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Are Canadian pension buybacks worth it?
– moneysense.ca
I am currently transferring my pension from a provincial to a federal government pension plan. I’m trying to determine if it is worth purchasing the balance of service and, if so, should I use my RRSP or TFSA funds. Here’s some relevant info:
Service Credited: 7 years, 140 daysBalance of Service to purchase: 1 year, 323 daysLump sum cost for balance: $29,146.19
–Jason
Pension buybacks: yes or no?
Jason, I can understand why you’re asking this question. Most Canadians will know that a good defined benefit (DB) pension plan will pay a guaranteed income for life. And, in some cases that income is indexed. However, if I were to ask how that pension income was formulated, most people wouldn’t know. But, that’s what is needed to answer the question if a pension buyback is worth it.
Usually when Canadians buy past service (supplementing a pension), it is due to a work absence—often a leave of a year or two. There are statutory, or protected reasons for missing work, such as disability, maternity or parental leave, and non-protected absences, like, say, a leave of absence to travel as a family or take care of a loved one…
