Leaving Your PSPP Employer

Termination of Employment and Your PSPP Benefits

Once you leave your PSPP employer, you are no longer eligible to participate in and make contributions to the PSPP.

It’s important to learn about the PSPP benefit options available to you when you leave your employer. The options depend on your age and whether you are vested or not. When you leave the Plan, PSPP will send you a statement with your options. If you are under age 55, you will receive a Termination Statement. If you are vested and at or over age 55, you will receive a Retirement Statement.

A cheque will be sent automatically if you do not respond to your Termination Statement within 90 days. Your share of contributions plus interest will be paid to you with taxes withheld.

Your PSPP pension is an important financial asset, being a source of retirement income. Therefore, we strongly recommend consulting with a financial expert before making any decisions about your pension. Please remember that once you make your decision, it may not be reversible.

Time-Sensitive Considerations

Leaves of Absence: You have 30 days from the date you leave the Plan to apply to repay contributions for leave service. If you are already paying for a leave of absence, you have 90 days from the date you leave the Plan to complete that purchase.

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 buyback purchase.

In either scenario, if you do not complete the purchase, it will be prorated and only the amount of service you have paid for will be credited.

Combined Pensionable Service (CPS): If you have a CPS relationship, please click here.

Options for Members Who Are Not Vested (Fewer than Two Years of Service)

If you are under 65 and have less than two years of Pensionable Service, you will not be eligible for a pension at retirement. As a non-vested member, you have three options:

  1. Leave Your Contributions Plus Interest with PSPP: This may be the option for you if there is a chance you will be returning to work with your current employer or with another participating PSPP employer. Leaving your pension contributions plus interest in PSPP, where they will stay safe and secure, will allow you to add additional pensionable service to your existing service if you re-join the Plan. Once you reach two years of service, you will be vested and therefore eligible to receive a pension for the rest of your life as early as age 55.
  2. Transfer Your Contributions Plus Interest to Another Pension Plan or RRSP: Continue to grow your pension benefit for your retirement. PSPP has transfer agreements with several other provincial and federal public sector pension plans. If you start working for a new employer who participates in one of those plans, you may be able to transfer your PSPP service to that new plan. Your share of contributions plus interest can also be transferred to a Registered Retirement Savings Plan (RRSP).
  3. Take a Return of Contributions Plus Interest (Receive a Refund): Your share of contributions with interest will be paid to you by cheque or direct deposit, with taxes withheld. If you do not respond to your Termination Statement within 90 days, a cheque will be sent automatically. A T4A will be issued with your payment to show how much additional income you have received and how much tax you have paid. The amount of tax withheld will be based only on the value of this payment. When added to your employment income for the year, you may be required to pay additional tax when you file your income tax return the following year. If you are living outside of Canada when you receive funds from the Plan, the amount withheld will depend on that country’s income tax rates.

Income Tax Withheld from Your Contributions (in Canada)

  • $5,000 or less – 10%
  • More than $5001 up to $15,000 – 20%
  • More than $15,001 – 30%

As a non-vested member, upon receiving your Termination Statement, you will have 90 days to decide on the future of your pension funds. If PSPP does not receive a response from you within this period, your share of pension contributions plus interest will be returned to you, with income taxes withheld.

If you are 65 years or older and employed at the time of your termination, you will qualify for a lifelong pension, even if you are not vested. However, if you are not currently employed with a PSPP employer and have left your contributions plus interest with the Plan, you will receive a return of contributions plus interest upon your 65th birthday.

Options for Vested Members Under Age 55

If you have two or more years of Pensionable Service with PSPP (including CPS or service you’ve purchased or transferred), you are entitled to a lifetime PSPP pension at retirement. As a vested member, you have three options available to you:

  1. Leave Your Pension Benefit with PSPP: If you leave your funds in the Plan, you will be eligible to receive a monthly pension for the rest of your life as early as age 55. If you ever rejoin the Plan, either through the same or another PSPP employer, you will add new pensionable service to what you have already earned and increase the lifetime pension you will receive. When you leave your funds in PSPP until retirement, you become a deferred member. Choosing this option does not prevent you from taking your funds out later, so long as you remove those funds before the age of 55. After you turn 55, your funds will be maintained in the Plan until your retirement.
  2. Transfer Your Pension Benefit to Another Pension Plan: PSPP has transfer agreements with several other provincial and federal public sector pension plans. If you have a CPS relationship with another pension plan, you will not be able to transfer your pension if you are still contributing to the related pension plan.
  3. Take the Commuted Value: The lump sum of your pension when you are vested is known as a commuted value (CV). This is the amount of money that must be set aside today to provide you with a future pension. In most cases, these funds must be transferred to a Locked In Retirement Account (LIRA), a special type of registered retirement savings account designed to hold locked-in pension funds. These funds are then used to provide you with retirement income.

When you take a CV, you have the following options:

  • Transfer your CV to a LIRA and have any non-locked funds such as excess contributions paid as taxable cash.
  • Transfer your CV to a LIRA and have any non-locked funds such as excess contributions transferred to a Registered Retirement Savings Plan (RRSP). For this process, you will need to complete a CRA T1213 Request to Reduce Tax Deductions at Source and send it directly to the CRA. Once the CRA responds back to you in writing, you will need to forward that document to PSPP.

Please note, there are limits to the amount of funds from a pension payout that you are allowed to tax shelter. Your payout may also contain some funds known as tax rule excess that you have to take as taxable cash.

Income Tax Withheld from Your Contributions (in Canada)

  • $5,000 or less – 10%
  • More than $5001 up to $15,000 – 20%
  • More than $15,001 – 30%

A T4A will be issued with your payment to show how much additional income you have received and how much tax you have paid. The amount of tax withheld will be based only on the value of this payment. When added to your employment income for the year, you may be required to pay additional tax when you file your income tax return the following year.

If you are living outside of Canada when you receive funds from the Plan, the amount withheld will depend on that country’s income tax rates.

Transferring Your Pension to a Locked-In Retirement Account (LIRA)

Transferring your commuted value to a LIRA is an important decision that comes with strict rules about how and when the funds within them can be accessed. More details about converting LIRA funds can be found on the Government of Alberta website. Please note that once you transfer your commuted value out of PSPP, you forfeit your entitlement to a lifetime PSPP pension, and this decision cannot be reversed.

Here are the steps to transfer your commuted value to a LIRA:

  1. Set Up a LIRA: You will need to have a LIRA with a bank or financial institution. Your bank or financial institution can assist you with this.
  2. Transfer Funds: PSPP can only transfer locked-in funds to a financial institution that appears on the Alberta Superintendent’s List of Financial Institutions Offering Locked-In Pension Products. PSPP will send the locked-in funds directly to the approved financial institution, not to a third party company.
  3. No Tax Withheld: There is no tax withheld from a transfer to a LIRA.
  4. Use of Funds: All funds transferred to a LIRA and the investment earnings on those funds are typically used to purchase an annuity, such as a Life Income Fund (LIF) or Locked-In Retirement Income Fund (LRIF) that will provide monthly payments from pension commencement to the end of the life of the LIRA holder.

Options for Vested Members Older than Age 55

If you have two or more years of Pensionable Service with PSPP (including CPS or service you’ve purchased or transferred), you are entitled to a lifetime PSPP pension. As a vested member over the age of 55, you have three options available to you:

  1. Start an Immediate PSPP Pension: You are now eligible to start your lifetime PSPP Pension. If you have a CPS relationship, you will not be able to start your pension if you are still contributing to the related plan.
  2. Transfer Your Pension Benefit to Another Pension Plan: PSPP has transfer agreements with several other provincial and federal public sector pension plans. If you have a CPS relationship, you will not be able to start your pension if you are still contributing to the related plan.
  3. Start Your Pension at a Later Date: You can wait and start your pension after you turn 55, but you will have to start your pension before the end of the year in which you turn 71. This is a rule set by the Canada Income Tax Act. If you rejoin the Plan in the meantime, you will add to your pensionable service and increase your pension amount.

Note for Members On or After Their 65th Birthday

If you stop contributing to the Plan on or after your 65th birthday, you are automatically vested and entitled to a lifetime PSPP pension, regardless of your years of service. If you decide to postpone your pension and start working with a PSPP employer and re-join the Plan, you will continue to grow your future PSPP pension benefit.

Please note, as per the Canada Income Tax Act rule, you must start your pension by the end of the year in which you turn 71, even if you continue to work.

Did You Know?

You do not have to terminate your employment with your current PSPP employer to start your pension at age 71. As long as your employer allows you to work past the age of 71, you can start your pension while continuing to work.