Pay less for pension credit

Took an extended leave from work? Buy back your pension credit early for big savings.

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From the Summer 2013 issue of the magazine.

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If you have a defined benefit (DB) pension, the more years you have in the plan—known as credited service—the higher your pension or the earlier you can retire. It’s why one reader, a Toronto daycare worker, forked out $45,000 to buy back time she’d taken off 20 years ago when she had children. The lump sum buy-back allows her to retire at 55, rather than 60, with a full pension. The incentive: you’ll get guaranteed income in retirement, usually at a better return. But she could have avoided such a large payment. If she’d purchased her missing service time right after taking maternity leave it would have cost her only $4,000. “The earlier you buy back the cheaper it is,” explains pension consultant Brian FitzGerald. That’s because the longer you wait, the more you need to pay to make up for the money that would have accumulated had you invested at the time of your work absence.

4 comments on “Pay less for pension credit

  1. Can you "buy back" your CPP from the year you were on Mat Leave? I pay the make CPP when I work, but the two separate Mat Leaves I took I didn't pay much CPP at all.

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  2. If you quit working for your company for 6 or 7 weeks, withdrew your pension (took out some cash, invested balance into an RRSP), and rejoined your company again can you buy back your pension? Not sure if my question makes sense……

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  3. I RECENTLY PURCHASED A CI INV T- SERIES MUTUAL FUND TO INCREASE MY MONTHLY INCOME & NOT INCREASE MY TAXABLE INCOME SINCE I GET A FEW $ FROM THE GIS PENSION THE T SERIES IS A RETURN OF CAPITAL SO IS NOT TAXABLE FOR 14-20 YEARS DEPENDING ON WHETHER YOU TAKE 5% OR 8% SINCE I AM OVER 70 SINGLE WITH NO CHILDREN I AM NOT CONCERNED WITH PRESEVATION OF CAPITAL SIINCE ON MY DEMISE MY ESTATE WILL GO TO FAMILY MEMBERS & CHARITY AFTER ANY TAXES OWING THE T SERIES SEEM TO GOOD TO BE TRUE BUT I AM SURE THERE IS A DOWNSIDE SOMWHERE I HAVE ANOTHER MODEST NON REG ACCOUNT WITH SOME INCOME & CAPITAL GAINS OWING I AM CONSIDERING GRADUALLY SELLING OVER THE NEXT FEW YEARS PAYING THE TAKES & PUTTING INTO MORE T SERIES FUNDS YOUR COMMENTS PLEASE BTM

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  4. Interesting post this is a good thing to look into if the organization you are working for has a Pension. I am all for early retirement and this may be a good way to do just that!

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