• Last Updated:
  • Jan 10th, 2019 7:33 pm
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[OP]
Member
Apr 19, 2012
216 posts
22 upvotes
GTA

Pension buyback help

Hi,

My wife is a teacher and was on mat leave last year. We now have the option of buying back her pension and I would like to make sure it's the correct choice.

The details of her buyback are as followed:

Cost: 8,071.05

Retirement date without buy back: Nov 30, 2043
Retirement date with buy back: April 30, 2043
Increase in future pension with buyback: $688.78/year

My wife was born in 1988 so that would make her 55 in 2043.

What happens if she wants to work after 2043? Would she just stop contributing to her pension at the point it's maxed out?

If we buyback, would we get a tax refund on it?

If we invest the money now and assume 3% annual return, we would have $16406 (we have room in TFSA) so it would be untaxed. 4% of that is about $656, which is just a tad less then what they are offering but obviously this amounts to more as the money can be passed on and last longer.

I also make more money, am older, don't have a pension and have room in my RRSPs.

To me it just seems to make sense not to buy back but it seems odd... could anyone give me some insight?
10 replies
Penalty Box
User avatar
Jun 24, 2015
2655 posts
575 upvotes
Woodbridge, ON
when you are on mat leave you do not automatically contribute to your pension so you are required to notify your employer and make a lump sum contribution to your plan. when you turn 65, you will be eligible for monthly pension payments from your pension fund, in addition to the CPP pension you will get
Hi
Member
Oct 26, 2003
240 posts
26 upvotes
Ottawa
I believe it's tax deductible. Here is the guide from CRA.

I always look at the net benefit over <n> years. Ignoring the future value of the cost, your wife will be in a net benefit position after about 10 years of pension income, so it's probably worth it.

I just spoke to a former colleague who's buying back 13 years of Nortel service at a cost > $500K. He's 60 years old and working in the federal government. Don't understand his motivation, as I don't see a net benefit for him before at least age 80.
Member
Nov 28, 2017
429 posts
344 upvotes
notsureofitiall wrote:
Jan 9th, 2019 9:19 am
Hi,

My wife is a teacher and was on mat leave last year. We now have the option of buying back her pension and I would like to make sure it's the correct choice.

The details of her buyback are as followed:

Cost: 8,071.05

Retirement date without buy back: Nov 30, 2043
Retirement date with buy back: April 30, 2043
Increase in future pension with buyback: $688.78/year

My wife was born in 1988 so that would make her 55 in 2043.

What happens if she wants to work after 2043? Would she just stop contributing to her pension at the point it's maxed out?

If we buyback, would we get a tax refund on it?

If we invest the money now and assume 3% annual return, we would have $16406 (we have room in TFSA) so it would be untaxed. 4% of that is about $656, which is just a tad less then what they are offering but obviously this amounts to more as the money can be passed on and last longer.

I also make more money, am older, don't have a pension and have room in my RRSPs.

To me it just seems to make sense not to buy back but it seems odd... could anyone give me some insight?
I believe you get a tax deduction but can't say for sure.

If she works past 55, she'll keep contributing to the pension and the benefit level will keep going up. The "retirement date" is the earliest date you can retire without a penalty being applied to your pension benefit. But the pension size still changes with the contributory service, so working more will still increase it.

But there is a bit of a disincentive to keep working in that most pensions also have an additional CPP bridge benefit that they'll pay until you are 65. The closer you work to 65 the more of this you bypass.

If she wants to work past 55, your calculation is basically a micro-annuity question. Would you pay 8k now for 700/year when she retires until she passes?

Can't answer that one for you. That depends on your risk tolerance, life expectancy, overall expected DB benefits , and savings/investments outside of the DB plan. If you want to lock in a higher guaranteed benefit without having to worry about outliving, its a decent idea. If you already will have a good baseline income, and are a fairly confident investor (or she has some big medical risks), you could plausibly do better investing the 8k on your own, and having the flexibility to take/use that money as you will in retirement instead of having it as an annuity.
Deal Addict
Aug 30, 2011
3301 posts
1029 upvotes
Ottawa
Why did this get moved to the Credit Cards sub-forum?
Deal Fanatic
Feb 15, 2006
8283 posts
2561 upvotes
Toronto
Ontario Teacher's pension, for your wife at a young age, with option to buy back. It's a no brainer to buy back. Most people don't have such a rick pension plan. Many people don't have the option to buy back. She's young and the buy back pushes up the retirement date by 7 months. It's a no brainer.

Many people would wish they are in your shoes.
Deal Fanatic
User avatar
Jun 26, 2005
9514 posts
1550 upvotes
Toronto
100% buy back.

I tell all the City workers, you guys are riding on a unicorn.
Deal Addict
Oct 18, 2004
4163 posts
815 upvotes
Wat
Wife is a teacher as well and did buy backs for 3 mat leaves. It just makes sense as it gives her the option to retire at 55 if she had to without penalty. And if she keeps working, it's bonus because she will get 2% more pension for each additional year she works after 55 up to a max of 70%. If I'm not mistaken the 85 factor gives you 60% of the average of your best 5 years salary. So working up to 5 additional years after 55 will get her up to max 70%. After that there is no pension gain to keep working.
Deal Addict
Oct 7, 2011
1050 posts
336 upvotes
Toronto
OTPP is one of the best pension plans. Definitely buy back.
Member
Mar 13, 2012
329 posts
83 upvotes
Sarnia
The OTPP website has info on the tax implications of buying back here.

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