Under 50              9.0
50                       9.4
51                       9.6
52                       9.8
53                      10.0
54                      10.2
55                      10.4
56                      10.6
57                      10.8
58                      11.0
59                      11.3
60                      11.5
61                                  11.7
62                                  12.0
63                      12.2
64                      12.4
65                      12.4
66                      12.0
67                      11.7
68                      11.3
69                      11.0
70                      10.6
71                      10.3
72                      10.1
73                        9.8
74                        9.4
75                        9.1
76                        8.7
77                        8.4
78                        8.0
79                        7.7
80                        7.3
81                                                          7.0
82                                            6.7
83                        6.4
84                        6.1
85                        5.8
86                        5.5
87                        5.2
88                        4.9
89                        4.7
90                        4.4
91                        4.2
92                        3.9
93                        3.7
94                        3.5
95                        3.2
96 or over             3.0

For non-integral ages, the present value factor is to be determined by interpolation.  The amount of lifetime retirement benefits is an annual amount which is determined as a “normalized” pension by making minor technical adjustments with respect to features such as form of pension, pension commencement date, early retirement reduction, etc. as described in Income Tax Regulation 8517.

Example

A 51.5 year old defined benefit pension plan member is entitled to a lifetime pension of $12,000 per year ($1,000 per month) at age 65.  The maximum amount that the member can transfer out of the plan is $116,400.  This amount is calculated by multiplying the annual pension amount of $12,000 by the interpolated present value factor of 9.7 for age 51.5.

Excess Amount

If the commuted value of the member’s entitlements exceeds the maximum transfer amount, the excess amount can be:

-               taken in cash subject to the locking-in provision under applicable pension legislation.

-               transferred to a registered retirement savings plan (RRSP) provided the member has room to make an RRSP contribution for the year either through current year contribution limit or unused RRSP room carried forward from prior years.  The member will be issued a T4A for the excess amount to be included as income.  The transaction is tax neutral since the member can claim an equivalent amount of deduction as an RRSP contribution.

-               for early retirement prior to age 65, left in the plan to provide a lifetime pension and/or bridge benefits the amounts of which are determined in accordance with the benefit formula of the plan, or

-               for early retirement prior to age 65, paid to an insurance company to purchase a lifetime pension and/or bridge benefits the amounts of which are determined in accordance with the benefit formula of the plan.

Summary And Comments

Under most circumstances, the commuted value of a defined benefit pension amount is calculated in accordance with the Canadian Institute of Actuaries’ (CIA) Recommendations For The Computation Of Transfer Values From Registered Pension Plans.  The maximum transfer rule is usually not applicable unless the pension benefits are relatively rich and generous as in shareholder/executive types of plans such that the commuted value exceeds the maximum transfer amount.

Since there is no similar maximum transfer rule applicable to transfers between two defined benefit provisions, it has been suggested by some pension practitioners that implementing another defined benefit plan through a pension plan member’s own incorporated company will circumvent the maximum transfer rule.  The key considerations would then be:

-               does the benefit of the additional tax deferral achieved by such a manoeuvre justify the costs of implementing and maintaining a plan?

-               is the company going to be generating sufficient revenue for the member to be paid an employment income and for the company to make ongoing pension contributions?  Canada Customs and Revenue Agency may decline registration of the new plan if it is perceived to be a “shell” plan.