2011 Commuted Value Changes
January 14, 2011
Effective February 1, 2011, the basis for calculating a commuted value (CV) when a member terminates from the plan is changing. Commuted value is the amount of money paid as a one-time payment that is equal in value to what your future pension payments would be.
In April 2009, the Canadian Institute of Actuaries developed a revised standard of practice for determining commuted values that replaced the standard in effect since February 1, 2005.
- Phase I took effect April 1, 2009, changing commuted value calculations to use current interest rate assumptions and to reflect that people are living longer.
- Phase II, effective February 1, 2011, is changing to further reflect life expectancy changes and current interest rates.
How does this affect me?
In most cases, commuted value does not affect you if you choose a monthly pension at retirement, as your pension is based on your highest average salary and years of service.
If you terminate from the plan after February 1, 2011 (choose a pension payout instead of a monthly pension), there may be a difference in your commuted value when compared to previous estimates, and this will be reflected in your benefit options or benefit estimate package. These changes may result in a revised CV payout; however, each calculation depends on a member's unique circumstances.
All Canadian defined benefit pension plans, including the Local Authorities Pension Plan (LAPP), are required to follow the new standard.
