Buying Prior Service
Buying prior years of service will increase your pensionable service, which means that your future SFPP pension will be higher. You might even be able to start collecting your pension sooner.
Examples of eligible prior service could include:
- previous employment with your current employer; and
- previous employment with an employer who participated in another Registered Pension Plan (RPP).
Your employer’s human resources area will be able to tell you what types of past employment are eligible for purchase. You can also contact us if you have any questions.
How to Buy Prior Service
To buy prior service, contact your current SFPP employer's human resources area for an application form. Once you have applied, you will be sent a Buyback Proposal which outlines:
- how buying prior service will affect your pension;
- how much it will cost you to buy your prior service;
- how much prior service you can buy;
- how to pay for your prior service; and
- the deadlines for making your election and payment(s).
Only periods of prior service eligible for buyback will be included in the proposal.
Service Earned With Other Plans
If you have contributions with another RPP that does not have a transfer agreement with SFPP, or the option to transfer has expired, you may be able to take a lump-sum payout of that benefit and purchase a portion or the full amount of service under SFPP.
More Details About Buying Prior Service
Before you begin this process, there are many important factors to consider:
Your employer’s human resources area will be able to tell you which types of past employment are eligible for purchase. You can also contact us if you have any questions.
You can only establish your service from a previous plan under SFPP if you're able to take a payout of your benefits from that plan as a lump-sum. You cannot begin purchasing this service until after your funds have been removed from the other plan, so check with us beforehand to make sure the service is eligible.
Restrictions apply to the purchase of service from a previous RPP earned before 1992. Please contact us for details.
The cost of prior service is based on the amount of money required today to fund what your pension will be in the future for that period of service. This is called an actuarial reserve costing, and it includes a number of assumptions including retirement age, life expectancy and changes in your salary.
If you are using funds from another RPP to purchase service, the value of the lump-sum benefit you receive from them may be less than the cost of buying the equivalent amount of prior service under SFPP. This means that you will not get credit for all of your prior service unless you pay for any resulting shortfall.
Impact on SFPP Pension
You can estimate how buying prior service might affect your pension by using the online Pension Estimator:
- Visit the SFPP Pension Estimator.
- Click on the button next to "Check here to provide your own service estimate".
- Run 2 pension estimate calculations:
- 1 with only your current SFPP service.
- 1 that includes your current SFPP service plus the prior service.
Compare these 2 estimates to see how buying prior service will impact your SFPP pension. Before removing your funds from another plan, you should also consider:
- the cost of the prior service;
- the length of time it will take you to pay for the prior service; and
- how long it will take for the increase in your pension to offset the cost of buying that service.
You should also consider the impact that a Past Service Pension Adjustment (PSPA) might have on your RRSP contribution room.
You may want to consider speaking to a financial advisor before deciding to remove your benefit from your previous RPP.
Removing your benefit from your previous plan is very likely an irreversible decision.
If you are buying service you earned in another RPP, your application should not be made until after your lump-sum benefit has been removed from your previous RPP. You can speak to your employer for more information on how to apply to buy prior service.
Before deciding to remove your benefits, it is important to check with your financial institution to see if the locking-in rules of those benefits will allow your funds to be transferred into SFPP.
In certain situations, benefits paid out from an RPP must remain “locked-in” (within locked-in retirement accounts (LIRAs), RPPs, etc.) until they are used to fund your retirement.
Most RPPs are subject to the locking-in rules of the province in which the benefit was earned. If those funds are used to buy your prior service with SFPP, they will be administered in accordance with Alberta locking-in rules.
Your payments for prior years of service purchases are tax-deductible within the maximum limits set under federal tax rules.
For service after 1989, federal tax rules require that you have enough RRSP contribution room to allow for the certification of the Past Service Pension Adjustment (PSPA) associated with the service you are buying. This PSPA represents the value of the increase in your SFPP benefit entitlement and will reduce your RRSP contribution room.
Please make sure you understand how this PSPA may affect your ability to buy the service. You should also make sure you understand how you can use a transfer from an RRSP or LIRA to reduce or eliminate the PSPA that is reported to CRA.
You will need CRA's T2033 Direct Transfer form.
If you are considering buying prior service, you must let SFPP know before you stop participating in the Plan.