How the transfer amounts are determined

Pension transfer amounts will be determined on an actuarial basis. The following will provide you with additional information on how the transfer amounts are determined:

Federal transfer amount (transfers into the public service pension plan or out of the public service to a defined benefit plan)

"A defined benefit plan is a pension plan that prescribes a specific level of benefit for each year of the plan member's pensionable service."

A federal transfer amount is the actuarial value calculated by the Government of Canada and is the amount required under the Public Service Superannuation Act (PSSA) to fund the service being transferred. The calculation of the "actuarial value" (value based on a set of actuarial assumptions) is very complex and lengthy and includes a great number of factors and tables. For this reason the calculation is performed by a computer program that is continually verified by the Office of the Superintendent of Financial Institutions (OFSI) to ensure its accuracy.

A simplified explanation of the process follows to provide a general understanding of how the federal transfer amount is determined.

The federal transfer amount is based on the deferred annuity that would be payable under the PSSA at age 60 and takes into account the following factors:

• Salary and service:
  The deferred annuity is calculated using your average salary (five best consecutive years), your pensionable service and multiplied by 2%. Your pensionable service available for transfer will include any part-time service, service subject to pension division, leave without pay, non-countable service and/or an election for prior pensionable service.
• Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) reduction:
  The CPP or QPP reduction is applied to account for the integration of the PSSA and CPP/QPP contributions and benefits. (see the Glossary—Pension portability package for more information)
• Pension indexing:
  Pension indexing (inflation protection) is included in the value of your benefit and includes both future indexing and indexing between your date of termination and date of valuation.
• Demographic assumptions and Economic assumptions:
  The Government of Canada Pension Centre will use the actuarial assumptions contained in the most recent Actuarial Report on the Pension Plan for the Public Service of Canada (PSS Actuarial Report) except where noted.

There are two categories of assumptions, which are applied in the following manner:

• Demographic assumptions:
  include the probability of your being alive in each year in the future, and the probability of a child, student, or disability benefit being paid to you, or being paid on your behalf. These probabilities are based on the actual experience of the pension plan, and are reviewed every three years. The probability of being survived by a spouse is also a factor, and these assumptions are derived from Statistics Canada information.
• Economic assumptions:
  include the "real rate of return" that the amount transferred could be expected to earn. The real rate of return is the difference between the gross interest rate and the rate of inflation. Assumptions established specifically for Pension Transfer Agreements include: the rate of interest, the rate of increase in the consumer price index and the rate of increase in salaries, plus the seniority and promotional increases contained in the Actuarial Report on the Pension Plan for the Public Service of Canada.

Federal transfer amount (transfers out of the public service to a defined contribution plan)

"A defined contribution plan is a pension plan that provides a member with a pension based on the value of the annuity purchased by the funds available in that member's investment account (contributions plus any accrued investment income) at retirement."

The federal transfer amount is equal to the transfer value as defined in the PSSA up to the prescribed limits set under the Income Tax Act.

A transfer value is a lump sum amount representing the present value of a contributor's future pension entitlement. The transfer value is calculated at the contributor's valuation date. The transfer value amount is determined using an actuarial calculation based on the deferred annuity that would be payable at age 60. It takes into account the factors defined above with the exception of economic assumptions. This factor differs from that used in the calculation of the federal transfer amount being transferred to a defined benefit plan. The definition of economic assumptions with respect to a transfer value payment is as follows:

• Economic assumptions:
  These assumptions pertain to the real rate of return that the lump sum payment could be expected to earn. The real rate of return is the difference between the gross interest rate and the rate of inflation. These assumptions are based on recommendations by the Canadian Institute of Actuaries in respect of fully indexed pension plans and reflect current market conditions, as well as expected long term rates. The value of the lump sum payment is discounted to account for the fact that the benefit will be payable in a lump sum immediately; rather than monthly over the contributor's, and/or any eligible survivor's, lifetime. The lump sum is calculated based on the assumption that the funds would have earned interest from the pension plan from the date of payment until the contributor would have received a pension benefit.

Employer transfer amount

Is usually the amount equal to the value of the plan member's account(s) at the payment date. For additional information on how your employer calculates the employer transfer amount you will need to contact them directly.