Personal Finance

Commuted Value : Contributions

  • Last Updated:
  • Jul 10th, 2020 4:47 pm
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[OP]
Penalty Box
Dec 26, 2013
523 posts
170 upvotes
Ottawa

Commuted Value : Contributions

This isn't meant to be a commuted value vs deferred pension thread, OMERS eliminating indexing and pre retirement subsidies on any post 2012 credited service made this choice easy for me. In Feb, OMERS offered a termination commuted value of $186k on $144k of combined contributions plus interest. Im curious is the commuted value usually more than the contributions? Has anyone ever compared their CV to combined contributions with interest?
3 replies
Deal Fanatic
User avatar
May 11, 2014
5626 posts
7519 upvotes
Rankin Inlet, NU
Yes, in general, commuted values will almost always be higher than contributions. The reason is that the benefit they need to pay you out is worth more than the contributions. Especially these days with interest rates so low, to be able to pay out the same amount of benefits, a pension plan has to invest more money to cover those benefits.

Think of commuted value as similar to the cost of an annuity at an insurance company for you to get the same value as your pension benefit would be.

This is why the older you are and the lower the interest rate, the higher the commuted value because in a situation where you would buy the same as an annuity, you need more money to invest to get the same guaranteed benefit if there is less years for it to grow (when you are older) and when it earns less interest (because interest rates are lower).
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Deal Addict
Jan 12, 2017
1633 posts
962 upvotes
To be honest, that commuted value seems really low given your contribution value.

Also, I believe part 2012 indexing is conditional rather than eliminated (really odd setup - from what I read, it seems conditional means full indexing, but only 'when they have the money')
wilyam wrote: This isn't meant to be a commuted value vs deferred pension thread, OMERS eliminating indexing and pre retirement subsidies on any post 2012 credited service made this choice easy for me. In Feb, OMERS offered a termination commuted value of $186k on $144k of combined contributions plus interest. Im curious is the commuted value usually more than the contributions? Has anyone ever compared their CV to combined contributions with interest?
[OP]
Penalty Box
Dec 26, 2013
523 posts
170 upvotes
Ottawa
From the OMERS site:

Starting January 1, 2013, benefit calculation changes will affect you if you leave your OMERS employer before your early retirement birthday.

The benefit based on pre-2013 credited service includes pre-retirement indexing (inflation protection) and early retirement subsidies (including the OMERS Plan bridge benefit).

The benefit based on post-2012 credited service does not include pre-retirement indexing or early retirement subsidies.


https://omers.com/Members/See-How-Life- ... en_Leaving

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