Pension transfer out considerations
Below are some things to consider before proceeding with a pension transfer out.
As pensions are complex, you may wish to seek the advice of an independent financial advisor before making a final decision. An independent advisor can be a financial planner, an actuary or an accountant you trust to give you impartial advice and who is qualified to do so.
You should also contact the Government of Canada Pension Centre if you have specific questions relating to your situation.
Eligibility
You may be eligible to transfer your Royal Canadian Mounted Police (RCMP) pension to your new employer’s pension plan if all of these apply:
- you are a participant under your new employer's pension plan
- you have ceased to be employed with the RCMP
- your pension entitlement is still held in the RCMP Pension Plan (you have not received a return of contributions or any other pension benefit in respect of the pension benefit to be transferred)
- a Pension Transfer agreement (PTA) has been negotiated between the RCMP and your new employer’s pension plan; refer to the list of Pension transfer agreements
For some PTAs, if you are eligible to apply for a pension benefit with the RCMP Pension Plan (for example, you are entitled to an immediate pension), you may not be able to transfer your RCMP pension to your new pension plan. You need to contact the Government of Canada Pension Centre to determine your ability to transfer your pension through a PTA.
Time limits
You must begin the pension transfer process within the time limits prescribed in the PTA, often within three years of becoming a contributor under your new employer’s pension plan or within three years from the date a PTA is signed; whichever is later. If you don’t begin the process within the time limits, you will not be able to proceed with the pension transfer.
Cost
You should not assume that the pension funds available from the RCMP Pension Plan will be sufficient to purchase the equivalent years of pension service under your new employer’s pension plan. Most pension transfers are not an exact one-for-one in terms of years of service.
The money available to transfer under the pension transfer agreement is based on the actuarial value of your pension. The value reflects your salary, your pension benefit and plan features, such as early retirement options, inflation protection and survivor benefits. Plan differences and actuarial assumptions used by each plan can make the value of your pension vary from plan to plan, which can cause the pension service under one plan to be different from the pension service credited under another. This can result in a shortfall or excess.
Shortfall
If the pension transfer results in you being credited with fewer years of pension service under your new employer’s pension plan than you had under the RCMP Pension Plan, this is called a shortfall. When this happens, your new pension plan will provide you with the option of making an additional payment(s) to buy the difference in pension service under their pension plan.
Example
Your pension benefit with the RCMP was based on 10 years of pension service and upon termination, their actuarial calculation valued your pension benefit at $500,000.
Your new employer’s pension plan then performs their own actuarial calculation and determines that if you were to transfer that $500,000 to their pension plan, you could only add 8 years of pension service under their pension plan. As a result, you would have 2 years less service under their pension plan than you did under the RCMP Pension Plan. You could subsequently elect to make an additional payment(s) to buy those 2 years of service under your new employer’s pension plan, but would be under no obligation to do so.
Excess
If the pension transfer would result in you being credited with more years of pension service under your new employer’s pension plan than you had under the RCMP Pension Plan, the RCMP Pension Plan will only transfer the funds needed to credit you with the equivalent pension service you had under their pension plan. You cannot be credited with more pension service under your new pension plan than you had under the RCMP Pension Plan. When this happens, the RCMP Pension Plan will advise you of any options available for the balance of the funds not transferred, including any tax implications, if applicable.
In addition, when you opt for a pension transfer, you approve the transfer of not only your accumulated pension under the RCMP Pension Plan, but also any amounts payable under the Retirement Compensation Arrangement, if applicable. Most employers outside of the RCMP do not have a Retirement Compensation Arrangement. In this case, the Retirement Compensation Arrangement portion of your pension benefit is paid directly to you, and you must pay income tax on the amount received.
Registered Retirement Savings Plan room implications
Since 1990, employers offering registered pension plans are required to report a Pension Adjustment (PA) for each pension plan member. The PA is the annual estimated value of the lifetime pension you earned, according to a formula established by the Canada Revenue Agency (CRA). Each year, the RCMP reports the PA to the CRA on your T4. The CRA uses the PA to determine your RRSP room in the following year. A PA reduces your RRSP room for the following year.
When you transfer your pension, the total of the PAs reported while you were a member of RCMP Pension Plan is compared to the total of the PAs you would have earned for that transferred pension service under your new employer’s pension plan.
If the total of the PAs reported by the RCMP is less than the total PAs that would have been reported by your new employer for the equivalent amount of pension service, a past service pension adjustment (PSPA) must be certified by the CRA before the transfer can be finalized.
PSPA approval depends on the RRSP room you have available. If you have made maximum RRSP contributions over the years, you may be short of room. Your latest tax return notice of assessment should identify your RRSP contribution room or you can contact your local Canada Revenue Agency office for additional information regarding your situation.
Other
There are other important factors to consider with regards to pension transfers, such as ensuring you understand both pension plans. Below are some questions you should have the answers to for each plan:
- what is the pension benefit formula
- what are the pension options available at different ages and years of service
- when would you be eligible to retire early
- when would you be eligible to retire with an unreduced pension
- is a bridge benefit offered before age 65
- is there inflation protection (indexing)
- is a medical retirement or disability pension available
- what are the survivor and/or child death benefit provisions
- are there other benefits you would lose or gain as a result of the pension transfer (such as retiree health and dental benefits)
Make sure you carefully examine your pension benefit options under the RCMP pension plan and the Pension transfer out administrative process before making a decision to transfer your pension credits.
Refer to the Royal Canadian Mounted Police Pension and Benefits website or contact the Government of Canada Pension Centre for information on the above in the RCMP Pension Plan.