2009 Commuted Value Changes
February 6, 2009
Effective April 1, 2009, the basis for calculating commuted value (CV) on termination of Plan membership is changing.
The Canadian Institute of Actuaries (CIA) has developed a revised standard of practice for determining commuted values that will replace the current standard in effect since February 1, 2005.
What is a CV?
A CV is the amount of money paid as a one-time payment that is equal in value to your future pension payments. If you are vested and you stop participating in your Plan before age 55, you may elect to receive a payout of the CV of your pension. Your other option is to leave your money in the Plan and receive a lifetime pension.
Why is the basis for calculating CVs changing?
CVs are affected by many factors that change over time including interest rates, life expectancy and inflation. The basis was changed to reflect interest rate assumptions and the fact that people are living longer.
What does this mean to me?
CV changes do not affect a member's pension. The CV calculation only impacts vested members who choose the CV option following termination of employment and Plan participation. CV payouts under the revised standard, effective April 1, 2009 will produce CVs which are lower than under the current standard.
Which pension plans will be affected?
All Canadian defined benefit pension plans, including the Local Authorities Pension Plan (LAPP), are required to follow the new standard.
