Reserve Pension- Merged

[begbie]

not too long but I found this after I posted that bit.  Entire message posted on its own

http://forums.army.ca/forums/threads/89985.0.html

Thanks.

In other news, I was finally contacted by pension services today with a 'firm' buyback figure and that this process will be finalized soon.  There are still a couple of steps left such as coughing up some money and a pension adjustment with the CRA.  Hopefully it won't take forever.

Has anyone gone through this that is willing to share how long it took to complete this process once contacted by pension services?

 

[dapaterson]

First contact with a figure: February.  Final statement of account etc: August.

Note that there were two errors made along the way that added time to the process.


As they gain experience I suspect they will get faster.

 

[begbie]

What's a few more months anyway  ;D

The exact amount I was quoted is a little less than the original estimate I had done a couple of years ago.  I originally thought that the difference was based on the $5 monthly payments I have been making.  Then I recalled DAP's comment about how a refund was issued for the monthly $5 payments.  So I asked just to be sure.  It turns out their system doesn't do the math and that you pay up in full, regardless of the $5 monthly payments, and once payment is received or payments start to be made, then they reimburse you. 

I owe less than I thought so I am happy.

 

[dapaterson]

Check the summary they will send you at the end of all this - it is possible that they missed a few days here or there, which in turn would reduce your pension (and the amount you had to pay).

 

[begbie]

Check the summary they will send you at the end of all this - it is possible that they missed a few days here or there, which in turn would reduce your pension (and the amount you had to pay).

Thanks for the tip.  I didn't know I would get some info like that.

 

[Gunner]

Here is my story:

I submitted my paperwork for my buyback in October 2007 and have been paying monthly installments (~$500/month).  My submission provided the following estimates:

Past Service Election - Cost $92,129.87
Top Up Election - Cost $13,424.09
Estimated Total Cost - $105,553.96

I was contacted almost 2 years to the day of my initial submission and they calculated my buy back cost for RFPP Part 1.1 and Part 1 election as:

Part 1.1 Total Costs = $91,757.17
Part 1 Total Cost = $15,153.46
Part 1.1 and Part 1 Total Cost = $106,910.63

My buy back of service is from January 1985 - March 2007 and will provide me with 6,854 days of qualifying service (I'm not sure if that includes service post March 2007 when I have paraded), well below the 9,181 required to retire with an Immediate Annuity.  Although I'm not an active Reservist anymore, I'll have to decide what to do when I actually release (receive a transfer value or a deferred annuity payable at 60 or a reduced annual allowance payable at 50).

So my estimated buy back and my actual buy back were pretty close although I have to admit that I was working from some very good records from my time in the Reserves.  A couple of "I wishes": 

- I wish I would have make a bulk transfer of RRSPs back in 2007 but I was greedy and paid the price with the stock market crash.  My RRSP has recovered but is still down and I'll lose the potential for growth once I transfer it over but it is the right thing to do.

- I wish I did not pay ~$500/month as it seems to have been a tax free loan to the pension plan and (I believe) I will be receiving a refund ~$11760 as I cannot apply it to my buyback (no RRSP contribution room).  I should have just paid the $5/month as I always intended on transfering RRSPs.

- I wish there was more information outlining the pro/con side of certain actions.  The website mainly focuses on some very macro level decisions and doesn't provide information on choices that may affect your personal financial situation.  I had several conversations with my bank and financial representative but they were not that much help in developing options (such as not transfering RRSPs and just continue paying ~$500 for the next 20 years).

- unfortunately, because I am buying back so much service, I am going to have a significant pension adjustment.  IN addition to the lump sum transfer, I will probably have to decertify some of my RRSPs due to a recalculation of my contribution room.

On the positive side, although the process was slow (2 years), the staff that I dealt with were very friendly, helpful and knowledgeable and answered all the questions they could in a timely manner.

For everyone still waiting...good luck.

Gunner

 

[charlesm]

I am hearing rumours that the pansion buyback is now calculated at 4% SI as opposed to 7% CI due to Grievances being filled and won.

People have told me that there buyback dropped from $75K to $45K.

I have no evidence of this and wondered if anyone else has heard anything?

BTW.

After 2 years and 4 months I just got asked for more supporting documents on my claim for my pension.

Thanks

 

[dapaterson]

I am hearing rumours that the pansion buyback is now calculated at 4% SI as opposed to 7% CI due to Grievances being filled and won.

People have told me that there buyback dropped from $75K to $45K.

I have no evidence of this and wondered if anyone else has heard anything?

BTW.

After 2 years and 4 months I just got asked for more supporting documents on my claim for my pension.

Thanks

The regulations, issued under the authority of Treasury Board acting as the Governor in Council., have not to my knowledge been amended.  As you can't grieve regulations issued under other acts of Parliament (only under the NDA), the 4% SI / 7% compound can't be changed by a grievance.



Gunner:  just noticed your summary.  My return of $5 monthly did not include interest. However, there is work ongoing to implement amendments to the CFSA, PSSA and RCMPSA to permit payment of interest on over-contributions; watch and shoot.

 

[Nfld Sapper]

Umm... generally how lond does it take before they start to take the extra amount out when you start your election process?

I got the auto-generated email that my paperwork was received at the fumble palace on 02 NOV 09 but no extra amounts left my bank account as of 02 Dec.

 

[begbie]

Umm... generally how lond does it take before they start to take the extra amount out when you start your election process?

I got the auto-generated email that my paperwork was received at the fumble palace on 02 NOV 09 but no extra amounts left my bank account as of 02 Dec.

I can't fully speak to this.  I elected to make a lump sum payment so I only needed to make the minimum $5 per month payments (for insurance reasons).  Once they had received my void cheque, the payments started quickly. 

As for starting to payback what is owed, I can't say as I didn't do it that way.

 

[begbie]

- I wish there was more information outlining the pro/con side of certain actions.  The website mainly focuses on some very macro level decisions and doesn't provide information on choices that may affect your personal financial situation.  I had several conversations with my bank and financial representative but they were not that much help in developing options (such as not transfering RRSPs and just continue paying ~$500 for the next 20 years).

- unfortunately, because I am buying back so much service, I am going to have a significant pension adjustment.  IN addition to the lump sum transfer, I will probably have to decertify some of my RRSPs due to a recalculation of my contribution room.

This is a significant issue that everyone will have to deal with and it's something that I did not fully appreciate when I started this process.  Luckily for me, it will all work out.  But for those with a lot service to buyback, one could find themselves paying more than anticipated due to some of the associated issues you've mentioned.

Best of luck.  Hope it proves worthwhile for you.

 

[RLD]

For anyone interested I received my buyback cost last week a little more than 2 1/2 years after submitting my election. Total bill was ~ $177,000. This was several grand less than I expected however the email said nothing about what I was getting for my $177K but did ask me to specify how I would pay (Lump Sum, RRSP Transfer, installments or combination thereof) and to send them the RRSP Transfer document (T2033).

I requested the statement of service/earnings they used in calculating the cost and was pleasantly surprised to get it pretty promptly. I found 7 errors in the statement however totaling about 550 days of class B service that was being credited as 1/4 time rather than class B. Five of the periods converted to 1/4 time were outright errors in reading the pay records provided while two were policy interpretation. So far I have managed to get 4 blocks totaling about 310 days credited back as class B and am expecting another 60 this week. I am still fighting for the other two blocks (policy interpretation) that total about 180 days.

The file still has to go to CRA for PSPA certification. The statement of earnings did not include anything on the updated earnings or deemed elected benefit so it was impossible for me to calculate the PSPA. Had to ballpark it for my RRSP tansfer. If this estimate is low the PSPA certification will be rejected although I will be able to resubmit after a further RRSP transfer. At least that's my understanding.

The disturbing thing is that there was no attempt to notify me of a significant change (more than 1 1/2 years of class B rejected) in my election made by Pension Services. This could have meant not qualifying for an immediate annuity when I retire in 2010 if not corrected and still may mean the difference between a 26 and 27 year pension depending on the outcome of the final two blocks and my exact retirement date. When you receive your buyback cost I would suggest getting the statement of service/earnings and reviewing it carefully to ensure it is correct.

RLD

 

[Stoker]

It's been a little over 2 years for since I sent in my paperwork for the pension, I expect hopefully to get my final amount in the next several months. My buyback should be around $55000. I assumed that I would just use the RRSP's that I have and transfer the value over, unfortunately with the economic disaster we just went through my RRSP's haven't come back yet like expected. I'm sure others are in the same boat.
A friend of mine in the public service is doing a buyback of her own and told me I would be better off paying off my buyback by paying installments rather than touch my retirement funds. Apparently I can claim these installments on my income tax, is that right? The other couple of questions I have is can I use my severance package when I retire and pay off the what's owing? and once I elect to pay off my buyback with installments can I later elect to pay the rest with RRSP's?

 

[RLD]

Insert Quote
Stoker,

A few things to think about:

1. RRSP Transfer: You may have to transfer part of your RRSP. RSP contributions rules changed in  1991 and the Pension Adjustment (PA) came into effect for those earning pension credits. This reduces how much you can contrribute to an RRSP in a given year. Where you are doing a buyback Canada Revenue Agency (CRA) will go back and review your file and do a Past Service Pension Adjustment (PSPA). This basically recalculates how much you should have been able to contribute to the RSP based on what sort of pension benefit is expected. If it is determined that you overcontributed during this years you will either have to cash out or transfer part of the RSP to the Pension plan to make up this difference in order for CRA to certify your election. CRA has a couple guides on PA (T8084) and PSPA (T4104) however they are not light reading and Pension Sevices doesn't give you the info to make the calculations. Also pension services calculators don't provide the info to make the calculation.

2. Installment payments are generally tax deductable. There are some limitations on how much can be deducted in a given year but given the $55K figure you mention if you  are stretching out over 20 years they probably would not apply to you. You will pay 4.3%-4.8% interest on your balance depending on age so if you think your RRSPs will do better this may be a good option for you.

3. You can't designate the severence (RFRG) as a future payment but when you retire you can use the RFRG to make a lump sum payment. While the payment is tax deductable you might not be able to claim it all in the year it was made i.e. if $10,500 is paid down then you might be limited to claimimg $3500 /year over 3 years. You should have the info to determine how much is tax deductable at that time.

4. You can make later RSP transfers. Be advised however that if you make a later payment your instalment payments will not be reduced if you still have an outstanding balance. It will mean you are paid off earlier much like a prepayment on a mortgage.

Sorry I can't give you anything more definitive but everything is case dependent. If you  have a financial advisor for your RRSP he/she may be able to provide betterr info for your circumstances.

RLD

 

[Rifleman62]

RLD is correct as per the above post with a minor correction to point 2. The interest rate is 4% Compound Interest on installent payments. Age has nothing to do with the rate of interest that must be paid.

 

[Stoker]

RLD is correct as per the above post with a minor correction to point 2. The interest rate is 4% Compound Interest on installent payments.

Thanks guys for the advice. I guess first thing I should do when I get my final amount, is request their calculations and double check their work. As for the PSPA, hopefully i'll have enough room, I guess there's nothing I can really do about that. I'll probably go the installment route and use a combination of RSP and severance when I retire.

 

[RLD]

RLD is correct as per the above post with a minor correction to point 2. The interest rate is 4% Compound Interest on installent payments. Age has nothing to do with the rate of interest that must be paid.

True enough. What I should have said is 4% interest plus an insurance premium (in case you die before the full amount is paid off) of 0.3-0.8% depending on your age and how long a term you are buying back over for a total cost of 4.3-4.8%.

 

[Rifleman62]

RLD, seen.

I hate to keep harping on this, but it is 4% Compound Interest that is charged if you cannot pay for all the RFPP buyback, plus the insurance based on your age/term. Compound Interest does make a difference, and I respectfully dispute your interest figures of 4.3 to 4.8%.

Additionally, the CFSA and the RFPP use different insurance tables (as well as different interest rate, repayment terms). I do not know what the difference is for the two insurance tables. I did Google the tables, but I am not an actuary, so I do not understand the info. Surely ‘they’ would not screw us on this too!!

All the research I have done indicates the Canadian Life Table No. 2 (1941) is used for all government employees (including MPs, Judges etc) except the RFPP. Why?

CFSA: http://laws.justice.gc.ca/eng/C.R.C.-c.396/page-3.html#anchorbo-ga:s_10-gb:s_14

Manner of Payment for Elective Pensionable Service

14. (1) If, under paragraph 9(1)(b) of the Act, a contributor — other than a contributor who is a member of the reserve force or, in respect of a top-up election under section 14.2, a contributor who was a member of the reserve force  — has exercised an option to pay in instalments for pensionable service, those payments shall be made by reservation from pay and allowances or otherwise, for life or for a period of years not greater than for life, and are payable in the following manner:
(a) the first instalment is due and payable on the first day of the month immediately following the month of election and succeeding instalments monthly after that time during the term corresponding to the plan of payment selected by the contributor, computed in accordance with Canadian Life Table No. 2 (1941), Males four per cent or Females four per cent, as the case may be; and ….

RFPP: http://laws.justice.gc.ca/eng/SOR-2007-32/page-1.html#anchorbo-ga:l_1-gb:l_2

Instalments
18. (1) The instalments shall be payable in equal amounts that may not be less than $5.00, except the last one, and be calculated using the mortality rates set out in the Complete life table, Canada, 1995-97, published by Statistics Canada, and interest at four per cent compounded annually.
When payable
(2) The instalments shall be payable on the first day of each month following the month of the election until the earlier of
(a) the end of the period chosen by the participant ending before the later of 20 years and the participant’s 65th birthday, and …..

 

[RLD]

Rifleman,

You sound as frustrated with the RFPP and Pension Services as I am. I share your disgust of the interest rate gouging of reservists under the RFPP compared to other federal pension plans such as the Reg Force (CFSA), Public Service and RCMP, especially the 7% compounded on the front end of the buyback. During pension briefs in 2007 I asked the same “Why are Reserves treated differently” question you pose but the only answer given was that was what DND and Treasury Board agreed to. Of course that only answers the who not the why. Since the rates are entrenched in the RFPP regulations there isn’t much we can do except complain to our MPs.

Regarding the 4.3-4.8% cost estimate I used for instalments: This is not based on the tables you mention but on the buyback calculator results. I took the amount owed, monthly instalment and a 20 year term and plugged them into a loan calculator. This worked out to a combined interest/mortality cost of about 4.63% per year for my own case. Out of curiosity I recalculated for a 20 year old and someone at CRA (I used CRA 55 I believe) and that’s where the range came from. In fact if the 20 year old used a shorter term the rate should be lower than 4.3%. It would be higher if you used a CRA of 60. I have not compared these results to the tables.

You are right: these are compound rates. However the implicit question I was addressing was if someone was better off staying invested and paying instalments or cashing out investments and paying lump sum. Investment rates of returns are generally given as a compound rate so the compound interest approximation is an appropriate number for comparison in my opinion.

Again to be clear: I was not/am not defending DND/TB decisions on these interest rates. I was trying to help someone understand the pros and cons of instalment versus lump sum based on existing RFPP and tax regulations.

RLD

 

[Nfld Sapper]

Came down in orders the other night if you plan on buying back your time, the door on that is slowly closing you have until the end of Feb to put in the paperwork.