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Commuted value transferThe “commuted value” of your pension is
the current lump-sum dollar value of your future (deferred) pension
benefit. In other words, it is the amount that you would have to invest
– starting from your date of termination and based on an assumed
interest rate – to purchase a lifetime pension equal in value to your
deferred OPTrust pension.
Once you terminate your employment, you may have the option of
transferring the commuted value of your deferred pension from OPTrust to
a locked-in retirement arrangement.
To be eligible for a commuted value transfer, you must:
- be vested
- be younger than age 55, and
- not be entitled to an early unreduced pension such as Factor 90.
IMPORTANT: If you transfer the commuted value of your pension out of the
Plan, your future retirement income will be based on the market
performance of the investments you choose. This option may be attractive
if you want greater control over your retirement savings and are
prepared to assume the individual investment risk.
If you choose to take a commuted value transfer, you will not be
eligible for the insured benefits coverage provided by the Government of
Ontario once you retire. The commuted value does not include the cost of
providing these benefits. |
DETERMINING THE COMMUTED VALUE
The commuted value of your deferred pension is based on your credit and
average salary, plus factors such as your age and your spouse’s age.
Because the OPSEU Pension Plan provides benefits such as inflation
protection and survivor benefits, the commuted value is calculated
taking all these factors into consideration. The calculation also
reflects the interest rate and inflation assumptions in effect at the
time you transfer the commuted value out of the Plan.
EXAMPLE: Sanjay’s Commuted Value
Sanjay is leaving his job to move out of the province. He has 8 years of
credit in the Plan and an average annual salary of $42,000. Sanjay is 35
years old and is married. Based on his credit and salary, Sanjay is
entitled to a deferred annual pension of $4,705 (after CPP integration),
starting at age 65.
He can also choose to start receiving a reduced pension as early as age
55. The commuted value that Sanjay can transfer to a locked-in
retirement arrangement equals $30,183. |
COMMUTED VALUE TRANSFER OPTIONS
Ontario pension law requires that the commuted value must be transferred
to a locked-in retirement arrangement. You cannot withdraw this money
until you reach age 55 – the earliest retirement age under the OPSEU
Pension Plan.
If you are eligible, you have the option of transferring the commuted
value of your pension to one of the following locked-in retirement
arrangements.
Locked-in Retirement Account (LIRA): A LIRA (or locked-in RRSP) is a
vehicle for managing your retirement savings. If you transfer your funds
to a LIRA, you will have to covert them to a form of retirement income
between the ages of 55 and 69. Your options will include transferring
your funds to a LIF or an LRIF, or purchasing an annuity.
Life Income Fund (LIF): If you are 53 or 54 years old at termination,
you have the option of transferring your commuted value directly into a LIF. Unlike a LIRA, a LIF allows you to make withdrawals from the fund
within predetermined limits, starting at age 55. Once you reach age 80,
you will be required to use the money remaining in your LIF to purchase
a life annuity.
Locked-in Retirement Income Fund (LRIF): A LRIF is similar to a LIF, but
has the additional flexibility in that it can be maintained throughout
your entire lifetime. There is no requirement to convert it to a life
annuity at age 80. LRIFs are usually chosen by people who want to
continue actively managing their financial affairs.
Life Annuity: A life annuity is a financial arrangement with an
insurance company in which you purchase a guaranteed lifetime income for
you and your spouse. You can either use the commuted value of your
pension to buy a deferred annuity to start after age 55, or transfer it
to a LIRA and purchase the annuity at a later date.
The amount of your monthly income from the annuity will depend on a
number of variables including: your age and sex, the age and sex of your
spouse (if applicable), the amount of your commuted value or LIRA, and
interest rates at the time of the purchase. If you buy an annuity with
inflation protection or additional survivor benefits, this will also
increase the cost. For more information on annuities, contact a
reputable life insurance company.
For more information, see the OPTrust fact sheet Deferred Pension or
Commuted Value Transfer, available on the OPTrust Web site (www.optrust.com)
or by contacting us directly.
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