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This booklet provides important information on buying back credit in
the OPSEU Pension Plan, including: the advantages of buying back
credit, the types of past service that you may be eligible to purchase,
the application process and deadlines, how the costs are calculated
and the available payment options and deadlines.
For eligible members of the OPSEU Pension Plan, purchasing – or “buying back” – credit for past service can be an important way to
increase the value of one’s pension.
Completing a buyback has several important benefits:
- By increasing your credit in the OPSEU Pension Plan, your buyback
will increase your pension when you retire.
Increasing your credit may help you qualify for one of the Plan’s
unreduced early retirement options (Factor 90 and 60/20) – or
help you to qualify sooner.
- Your credit is also used to determine your eligibility for post-retirement
supplementary health, dental and life insurance
benefits provided by the Government of Ontario.
Of course, it is up to you to assess the costs and benefits of buying
back credit based on your own circumstances. As with any important
investment decision, you may wish to discuss your options with an
independent financial advisor before making your choice.
Why we suggest you apply even if you’re
not ready to buy
There are three reasons we suggest you apply to buy credit, even if you decide not to purchase right away:
- First, there is a strict 24-month time limit within which you must
apply to buy back credit. For instance, if you take an unpaid leave
of absence, you’ll have 24 months from the date the leave of absence ended within which you must apply if you want to buy back credit from the leave. If you do not apply within the 24-month window, you lose the opportunity to buy back that credit.
- Delaying your application may cause your cost to increase, because the cost is based on your salary at the time you apply.
- Applying costs you nothing, but buys you time –10 years to decide if and when you wish to complete payments.
Again, even if you decide not to purchase credit, by applying you give yourself a 10-year window within which to make the final decision and to complete buyback payments.
REMEMBER: There are strict time limits for submitting a buyback application. It is your responsibility to ensure that OPTrust receives your buyback application within the Plan’s 24-month deadline.
Why credit matters
A key factor in determining the value of your OPTrust pension is the amount of “credit” you have. Your credit equals the number of years or partial years of employment for which you contribute to the Plan. You also earn credit for periods when your employer contributes on your behalf (e.g., if you qualify for Long Term Income Protection [LTIP] benefits). If you work part-time, your credit – and your contributions – are calculated according to the proportion of full-time hours you work.
If you are eligible, then buying back credit now is an important way to increase your annual pension when you retire. A buyback may also affect your eligibility date under one of the Plan’s early retirement options.
Increasing your pension
The OPSEU Pension Plan is a “defined benefit” plan. This means that you will receive a lifetime pension from OPTrust based on your salary and your years of credit in the Plan. The more credit you have, the larger your pension will be.
CALCULATING YOUR OPTRUST PENSION
Your annual pension is calculated using this formula:
| |
2% |
| times |
your best five-year average annual salary |
| times |
your years of credit in the Plan |
| minus |
Canada Pension Plan (CPP) integration (a reduction at age 65)1 |
So, completing a buyback will increase your annual OPTrust pension when you retire.
How a buyback increases your pension
The following example shows how buying back credit increases your pension.
Joanne has just joined the OPSEU Pension Plan in 2006 at the age of 31 after working in an unclassified position for five years. By buying back credit for this period, she can improve her pension in several ways.
Early retirement
Without her buyback, Joanne will be eligible to retire at age 60 with 29 years of credit, under the Plan’s 60/20 option. If she buys back five years of unclassified service and works for 27 years, she can retire at age 58 under Factor 90. (Age 58 + 32 years of credit = 90.) Completing her buyback will allow Joanne to qualify for an unreduced pension and retire two years earlier.
Buyback cost
Based on her current annual salary of $40,000 and the contribution rate in effect during her unclassified service, it would cost Joanne approximately $7,860 to buy back her five years of unclassified service.
Pension amount
Let’s assume that Joanne’s average annual salary will be $67,000 when she retires. Under OPTrust’s pension formula, her early unreduced pension will equal 2% times her average salary times her years of credit. At age 65, her pension will be reduced for CPP integration.
If Joanne does not buy back her unclassified service and retires at age 60, her annual pension, based on 29 years of credit, would be2:
| ANNUAL PENSION: AGE 60 TO 64 |
ANNUAL PENSION FROM AGE 65 |
| $38,860 |
$30,863 |
If Joanne buys back five years of unclassified service and retires two years earlier at age 58, her annual pension, based on 32 years of credit, will be higher:
| ANNUAL PENSION: AGE 60 TO 64 |
ANNUAL PENSION FROM AGE 65 |
| $42,880 |
$34,056 |
Lifetime pension
Joanne’s buyback will increase her annual pension and allow her to retire with an unreduced pension two years sooner. This will have a big impact on the value of her pension over her lifetime. Let’s assume that Joanne can expect to live to age 83. If she does not buy back her unclassified service and retires at age 60, her total lifetime pension from OPTrust will equal $749,836. If she completes her buyback and retires at 58, her lifetime pension will be $913,165 – an increase of $163,329.
The following table shows how each year of credit increases a member’s annual OPTrust
pension. We’ve shown the pension increase per year of credit purchased, based on
different average annual salaries at retirement. The annual increase is shown both:
i) before age 65, under the Plan’s unreduced early retirement options, and
ii) at age 65 and older, following CPP integration.3
Member’s
Average
Annual Salary |
Years of Credit Purchased |
1 Year |
2 Years |
3 Years |
Annual
Pension Increase |
Annual
Pension Increase |
Annual
Pension
Increase |
Before
Age 65 |
65 & Older |
Before
Age 65 |
65 & Older |
Before
Age 65 |
65 & Older |
$35,000 |
$700 |
$471 |
$1,400 |
$942 |
$2,100 |
$1,412 |
$40,000 |
$800 |
$538 |
$1,600 |
$1076 |
$2,400 |
$1,614 |
$45,000 |
$900 |
$634 |
$1,800 |
$1,269 |
$2,700 |
$1,903 |
$50,000 |
$1,000 |
$734 |
$2,000 |
$1,469 |
$3,000 |
$2,203 |
$55,000 |
$1,100 |
$834 |
$2,200 |
$1,669 |
$3,300 |
$2,503 |
$60,000 |
$1,200 |
$934 |
$2,400 |
$1,869 |
$3,600 |
$2,803 |
$65,000 |
$1,300 |
$1,034 |
$2,600 |
$2,069 |
$3,900 |
$3,103 |
Qualifying for early retirement
The normal retirement age under the OPSEU Pension Plan is 65. Depending on your age and years of credit, you may qualify for one of the Plan's unreduced early retirement options. These include:
| RETIREMENT OPTION |
ELIGIBILITY CRITERIA |
| Factor 90 |
Your age plus years of credit total at least 90 years. |
| 60/20 |
You are at least 60 years old and have at least 20 years of credit. |
Completing a buyback could allow you to qualify for one of these options, or help you qualify sooner.
Post-retirement insured benefits
Depending on your credit in the Plan, you may be eligible for supplementary health, dental and life insurance benefits after you retire. Generally, to qualify, members must receive an OPTrust pension based on at least 10 years of credit, or have 10 years of continuous service with some credit for each year. As a result, buying back credit may help you qualify for these benefits. If you qualify, your spouse and eligible dependents will be covered, too. Note: These benefits are not part of the OPSEU Pension Plan. They are provided separately by the Government of Ontario and may be subject to change in the future.
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