Taking a leave from work
There may come a time when you need to take a leave of absence from work. You may be starting a family, going back to school, caring for a loved one or taking advantage of an opportunity of a lifetime. The good news is that the PSPP allows you to continue contributing and earning pension credit during your leave, (as long as it doesn’t exceed what is allowed under the federal ITA).
Exactly how leaves affect your pension contributions depends on the type of leave you take and how long you’re off work. If you’re on a paid leave or a unpaid leave of less than 31 days, contributions are mandatory so you don’t need to worry about making any decisions. However, when you take a longer unpaid leave (31 days or more), you have to decide whether you want to contribute for the leave.
It's a good idea to assess your current financial situation when considering how you're going to buy back your pension credit for your unpaid leave. You’ll have the option to purchase some or all of the pension credit at a later time, or you can choose not to pay and you won’t earn pension credit for the period. The decision whether or not to contribute during a leave, or buy back credit relating to a leave, will affect the amount of pension you'll receive and potentially when you can retire. So it's important to consider that decision as part of your current financial plan and retirement planning.
What are my options?
If your unpaid leave is one month or less (i.e. less than 31 days), you and your employer will continue contributing to the Plan. You will continue to earn pension credit in the PSPP as usual, just as if you had stayed at work.
However, if the leave is unpaid and for more than one month (i.e., 31 days or more), you have three options: pay now (contribute during the leave), pay later (purchase the pension credit at a later date) or pay nothing (do not contribute to the Plan).
What are some types of leaves without pay?
Below are some examples of leaves without pay:
- Pregnancy/parental leave
- Special or educational leave
- Family medical leave
- Illness leave (including while receiving WSIB benefits)
- Strike or lock-out (if you are a unionized employee)
Are pregnancy and parental leaves treated differently than other types of leaves?
If you are taking a pregnancy or parental leave, you have the option of continuing your contributions to the Plan. If you continue contributions, your employer is required to match the contributions you make.
If your employer provides a supplementary unemployment benefits (SUB) allowance, contributions will continue if you’ve decided to contribute while on leave.
If you extend your pregnancy and parental leave beyond 18 months, your leave will be reclassified as an unpaid special leave after the 18-month period ends and you’ll be responsible for paying the member and employer contributions.
Does my employer need to let OPB know if I’m planning to take an unpaid leave?
Yes. If your employer approves an unpaid leave of 31 days or more, they will need to report it to us through OPB's Employer Portal. Once received, we'll send you a quote for the cost of contributing during the leave. You’ll then need to determine whether you want to contribute or not.
How do I make contributions while on an unpaid leave?
Once your employer notifies us through OPB's Employer Portal that you have been approved for leave, we will send you an information package letting you know what it will cost you to contribute during the leave, as well as how contributing or not will impact your pension. Once we receive your election, we'll send you a payment schedule. You can then confirm whether this is the right option for you.
If you don't contribute while you're on leave, you can still apply to purchase pension credit at a later point during your leave or when you return to work. You’ll need to complete the OPB 1043 – Application to Purchase Pension Credit (PDF) form and we’ll send you a cost quote. If your leave crosses a calendar year, we’ll send you a revised cost in January.
How much will it cost me to contribute during the leave?
Most leaves are matched by your employer, which means it costs you the same amount to contribute during the leave as it would if you were at work.
For example, taking an employer-matched leave in 2019 would cost:
7.4% of salary to the YMPE (year's maximum pensionable earnings) + 10.5% of salary above the YMPE = contributions
The YMPE is a limit set each year by the federal government to determine CPP contributions. If your salary increases after the leave, it will cost more to purchase the credit at that time, so consider contributing during your leave as it will be more advantageous to you.
However, for some leaves, like special or educational leaves, you are responsible for paying both the member and employer contributions. The exact cost will also depend on how long you’re on leave, your salary when you start the leave and the contribution rates in effect at the time.
Are there any limitations to be aware of?
Yes. The federal ITA limits how much credit you can earn when you’re on a leave of absence. You can contribute to the Plan for up to five years of leaves taken after 1990. You can take up to three more years of pregnancy and parental leaves (maximum of 12 months for each pregnancy or child).
How will contributing during a leave affect my taxes?
If you make contributions while on an approved leave, the contributions you make are tax deductible up to the federal ITA maximum. We will send you a tax receipt for any contributions you make directly to OPB. For more information, you can either contact us or refer to the Canada Revenue Agency.
How long do I have to purchase a leave of absence?
While there is no time limit to purchase a leave of absence, it is typically much less expensive to contribute during the leave or buy it back within 24 months of the end of your leave. That’s because after 24 months, we calculate your cost on an actuarial basis, which means we determine how much it will cost us to fund the additional pension you’re buying. Buying back pension credit based an actuarial cost will likely be more expensive.
Takeaways and advice
Taking a leave is an important personal decision, but it doesn't have to affect your pension. You can still continue building pension credit in the Plan and keep your retirement plan on track. So it's important that you understand how buying back pension credit can affect your retirement income.
If you want to earn pension credit for your leave, consider your personal and financial situation to figure out whether it makes more sense for you to pay now or pay later.
You can’t always predict what’s going to happen in the future, but you can do your best to prepare for it.
If you’re seriously considering taking a leave of absence, start by putting together a household budget that assumes you’re already on leave. What will your cash flow position look like? How much will your contributions be, and how will that impact your lifestyle for you and your family? This will help you when the time comes to make your decision.
When you’re ready to assess your current and future budget, you can book a one-on-one with one of our Client Service Advisors, who are Certified Financial Planners®.
If you're trying to figure out whether or not it makes sense for you to contribute during an upcoming leave, or if you have any general questions about leaves, call us and we can walk you through the process and discuss the impact to your pension so you can make the most informed decision.
For more details about leaves of absence, read Understanding your pension credit (PDF).
For more details on types of leaves, visit the Ministry of Labour website.