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Introduction I Buyback Improves Pension I Cost and Benefits I The Fine Print I Deadlines |
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Introduction
Planning on taking time off to study, travel or stay home with your newborn? Whatever the reason, if you take a leave of absence, you may be eligible to buy back credit for the time you’re away.
Buying back credit maximizes the value of your pension. And, if you buy back a school year in which you had no previous credit, you may be able to retire earlier.
Your credit is the actual time (years, months and days) you have contributed to your pension. Missing a year’s credit now, for instance, means one less year of credit when calculating your pension. The more credit you accumulate, the greater your pension. Of course, you can lessen the effect of an absence by extending your career.
How can a buyback improve my pension?
Use the buy-back calculator on iAccess Web, the secure members-only section of our website, to determine the cost and benefit of buying back eligible service. In a few easy steps, you can see how a buyback can increase your future monthly income.
This chart demonstrates the increase in an annual unreduced pension with a buyback of one, two and five years of credit.
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Buyback |
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Increase in annual pension, based on salary* of: |
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of credit |
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$40,000 |
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$50,000 |
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$60,000 |
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$70,000 |
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One year |
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$ 800 |
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$1,000 |
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$1,200 |
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$1,400 |
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Two years |
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$1,600 |
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$2,000 |
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$2,400 |
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$2,800 |
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Five years |
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$4,000 |
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$5,000 |
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$6,000 |
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$7,000 |
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*Average best-five years’ salary |
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Example of cost and benefits
Sarah received permission from her school board to take a two-year leave of absence, ending Dec. 31, 2007. The cost to buy back the leave is $11,880, based on Sarah’s $60,000 salary.
| Here’s the impact on Sarah’s future pension with and without the buyback: |
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If Sarah buys back the credit, she qualifies to retire with an annual unreduced pension June 30, 2010. |
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If she does not buy back the credit, she must work an additional year – until June 30, 2011 – to qualify to retire with an annual unreduced pension. |
The bottom line
An investment of $11,880 lets Sarah retire one year earlier and collect an extra year of pension.
The fine print
There are a few facts you should know if you work part time, work in education during your absence or buy back only part of a year.
Qualifying years
Qualifying years are counted as actual time when you buy back credit. For instance, if you buy back credit for four months, you receive four months of a qualifying year. Qualifying years are used to determine when you’re eligible for an unreduced pension and the early retirement reduction that applies if you begin receiving your pension early.
Average salary
Buying back credit may not increase your average “best-five” years’ salary, one of the key factors on which your pension is based.
If you are nearing retirement, make sure you understand the impact of buying back credit, especially if you work part time. We suggest you get a buy-back estimate through iAccess Web or our office.
Reduced workload
If you move from full-time to part-time work, you’re not entitled to purchase credit for the reduced work.
Work during your absence
Working in education on a contractual basis during your absence may make you ineligible to buy back credit.
Deadlines
You have up to five years from the end of an eligible leave of absence or break in service to buy back credit for the absence. If you miss the deadline, you forfeit the opportunity to buy back. However, if your employer arranged for you to work outside of Canada during your absence, you must buy back the credit before your absence ends. Different deadlines apply if you buy back other eligible periods, such as credit for other employment.
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