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Last revised: February 2004
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Thinking of a career in management? Wondering what will happen to your
pension if you move? Or perhaps, you’re competing for an OPSEU bargaining
unit position but considering whether or not to take it. As you move between
jobs over your career, one important consideration is what happens to your
pension. Whether you’ve just started working or are nearing retirement,
career changes may affect the amount of your pension and when you can
retire.
If you are moving to a bargaining unit position, management position or an
excluded position, there are several factors to consider concerning your
pension and your career in the Ontario Public Service (OPS). For example
your best five-year average salary rate is one factor used in calculating
your pension. You should therefore consider the impact of a salary change on
the value of your future pension and where it fits in your financial and
retirement plans.
A change in your bargaining unit status may also mean a change in your
pension plan membership – from the OPSEU Pension Plan to the Public Service
Pension Plan (PSPP), or vice versa. For members who move from one plan to
another, many important questions may arise: Will I receive the same credit
in the new plan? Are there additional costs when I transfer my service? When
can I retire? Will the pension paid to my survivor be affected? Is my
pension secure if I move to a new plan?
This Fact Sheet provides important information for OPS employees who are
considering a new career opportunity within the OPS and the implications of
moving to a new pension plan. As well, it provides key information and
examples to assist you in making an informed decision. If you do not work in
the OPS, similar principles apply but you should contact OPTrust to discuss
your circumstances.
Background
The OPSEU Pension Trust (OPTrust) administers the pension plan for the OPSEU
bargaining units in the OPS and certain provincial agencies, boards, and
commissions and for the OLBEU bargaining unit at the Liquor Control Board of
Ontario. The Ontario Pension Board (OPB) administers the Public Service
Pension (PSPP), which covers management and excluded positions with these
employers, as well as employees in certain associations or agencies.
The PSPP and the OPSEU Pension Plan have been administered separately since
1995. Until December 1999, the benefits provided by the OPSEU Pension Plan
and the PSPP were identical. However, funding gains in the OPSEU
Pension Plan were used to make permanent improvements to OPTrust’s
retirement and survivor benefits. As a result, service with the OPSEU
Pension Plan now has a greater pension value than the same service under the
PSPP.
OPTrust members who leave an OPSEU or OLBEU bargaining unit position for a
management/excluded/association position cease being members of the OPSEU
Pension Plan and enroll in the PSPP. Similarly, employees who move into a
position in one of these bargaining units stop contributing to the PSPP and
join the OPSEU Pension Plan.
Transferring Your Pension to the OPB
When a member moves from the bargaining unit to a management/excluded
position with no break in service or termination of employment, this
triggers a mandatory transfer of his or her credit from the OPSEU Pension
Plan to the PSPP. Changing branches or ministries within the OPS does
trigger a mandatory transfer since you are still employed by the OPS. This
is because the employer, the Province of Ontario, remains the same, even
though you are in a different ministry.
Because of improvements to the OPSEU Pension Plan made in 1999 and again in
2002, the same period of service has a higher value under the OPSEU Pension
Plan than under the PSPP. As a result, the member will receive full credit
in the PSPP for his or her accrued service with OPTrust. In some
cases, the former member who is transferring his or her pension may also be
eligible for a refund from OPTrust.
In the past, refunds were payable if the OPTrust transfer value or the
commuted value (CV) exceeded the amount required by the PSPP to provide
credit for the member’s full service. The refund amount was based on either
the CV or the transfer value – whichever was higher.
Due to a recent Plan amendment, excess refunds will be paid only if the CV
is higher than the amount required by the PSPP. If the OPTrust transfer
value exceeds this amount but the CV does not, a refund will no longer be
paid.
OPTrust to OPB transfer examples
Let’s look at some examples to see the impact on different members based on
their various life stages. For example, a younger member – who has just
started his or her career in the OPS – would have a smaller pension value at
the time of his or her career change. But a member nearing retirement would
have a significantly larger pension value and would need to consider the
impact of transferring to a new pension plan so close to retirement.
The following examples illustrate the difference in pension value for the
same service in both the OPSEU Pension Plan and the Public Service Pension
Plan.
| EXAMPLE ONE Anna has taken a new job in the
OPS in a position that is part of the AMAPCEO bargaining unit. At the
time of her transfer, she:
- is 25 years old
- has 3 years of credit in the OPSEU Pension Plan
- has an annual salary of $35,000
- is single
The transfer value of Anna’s OPTrust pension is $11,200. The cost of the
same service in the PSPP is $10,900. As a result, Anna will receive full
credit for her service in the PSPP.
For Anna the difference in pension value between the two plans is
relatively small. By moving to a position outside of the OPSEU
bargaining unit, Anna will be contributing to the PSPP but likely at a
higher salary rate than if she stayed in the OPSEU Pension Plan. The
value of Anna’s pension will likely increase at a higher rate based on
her new average annual salary in the new plan and over time, given her
age, she may have more promotional increases. |
EXAMPLE TWO
Pierre has taken a new job as a manager in his ministry. At the time of
transfer, he:
- is 35 years old
- has 10 years of credit in the OPSEU Pension Plan
- has an annual salary of $40,000
- is single
The transfer value of Pierre’s OPTrust pension is $51,800. The cost of
the same service in the PSPP
is $49,700. As a result, Pierre will receive full credit for his service
in the PSPP. |
EXAMPLE THREE
Marisol was offered a new job as a director in a different ministry. At
the time of transfer, she:
- is 45 years old
- has 15 years of credit in the OPSEU Pension Plan
- has an annual salary of $50,000
- is married
The transfer value of Marisol’s OPTrust pension is $116,900. The cost of
the same service in the PSPP is $112,600. As a result, Marisol will
receive full credit for her service in the PSPP.
Before accepting her new position, Marisol will need to weigh the
decrease in the value of her earned pension with other factors that
could increase the value of her pension in future years such as an
increase in her take home pay and an increase in her average salary for
pension purposes under her new plan. |
EXAMPLE FOUR
Carlos is considering a new job as a managing director in another
location in his ministry. At the time of transfer, he:
- is 55 years old
- has 23 years of credit in the OPSEU Pension Plan
- has an annual salary of $55,000
- is married
The transfer value of Carlos’ OPTrust pension is $252,900. The cost of
the same service in the PSPP is $243,900. As a result, Carlos will
receive full credit for his service in the PSPP. With 23 years of
credit, Carlos would be eligible to retire in one year on a Factor 80
provision at OPTrust if he stayed in his current position.
Although not reflected in the transfer value, the value of Carlos’ early
unreduced pension would be significantly higher in the OPSEU Pension
Plan than if he retired under the PSPP. This is because he could retire
with an unreduced Factor 80 pension at OPTrust but not at the PSPP.
While his salary would increase in his new role, the value of his
pension would be lower in the PSPP if he were to retire on the same
date. Before making a decision, Carlos needs to weigh the increase in
salary against the decrease in pension he would receive at retirement
from the PSPP. However, if Carlos does not plan to retire until age 60
and his salary prospects are more promising, he may have a higher
pension at age 60. |
Transferring Your Pension to OPTrust
The difference between the two plans also comes into play when a member of
the PSPP transfers into the OPSEU Pension Plan. In this case, the transfer
value of the member’s service with the PSPP is not enough to pay for the
higher pension provided by OPTrust. As a result, the member has the option
of receiving a reduced amount of credit in the OPSEU Pension Plan or
purchasing the difference in pension value.
Benefits of purchasing the difference in pension value
Depending on your personal circumstances, purchasing the difference in
pension value may seem like an expensive option. But there are several
important benefits for a member who decides to purchase this credit.
Because both OPTrust’s pension formula and eligibility for early retirement
depend on the amount of pension credit, the additional credit:
- will increase the amount of your pension at retirement
- may qualify you for early retirement
- may qualify you for retirement at an earlier time
If you decide not purchase the additional credit to receive the same pension
value, the reduction in credit could affect your eligibility date for early
retirement under OPTrust’s Factor 80, Factor 90 or
60/20 provisions.
Another important factor to consider is insured benefits. OPTrust provides
insured benefits for eligible pensioners who have 10 years of credit in the
Plan or 10 years of continuous employment with some credit for each year.
Insured benefits include coverage for: dental, supplementary health and
hospital and basic life insurance. By not purchasing the difference in
pension value it may affect your eligibility to receive insured benefits.
An additional factor to consider is survivor benefits. When an OPTrust
member dies, his or her eligible spouse is entitled to all survivor
benefits, which is 60% of the member’s pension. The higher the member’s
pension is, the higher the survivor pension will be. The member also has the
option to increase the survivor’s benefits in increments of 5%.
Of course, each member must assess the cost and benefit of purchasing this
additional credit for his or her own situation. Some decisions may require
the help of an independent financial advisor and should be discussed with
your family.
Buying Back Past Service
Both OPTrust and OPB plan members have the option to buyback periods of past
eligible service (e.g. unclassified service, unpaid leaves of absence)
within each plan. But the buyback payment time limit differs between the two
plans.
In the OPSEU Pension Plan, this period starts on the date OPTrust mails an
agreement form. When a member joins the Plan, he or she has 24 months from
his or her membership date, to submit an application to purchase past
service. An OPTrust member has up to 10 years and three months to complete
his or her buyback payment. This option gives the member up to 10 years and
3 months to complete his or her buyback, if necessary. For longer periods of
service, this is a key benefit as the costs could be quite high.
Under the Public Services Pension Plan, a member has up to 24 months to
apply for and complete a his or her buyback payment. This period starts on
the date the member joins the PSPP. While the member has the option to
purchase past service credit, the time frame is much shorter.
OPB to OPTrust transfer examples
Using the same information from the previous examples, let’s look at some
examples of members who have moved from a management/excluded/ association
position or considering a new bargaining unit position. While there may be
salary decreases for some members, the impact of transferring their pension
to OPTrust may result in a higher pension value at retirement.
EXAMPLE ONE:
Hortense has taken a bargaining unit position after holding an excluded
position for the past three years. At the time of transfer, she:
- is 25 years old
- has 3 years of credit in the Public Service Pension Plan
- has an annual salary of $35,000
- is single
The value of Hortense’s OPB pension is $10,900 when she transfers to
OPTrust. The cost of the same service with OPTrust is $11,200. The
difference in pension value is $300. Hortense has the option of buying back
the difference in service at a cost of $300 to receive full pension credit.
If Hortense chooses not to purchase the difference in service her credit in
the Plan will be reduced by one month for her previous service with the PSPP.
Even though Hortense is a younger member, if she decides to move to OPTrust,
this will delay her eligibility for early retirement. |
EXAMPLE TWO
Antoine has returned to a bargaining unit position after several years in
the PSPP. At the time of transfer, he:
- is 35 years old
- has 10 years of credit in the Public Service Pension Plan
- has an annual salary of $40,000
- is single
The value of Antoine’s OPB pension is $49,700 at the time he transfers his
service. The cost of the same service with OPTrust is $51,800. As a result,
Antoine would have to pay an additional $2,100 to receive the same 10 years
of service with OPTrust.
For Antoine it might be a good idea to purchase the difference in pension
value, because he may be able to retire at an earlier date with an unreduced
pension. If Antoine decides not to make the purchase, his credit would be
reduced by 5 months and he would have to have 10 years credit for insured
benefits. He would have to work 5 more months to reach this 10-year point.
|
EXAMPLE THREE
Ming has taken a job as a team leader with a new ministry. At the time of
transfer, she:
- is 45 years old
- has 15 years of credit in the Public Service Pension Plan
- has an annual salary of $50,000
- is married
The value of Ming's OPB pension is $112,600 at the time she transfers her
service. The cost of the same service in the Plan is $116,900. Ming
therefore has the option of buying back the difference in pension value at a
cost of $4,300 or not making this purchase and being credited with less
service with OPTrust. If Ming decides not to make the purchase, her credit
would be reduced by 7 months. Eligibility for early retirement would be
affected. |
EXAMPLE FOUR:
Luigi has taken a bargaining unit position. At the time of transfer, he:
- is 55 years old
- has 23 years of credit in the Public Service Pension Plan
- has an annual salary of $55,000
- is married
The value of Luigi OPB pension is $243,900. The cost of the same service in
the Plan is $252,900. As a result, Luigi would have to pay an amount of
$9,000 to receive the same service with OPTrust.
Since Luigi could retire in five years on 60/20 option (Age 60 + 20 years of
credit or more), if he purchased the difference in service he would receive
a significantly higher pension at retirement. But if Luigi decides not to
purchase the service, his credit would be reduced by 10 months and this
could affect the amount of pension when he retires. It would also affect his
spouse’s survivor pension, as it would be lower than if this service was
purchased. |
Payment options and timelines
For members who join the OPSEU Pension Plan and decide to purchase the full
credit available, there are a number of payment options that may be
available, depending on the member’s circumstances and the cost of their
purchase. Members have the option to pay by lump-sum payment, by payroll
deduction (for amounts over $500 and subject to minimum deduction amounts),
through a combination of lump sum and payroll deductions, or with a transfer
from a RRSP.
OPTrust sets out strict time limits for applying to purchase credit when
transferring service. To be eligible, you must submit your Application for
Past Service Credit to OPTrust within 24 months of the date you become a
member of the Plan.
As mentioned earlier, once you have applied within the 24-month window, you
can take up to 10 years to complete your purchase, provided you are eligible
to buyback the service in question. The 10-year payment period starts 90
days from the date that OPTrust mails you your Agreement to Purchase Credit.
This period cannot be extended. For more information, refer to our booklet
Your Pension and Buying Back Credit.
What are the tax implications?
Payments to OPTrust, either by lump sum payments, or by payroll deductions
may be deductible from the member’s taxable income in the year of payment.
Excluded from this are transfers from tax-sheltered sources (e.g. RRSP).
OPTrust issues tax receipts for lump sum payments and payments made through
payroll deductions.
Transfer Process
Whether you are transferring your service into or out of the OPSEU Pension
Plan, the process will take some time. Since both plans must review and
prepare the data for calculations and then process the transaction, OPTrust/OPB
transfers normally take up to 6 months to complete. Generally, the transfer
process follows several steps.
For a transfer from OPTrust to OPB
Once the member accepts a management/excluded position his or her employer
will notify OPTrust by completing a Termination of Plan Membership form.
OPTrust thoroughly reviews the file to verify that the member’s data is
accurate; this may take some time. Once the file is approved, OPTrust
prepares a Transfer Data Package for the Ontario Pension Board, which
indicates the member’s transfer amount.
For a transfer from OPB to OPTrust
Once the member accepts a bargaining unit position his or her employer will
notify OPTrust by completing an Enrolment of Plan Membership form. OPB
provides OPTrust with a Transfer Data Package outlining the member’s pension
history. Since there may be a difference in pension value between the two
Plans, OPTrust provides the member with the cost to purchase the difference
and the available payment options.
Staff at OPTrust work closely with the OPB staff to ensure all transfers are
completed in a timely manner. We also follow-up with employers for
information needed to complete your transaction.
Processing priority is given to members who are very close to retirement.
This may mean that younger members have a longer time to wait for
documentation of their transfer information.
Appendix
The following tables provide a quick reference to understand the difference
in transfer values between the OPSEU Pension Plan and the Public Service
Pension Plan, based on the examples used in this
Fact Sheet.
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OPTrust/OPB Transfers – 