
You can estimate how buying prior service might affect your pension by using the online Pension Estimator and running two separate estimate calculations:
- One with only your current PSPP service
- One that includes your current PSPP service PLUS the prior service
Compare these two estimates to see how buying prior service will impact your PSPP pension. You should also consider the cost of the prior service, the length of time it will take you to pay for the prior service, and how long it will take for the increase in your pension to offset the cost of buying the service. You should also consider the impact that a Past Service Pension Adjustment (PSPA) might have on your RRSP contribution room.
Buying Prior Service: Key Timelines and Considerations
Buyback Timelines
Upon application, you will receive a Buyback Proposal, which outlines:
- How buying prior service will affect your PSPP pension,
- The cost to buy your prior service,
- The amount of prior service you are eligible to buy,
- How to pay for your prior service, and
- The deadlines for making your election and payment(s).
Please note that if a portion of the period you have requested to buy is not eligible for purchase, it will not be included in your Buyback Proposal.
Tax Consequences
For service after 1989, federal tax rules require that you have adequate RRSP room to allow for the certification of the Past Service Pension Adjustment (PSPA) associated with the prior service you are buying. This PSPA represents the value of the increase in your PSPP benefit entitlement, using the Canada Revenue Agency’s (CRA) formula, and will reduce your RRSP contribution room.
It’s important to understand how this PSPA may affect your ability to buy the service and how you can use a transfer from an RRSP or LIRA to reduce or eliminate the PSPA before it is reported to CRA.
Locking-In Requirements
This information applies only if you are purchasing service you earned in another RPP. Before deciding to remove your benefits, it’s important to check with your financial institution to see if the locking-in rules applicable to those benefits will allow your funds to be transferred into PSPP.
In certain situations, benefits paid out from an RPP must remain “locked-in” (within locked-in retirement accounts – LIRAs – or RPPs, etc.) until they are used to fund your retirement. Most RPPs are subject to the locking-in rules of the jurisdiction (i.e. province) in which the benefits are accrued. If those funds are used to buy prior service with PSPP, they will be administered in accordance with Alberta locking-in rules.
Time-Sensitive Considerations
Prior Service Purchases
If you intend to buy prior service, you must submit your application before you leave the Plan. If you are already making prior service payments, you will have 90 days to complete your payments.
If you do not complete your payments, the amount of service will be prorated and credited to reflect the payments that have been made.
Please note that if you are retiring, you must complete any outstanding payments prior to your pension commencement date. If all payments are not made, the service will be prorated and credited to reflect the payments that have been made.
Important Details and FAQs about Buying Service
Am I eligible?
Your employer’s Human Resources area will be able to tell you which types of past employment are eligible for purchase. You can also contact us if you have any questions about buybacks.
You can only purchase your service from a previous Registered Pension Plan (RPP) under PSPP if you are able to take a payout of your benefits from that plan as a lump-sum. You cannot begin purchasing this service until after your funds have been removed from the other plan, so check with us to make sure the service is eligible.
Restrictions apply to the purchase of service from a previous RPP earned before 1992. Please contact us for details.
What will it cost?
The cost of prior service is based on the amount of money required today to fund what your pension will be in the future for that period of service. This is called an actuarial reserve costing, and includes assumptions about potential interest changes over time, as well as your salary, age, and life expectancy.
If you are using funds from another Registered Pension Plan (RPP) to purchase service, the value of the lump-sum benefit you receive from that plan may be less than the cost of buying the equivalent amount of prior service under PSPP. This means that you will not get credit for all of your prior service unless you pay for any resulting shortfall.
Visit our online Buyback Estimator to get an estimate of the cost to buy your prior service. You can apply to buy a period of prior service through your employer’s pay and benefits coordinator.
If the prior service is from a different employer, we will need information from them. Contact us or your employer’s pay and benefits coordinator for help in determining when this is the case.
How will if affect my PSPP Pension?
You can estimate how buying prior service might affect your pension by using the online Pension Estimator. Click on the button next to “Check here to provide your own service estimate” and run two pension estimate calculations. Run the first using only your current PSPP service and another that includes your current PSPP service PLUS the prior service.
Compare these two estimates to see how buying prior service will impact your PSPP pension. You should also consider the cost of the prior service, the length of time it will take you to pay for the prior service, and how long it will take for the increase in your pension to offset the cost of buying the service. You should also consider the impact that a Past Service Pension Adjustment (PSPA) might have on your RRSP contribution room.Can I change my mind?
Removing your Pension benefit from your previous plan may be an irrevocable decision. You may want to check the rules of your previous RPP.
If you no longer wish to pay for the full amount, you can prorate your service and purchase only a portion instead of the full amount.