Edit Defined Benefit Pension Income

Use this page to review and edit all the information for an existing defined benefit pension income.

The income source cannot be changed because defined benefit pensions have calculations and information specific to the pension plan. If this was entered as the wrong income type, delete it and add the appropriate income.

Enter a name that will make the pension easy to recognize. Each income must have a unique name.

Select the pension plan member. A defined benefit pension cannot be Joint.

The TIME MACHINE will automatically apply pension income splitting between spouses when appropriate. The pension payable to a surviving spouse is entered separately below.

The information requested here should be available in your pension booklet, pension statement or from your pension plan provider.

Enter the number of years after the pension begins during which its payments are guaranteed.

Many pension plans guarantee that 100% of the pension will be paid for a specified period, commonly 5 to 15 years, even if the pensioner dies. If the pensioner has a surviving spouse, the payments will continue to the spouse during the guarantee period. Otherwise, the TIME MACHINE will pay the remaining guaranteed amount as a lump sum to the Estate.

After the guarantee period, many pensions continue to pay a percentage of the pension to an eligible surviving spouse. The default is commonly 60%, but you should enter the percentage provided by your pension plan.

Some pension plans offer a higher initial pension if there is no spouse or if the spouse waives the survivor pension. Enter the pension and survivor percentage that apply to the option you intend to use.

Select Contributing to this Defined Benefit pension plan? if you are still employed and making contributions to the plan.

Enter your annual contribution to the pension plan. Include only your own employee contributions, not contributions made by your employer. You can usually find the amount on your most recent pay slip; annualize it if necessary.

Select the salary income linked to the pension. The salary must already have been entered in INCOMES. The TIME MACHINE will use the linked salary and pension information to calculate pension contributions and the Pension Adjustment.

If the pension is from previous employment and you are no longer contributing, leave the contribution selection unchecked. The contribution can remain at zero and the linked salary can remain set to Not contributing.

Enter the percentage of salary that becomes an annual pension benefit for each year of service. This comes from your pension formula and is often close to 2%.

The TIME MACHINE uses this percentage to calculate the Pension Adjustment (PA), which reduces the amount of new RRSP contribution room created by employment income. If you do not know the percentage, use the default of 2% until you can confirm it with your pension plan provider.

The pensioner’s gender, years of service and pension statement date are used only for commuted-value calculations.

Enter the years of service used to calculate the pension amount shown on your pension statement, together with the date of that statement.

You can also enter a present or future date for an illustrative commuted-value estimate. An estimate can be produced only when:

• The pension is linked to a salary income.
• The linked salary is entered in Canadian dollars.
• The estimate date is not earlier than today.
• The estimate date is not later than the pension’s end date.

A commuted-value calculation may be useful if you are considering leaving your employer and taking the pension’s commuted value as a lump sum instead of remaining in the pension plan.

You might instead be able to transfer the pension to a new employer’s pension plan, transfer the eligible portion of its commuted value to a locked-in account, purchase a copycat annuity or, when eligible, transfer it to an Individual Pension Plan. The available choices and their rules vary substantially between pension plans.

For the estimate, the MoneyReady App adjusts the pension amount according to the years of service at the estimate date. The calculation uses the inflation rate at that date as the interest rate and the Annuity 2000 Basic mortality table. It considers whether the pension is indexed, but does not include the value of survivor benefits, guarantee periods or other plan-specific features.

The estimated transferable portion is limited to the maximum transfer value under the Income Tax Act, which depends on the pension plan member’s age. Any estimated commuted value above that maximum is treated as ordinary taxable income in the year it is received.

IMPORTANT: The commuted-value, transferable-portion and taxable-portion estimates are gross illustrative estimates only. They could differ substantially from the amounts calculated by your pension plan and are not guaranteed. Your pension plan provider will provide the applicable options and amounts if your employment ends.

Enter the date on which pension payments begin. The date can be entered as a date, an age or a LIFE EVENT. The resolved date that will be used is shown below the selection.

If the pension has already begun, enter its actual starting date. If it will continue for life, leave the end at its default or select the appropriate death-related LIFE EVENT.

A temporary bridge benefit that ends at age 65 should be entered as a separate income using the Defined benefit bridge pension income source.

Select the currency in which the pension amount is entered. The MoneyReady App will convert the pension to Canadian dollars when required using its currency assumptions.

If the pension is linked to a salary income, the pension will use the currency of that salary.

Enter the gross annual pension before income taxes or other deductions. Do not enter the net amount deposited into your bank account.

Enter only the regular defined benefit pension amount here. Enter any bridge pension as a separate income.

For a pension that starts in the future, you can enter its annual amount in today’s dollars. The MoneyReady App will increase it to the pension’s start date using the applicable inflation assumptions.

If your pension statement already gives the amount that will be paid at the future start date, use the OR Amount/year in FUTURE currency field instead. Use one amount field or the other, not both.

Select Index to inflation once started if the pension will be indexed after payments begin.

The inflation adjustment multiplier controls how much of the inflation rate is applied:

• 1 applies the full inflation rate.
• 0.5 applies half of the inflation rate.
• 2 applies twice the inflation rate.

The additional yearly adjustment is added to the inflation-based increase. If the pension is not indexed, this adjustment becomes its entire annual rate of change. Enter a negative percentage if the pension amount is expected to decrease.

You can enter an optional note of up to 280 characters. The note is for your reference and does not affect the TIME MACHINE calculations.

Your changes will be validated and saved. When the required information has been provided, the MoneyReady App may display illustrative estimates of the pension’s commuted value, transferable portion and taxable portion.