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DB pension buy-back

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Dec 19, 2007
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DB pension buy-back

I've posted about this before, but didn't act on it. I realize that I can go to my OMERS rep, but I was hoping for some clarification here prior.

Image

I have blanked out the 3 "$" values...

So I have just under 3 months of service I can buy back for $3600. The first 2 "$" values are the same, there is no dollar amount change between without and with the total purchasable service added. The "Earnings used to determine cost" is ~$4k more than the previous 2 values.

Being able to retire 3 months earlier aside...

Why does the "Annual Pension earned per month of service" box say $120.69 if there is no difference between the with/without pension service? Does that mean the brake even point would be ~30 years of retirement @ 120.69 a year to "get back" to $3600? Or is it 2.92 * 120.69 = $352.41 so about 10 years retirement to brake even. I'm assuming it's the latter, but that doesn't explain why there is no difference in pension with/without the buy back.

Any insight?
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May 11, 2014
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spintheblackcircle wrote: I've posted about this before, but didn't act on it. I realize that I can go to my OMERS rep, but I was hoping for some clarification here prior.

Image

I have blanked out the 3 "$" values...

So I have just under 3 months of service I can buy back for $3600. The first 2 "$" values are the same, there is no dollar amount change between without and with the total purchasable service added. The "Earnings used to determine cost" is ~$4k more than the previous 2 values.

Being able to retire 3 months earlier aside...

Why does the "Annual Pension earned per month of service" box say $120.69 if there is no difference between the with/without pension service? Does that mean the brake even point would be ~30 years of retirement @ 120.69 a year to "get back" to $3600? Or is it 2.92 * 120.69 = $352.41 so about 10 years retirement to brake even. I'm assuming it's the latter, but that doesn't explain why there is no difference in pension with/without the buy back.

Any insight?
I think that box "Annual Pension Earned per month of Service" is referring to the approximated amount of pension you should receive each year after retirement per month of pension contributions, NOT the amount you should receive if you decide to purchase the additional purchasable service.

Essentially, the pension amount shouldn't change even if you purchase the extra because your pension should MAX contributions made at some point. For example, mine you can make up to 35 years of pension contributions, after at which point you make significantly lower contributions to account for higher saleries in later in life. My guess is that you would hit maximum contributions before you retire regardless of whether you purchase the serviceable amount or not if you work at your workplace until 65. Since you would get max pension regardless of if you buy or not, the two $ amounts are the same.

The best thing you can do is ask your benefits officer for clarification. I would buy the service especially if you want increased pension and you know you are switching employers or quitting before you reach max pension contributions, or you want to reach max pension contributions a little bit earlier.
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xgbsSS wrote: I think that box "Annual Pension Earned per month of Service" is referring to the approximated amount of pension you should receive each year after retirement per month of pension contributions, NOT the amount you should receive if you decide to purchase the additional purchasable service.

Essentially, the pension amount shouldn't change even if you purchase the extra because your pension should MAX contributions made at some point. For example, mine you can make up to 35 years of pension contributions, after at which point you make significantly lower contributions to account for higher saleries in later in life. My guess is that you would hit maximum contributions before you retire regardless of whether you purchase the serviceable amount or not if you work at your workplace until 65. Since you would get max pension regardless of if you buy or not, the two $ amounts are the same.

The best thing you can do is ask your benefits officer for clarification. I would buy the service especially if you want increased pension and you know you are switching employers or quitting before you reach max pension contributions, or you want to reach max pension contributions a little bit earlier.
Thanks.

I'll speak to my benefits officer next week.
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Jan 27, 2007
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The buy back will not increase your pension, but will allow you to retire 3 months earlier with the same pension if you are going to hit 35 years.

No where in the OMERS pension calc (2% * years of service * highest 5 years average salary) takes into account how much $ you put in.

The number you are impacting when you buy back is the service number. You can get up to a max of 70% at 35 years of service. If you are going to reach 35 years of service and contine working, it becomes an issue of the cost of the buyback now vs. the cost of 3 months of OMERS desuctions off your cheque in the 3 months before you reach 35 years.

If you arent going to get 35 years, then it becomes a bit harder of a decision as it will impact how much you will get as you wont be at 70%.

3 months is .5% of your highest 5 years. So if you had a $100k salary as your average, your pension would otherwise be $500/year higher if you buy back. Is that amount per year times the number of years you expect to collect is greater than the amount it costs to buy, adjusted for inflation and interest rates, it is better to buy back.

In general if someone is going to reach max pension, IMO I would not buy back. Sure you can retire 3 months earlier with a max pension, but after working so long, whats 3 months? Also, the cost to buy now will probably not be significantly higher than the 3 months of deductions at the end of your career. Further mitigated if you take the amount of the buy back and put it an rrsp or tfsa and withdraw when you retire.
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spintheblackcircle wrote: Thanks.

I'll speak to my benefits officer next week.
They will advise to buy back. They always do.
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Feb 15, 2006
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I'd advise to buy back, always. In may not seem like much now. But in many years, when you look back, and you can retire 3 months early, you'll thank yourself for doing that.

FYI, I did buy back my 3 months (of probationary period) when I had the chance.
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Arrgh wrote: I'd advise to buy back, always. In may not seem like much now. But in many years, when you look back, and you can retire 3 months early, you'll thank yourself for doing that.

FYI, I did buy back my 3 months (of probationary period) when I had the chance.
Depends... If you plan on staying with the employer until retirement anyway, the opportunity cost with that money may be higher especially if you have outstanding debt or bills.
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Oct 19, 2013
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Toronto, ON
Buy it all back if you can.

Payroll will probably give you a few options: 1) direct transfer from your RRSP 2) payroll deduction over a period of years.

I work with a lot of women who are now buying back their MAT leaves years later...most of whom commented they wished they'd just kept contributing while off.

I personally just finished buying back 5 months of service from 1990. It cost $7000+ but it's one less winter I have to work. I've already worked it the time once, I'm not about to work it twice. It did change my retirement date accordingly for my 90 factor. I'm an Ontario civil servant, so not OMERS,
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I am buying back my year of mat leave (about $15,000) and I think it is more than worth it. Working longer may not seem like a big deal now, but around retirement you will be thrilled to be able to leave asap with an unreduced pension.
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Thanks all. I will also likely leave at age 55 (85 factor) with 60% (barring something significant changing).

I'm sure that will affect things as well.
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spintheblackcircle wrote: Thanks all. I will also likely leave at age 55 (85 factor) with 60% (barring something significant changing).

I'm sure that will affect things as well.
If leaving at 55 regardless. I wouldnt buy back.
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Those who don't advise buy back have not stated any good reason. There are lots of good reasons from those who advised buy back.

Most pension plans are not DB these days. Many of those companies that provide DB, are considering converting them to DC. While you still can buy back, for most people it's a good idea to buy back. I'm glad I bought back my 3 months when I had the chance. After that I changed employer and had a reciprocal transfer, after which there is no chance to buy back if I didn't do it before.

When you are young, retirement seems so long in the future. For people nearing retirement age, they all were glad they bought it back before.
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Arrgh wrote: Those who don't advise buy back have not stated any good reason. There are lots of good reasons from those who advised buy back.

Most pension plans are not DB these days. Many of those companies that provide DB, are considering converting them to DC. While you still can buy back, for most people it's a good idea to buy back. I'm glad I bought back my 3 months when I had the chance. After that I changed employer and had a reciprocal transfer, after which there is no chance to buy back if I didn't do it before.

When you are young, retirement seems so long in the future. For people nearing retirement age, they all were glad they bought it back before.
This person has provided the best reason to buy back, do it while you can because DB plans are under attack. If you buy back you protect your right to DB during that time.
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They will credit interest on your contribution while you are in employment.

If you end up leaving job, you will get more than your money back....

It's an investment to buy-back, not an expense.
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Oct 19, 2013
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I'll provide another reason to buy it back using RRSP transfer:

With a DB pension, you don't really need a RRSP (smart to have it as a back up though or a TFSA). But if the RRSP grows too big it becomes a tax bomb rather than a tax shelter. The DB pension income will put you into a decent tax bracket. Converting the RRSP to RRIF may bump you up a few brackets. Transferring some directly from RRSP -> DB Pension helps alleviate this. It also removes the risk for a bit of it: the DB pension guarantees the money you receive upon retirement. If the money was left in the RRSP its open to market gyrations.

That's my 2 cents worth.
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Arrgh wrote: I'd advise to buy back, always. In may not seem like much now. But in many years, when you look back, and you can retire 3 months early, you'll thank yourself for doing that.
I could buy back 8 months of service, but I find as I get closer to retirement, I am more concerned that I'm going to miss working. I have tons of outside interests outside of work, btw.
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Oct 7, 2011
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If you don't plan to retire, no need to buy back.

If you plan to retire, it's a no brainer to buy back.

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