Defined Benefit Pension Plan

Here, we record more information about a defined benefit plan. Your information should be in your pension booklet.
  • The guaranteed period in years. Many pension plans offer a guarantee, where benefits will be paid 100%, usually for 5-15 years, even if you die. If the pensioner has a spouse, that will be paid to them as a continuing pension, otherwise, it is paid to the estate. If there are children but no eligible living spouse, it can be paid out to them as a pension, but it can also be paid out as a lump sum. The TIME MACHINE will pay it out as a lump sum to the estate if there is no spouse (or the spouse pre-deceased the pensioner).
  • After the guarantee period, most pensions will continue to an eligible spouse; the default is usually 60%. You can get more pension if you do not have a spouse or if the spouse signs off on the pension.
  • If the pension was for a previous employment and you are not contributing to the pension plan anymore then simply submit the form. Otherwise you still need to enter your yearly contribution amount to the pension plan (don't include employer contributions). You can get that information from your last pay slip (just annualize the amount). You must also enter the income source that the pension is linked to. That job should have been entered in INCOMES previously, so you can select it.
  • Percent of salary-accrued benefit per year. This is used by the CRA to calculate your Pension Adjustment (PA) which reduces your RRSP room. It comes from your pension formula, and refers to the percentage of your salary, added for every year of service, that you will receive at retirement. If you don't know that, just use the default 2%.
  • Gender of the pensioner and years of service up to the pension statement date are required only to perform commuted value calculations. These will be done if you set the source income to end before the pension begins, or if you set the death of the pensioner before the start of the pension in the TIME MACHINE.

If you leave your job, you might be able to transfer your pension to your new employer, or you might be able to take the commuted value of the pension as a lump sum rather than stay with your current employer's pension plan. There are also less frequently used options. Please discuss your options with your pension plan provider(s) and independent professional advisors before taking any action on your pension. The rules for taking the commuted value, and the amount calculated, differ substantially between pension plans. You must look at the pension plan’s provisions since a commuted value is not always available.

We will nevertheless attempt to get you a gross estimate of the commuted value of the pension now or in the future, along with the transferable portion and the taxable portion. To calculate them we first adjust the amount of the pension by reducing the years of service. The interest rate we use in the calculation is the inflation rate at the date set (which should be close to the average 5-year personal deposit rate used by major banks, and therefore by many pension plans). We use the Annuity 2000 Basic mortality table for the actuarial calculation. We consider if the pension is indexed, but do not consider the value of any survivor guarantees or other features of the pension. The transferable portion is the maximum transfer value imposed by the Income Tax Act. It takes into account the plan member’s age. Anything above the maximum transfer value is taxable as regular income in the year it is received.

Our estimates could be way off. They are only for illustration so do not rely on them. We do not guarantee them. You can instead ask your pension plan provider for that information. The information will be provided, in any case, when your job ends. At that time, you can use the MoneyReady App to crunch the different scenarios. You would run the following scenarios in order, as applicable:


  • Scenario 1. Taking the pension (or transferring it to your new employer).
    • Step 1. In INCOMES, Enter the pension
    • Step 2. Run the TIME MACHINE (all your other data must be complete)
    • Step 3. Save the results to your computer or print them.
  • Scenario 2. Taking the CV in cash:
    • Step 1. In INCOMES, delete the Pension income.
    • Step 2. In INCOMES, enter an "Other Income", with the amount of the taxable portion of the commuted value, with start and end date the day of deposit. Set it to be taxable.
    • Step 3. Enter a LIRA in ACCOUNTS and INVESTMENTS.
    • Step 4. Just set the rate of growth of the Cash investment to the expected rate of growth of the LIRA. You can add planned investments for the account and an asset allocation later if you chose this route. You can deposit the transferable portion of the transferable portion into the Cash investment if the day of the deposit is today or very soon. In that case, you can skip Step 5.
    • Step 5. In AUTOMATIC SAVINGS, enter the amount for the transferable portion of the CV to be deposited to the LIRA you created, with "Other" as the owner, and with start and end date the day of deposit.
    • Step 6. Run the TIME MACHINE (all your other data must be complete)
    • Step 7. Save the results to your computer or print them.
    • Step 8. Compare the results. You may want to do a few runs changing the expected rate of growth of the LIRA, you can get even change that rate over time in RATES/YIELDS/CURRENCIES.
  • Scenario 3. Taking the CV as an annuity. You can potentially buy a "copycat" annuity with the whole commuted value your pension from an insurance company, no tax would be payable upfront, but the payments would be. This is like transferring your pension to another provider, which you could consider if you want a fixed pension, but you do not trust your companie's solvency in later years or you want to lock in a high CV. The "copycat" annuity must by law, match the provisions of the original pension.
    • If you have a quote for such an annuity, enter it in INCOMES as a defined benefit pension, as such an annuity will have the properties of the original pension.
  • Scenario 4. Transfer the pension to an Individual Pension Plan. This option is only available to small business owners.
    • If you set up an IPP enter it in INCOMES as a defined benefit pension.