What you should know about the commuted value of your pension
Do you have a defined benefit (DB) pension plan and have you ever wondered what it's worth in today's dollars? Well you've come to the right place!
MFHA provides a unique online calculator that instantly serves up this information through its proprietary report, called MyCV. While you could get this data from an actuary or a financial institution, it will cost you hundreds of dollars and take a significant amount of time.
What is the commuted value of a defined pension plan?
Put simply, when you commute your defined pension plan to a dollar figure, that lump sum value (before tax) is called the commuted value (CV). It's a different way of looking at the value of your pension: instead of a lifetime income, the CV is a total dollar figure.
We calculate your CV based on actuarial assumptions about future events using data from your most recent pension statement.
When you commute your pension, you will be required to transfer all or a portion of it to a Locked-in Retirement Account (LIRA) without any immediate tax hit. The amount of this transfer is governed by the Income Tax Act. Any money that cannot be transferred will have to be paid to you in a cash lump sum after deducting withholding tax, typically at 30 percent. Our report shows you the breakdown of your CV into what will be transferred into your LIRA and what you'll receive as cash (if any).
Why is it a good idea to know MyCV?
There are a variety of situations when you'll need to know how much your DB pension is worth:
- Leaving your job. If you are leaving your job you will have the option to leave your money in the existing pension plan or take it out in cash. Knowing the CV of your pension will help you make this decision. Note that you can leave your pension intact and withdraw its CV later.
- Separating from your partner. If you have recently ended a relationship and are dividing family assets, you may need to know how much your DB pension is worth so you can make important decisions about dividing family assets equitably. If you need a professional report for this CV based on court proceedings, consult our professional actuary today.
- Financial planning with your advisor.
- Moving to another country. You may have to report your CV to a government agency.
- Renouncing foreign citizenship. You may have to report your CV to a government agency.
Run the MyCV calculator to make better retirement planning decisions today!