Buying Prior Service

You may increase your future PSPP pension by buying prior service.

Examples of prior service could include:

  • previous employment with your current employer; and
  • previous employment with an employer who participates in another eligible Registered Pension Plan (RPP).

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.

Your payments for prior service are tax deductible within the maximum limits set under federal tax rules.

If you have service or contributions on file with an RPP that doesn't have a transfer agreement with PSPP, or the option to transfer has expired, you may be able to take a lump-sum payout of those funds and buy some or all of that service under PSPP.

More Details About Buying Prior Service

Before you begin this process, there are many factors you will need to consider. We recommend speaking to a financial advisor before deciding to remove your benefit from your previous RPP. However, there are other important considerations which you should keep in mind:

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 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 call 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 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 it Impact My PSPP Pension?

You can estimate how buying prior service might affect your pension by using the online Pension Estimator:

  1. Visit the PSPP Pension Estimator
  2. Click on the button next to "Check here to provide your own service estimate"
  3. Run two pension 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.

Buyback Timelines

If you are buying service you earned in another RPP, your application should not be made until your lump-sum benefit has been removed from your previous RPP. You can speak to your employer for more information on how to apply to buy prior service.

Once you have applied you will be sent a Buyback Proposal which outlines:

  • how buying prior service will affect your PSPP pension;
  • how much it will cost you to buy your prior service;
  • how much prior service you are eligible to buy;
  • how to pay for your prior service; and
  • the deadlines for making your election and payment(s).

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.

Is Purchased Service Treated the Same As Earned Service?

No, there are a couple of key differences. The first is that the salary from your prior service is not normally used in the calculation of your highest average salary.

Secondly, if you leave the Plan before turning 55 and choose to take your funds out of the Plan, your purchased service will not be used to calculate your commuted value. Instead, you will receive a refund of what you paid to buy the service, plus interest. Keep in mind this could result in you no longer being vested in PSPP if you have less than two years of service without the purchased service.

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.

What Are The 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.

Please make sure you 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.

Are There Locking-In Requirements?

This information only applies if you are purchasing service you earned in another RPP: before deciding to remove your benefits, it is 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), 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 your prior service with PSPP, they will be administered in accordance with Alberta locking-in rules.

Time-Sensitive Considerations

Leaves of Absence

You have 30 days from the date you leave the Plan to apply to purchase a leave of absence. 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 your purchase it will be prorated—only the amount of service you have paid for will be credited.

Combined Pensionable Service (CPS) can impact buybacks in these situations as well.