Buybacks can increase your pension and may allow you to retire earlier

Pension credit is measured in years and months and determines the value of your pension and eligibility for early retirement. The most common way to increase the value of your pension is by working and contributing to the Public Service Pension Plan (PSPP) to earn pension credit. However, it isn’t the only way.

PSPP members Luis and Sarah both experienced how purchasing pension credit based on periods of eligible past service (known as a buyback) provided them with financial advantages. When you complete a buyback, you increase your pension credit.

There are times in your career that may qualify you to buy back pension credit. Examples include purchasing pension credit based on service with a past employer that contributes to the PSPP, a leave of absence with pay (e.g., pregnancy or parental leave), or even previous work with an employer where you participated in another registered pension plan.

A buyback could mean a higher pension, an earlier retirement date or, for some members, eligibility for insured benefits in retirement. Sarah contacted OPB’s Client Care Centre to discuss her buyback and found out she could retire five years earlier. This had a huge impact on her life.

Timing is a key consideration in buybacks. The longer you wait to purchase a buyback, the more likely the cost will increase. Buybacks are time sensitive, and some types of buybacks have lower costing when you apply within a 24-month window.

In Luis’s case, he decided to move forward with his buyback. After speaking with OPB Advisor Kasia, he learned of the benefits of paying for it through different methods that would benefit him financially. This valuable information helped him make the right decision.

“I am thrilled with what I did, this is a dream come true. Thank you, I can’t express how grateful I am,” said Luis. “In old age I don’t have to worry where money comes from.”

Every member has unique circumstances, so do your research and ask as many questions of OPB as you need to. When it comes to paying for your buyback, there are many flexible payment options. If you decide to purchase your buyback from savings using a personal cheque or through payroll deductions, there are tax benefits because these payments are deductible in the year they are made. The payroll deduction option allows you to spread the cost of your buyback over up to 10 years at a very reasonable interest rate. However, if you use registered funds (e.g., RRSP/LIRA) to purchase your buyback, it will not be eligible for tax deduction because you already received tax deductibility when you contributed to a registered account.

Luis decided on payroll deductions to cover the cost of his buy back. This means that Luis will be able to deduct his pension cost in each year he makes a payment. He learned of this option and its benefits through a one-on-one meeting with an OPB Advisor.

“Initially, I was going to use money in RRSPs to buy back service. I wasn’t aware that buying back the service through payroll deductions would save me so much money,” said Luis. “I anticipate saving thousands of dollars due to tax deductibility.”

Whether you pay for a buyback through payroll deduction or a personal cheque (money that is not already in a registered tax savings account such as an RRSP or LIRA) you may be able to claim these payments as a tax deduction. Your buyback may be limited based on your RRSP contribution room and other considerations such as how you will pay for it. Paying for part or all of your buyback with a cheque or payroll deductions may not always be an option. When you apply for a buyback, we will calculate a Past Service Pension Adjustment (PSPA) to advise you on the impact and assist you with your decision.

OPB helped Luis and Sarah in completing their buybacks and can assist you as well. To apply for a buyback, visit OPB.ca. If you have multiple buyback opportunities, please fill out one application per buyback, and send them to us with the required supporting documents outlined on the second page of the application.

Check out Understanding Your Pension Credit (PDF). Get your first estimate by using our buyback estimator found in e-services under “My Planning.” Our Client Care Centre is also available to assist with any buyback questions.

*Editor’s note, names of members have been changed to protect their privacy.