There are five things to keep in mind when considering a commuted value (CV) transfer:
- Income from a CV may be greater or less than a lifetime pension.
The CV is based on a number of assumptions. As such, the income provided by the CV may be either greater or less than the pension payments you could receive from the Ontario Teachers’ Pension Plan.
- You assume responsibility for investing the funds.
By taking this lump sum when you leave teaching, you also assume the responsibility and costs for investing it—with its eventual value affected by the ups and downs of the economy, inflation and the investment decisions you make. In contrast, a formula determines your pension; it doesn't depend on investment returns and it's fully protected from inflation.
- Income-tax regulations can affect CV transfers.
If you transfer the CV, you could incur additional costs that reduce the amount available for investments. For instance, a large CV transfer may not be entirely tax-sheltered.
If you transfer funds over this limit (which depends on your age and pension amount), the excess is considered income and is taxable in the year we transfer the funds.
Funds transferred to another defined benefit pension plan may not be subject to this limit.
- There may be an impact on your RRSP room.
If you transfer the CV, a pension adjustment reversal (PAR) will be calculated. A PAR is the difference between the value of the post-1989 portion of your termination payments and the pension adjustments (PAs) reported for the same period. Consequently, you may be able to restore lost RRSP room.
NOTE: If the CV exceeds the tax-sheltered limit, the PAR will be zero.
- You may be able to repay a CV transfer.
If you transfer the CV and later return to teaching, it's possible to repay the transfer and reinstate your credit. However, the repayment amount is the actuarial cost to restore your credit or the amount paid plus interest, whichever is greater.