What is Buying Service? And what does it mean for you?
Well, the more pensionable service you have, the larger your pension will be. You earn service every day you contribute to the Plan, but sometimes you are able to buy more service. This is known as a buyback.
Let’s say you take time away from work because you’re having a baby, taking a sabbatical or you need to tend to a personal emergency. If you're off work for a period of time and do not make contributions into the Plan, there will be a gap in your pensionable service. The good news is you can buy this service back and increase the amount of your future pension. If you want to know if your service is eligible to buyback, speak with your employer.
To make purchasing your buyback a little easier, we have several payment options available. You can purchase your buyback through pre-authorized debit, payroll deduction; lump sum; RRSP or LIRA transfer.
If you were paid out for service you earned with another Registered Pension Plan (RPP), you may be able to use those funds to buy pensionable service in LAPP (see Buying Prior Service). You can also purchase service from a period when you were held out by your employer from contributing to the Plan, for up to one year. This is called probationary service. Your employer’s pay and benefits coordinator will be able to tell you which types of past employment are eligible.
Pensionable service is a key factor in figuring out how much pension you will receive. Because of this, you should consider buying service from times while you were away from work and not being paid, such as maternity and parental leave. This kind of buyback lets you avoid a gap in your pensionable service, and increases the amount of your future pension.
You may have the option to make the payments during your leave or wait until you return to work. You might even be able to use funds from a Registered Retirement Savings Plan (RRSP) or other retirement savings tool to pay for your buyback.
You can purchase up to five years of any kind of leave, and up to three years of maternity or parental leave. Additional years of parental leave can be taken against the five year amount.
For the first year of leave that you buy in LAPP, your employer pays the employer share of contributions with interest and you pay the employee share. Only the first year of leave in LAPP is cost-shared in this way. With any later leaves, you are responsible for paying both the member and employer share of contributions.
I received a Buyback Proposal but I don't think I was on a leave of absence
It is important to know that a leave of absence is any period of time away from your regular work hours where you are not receiving pay, no matter how short. Examples of a leave could be time away from work for such things as an unscheduled appointment, a time difference in shifts that were traded, or an unpaid day off.
All of these periods of time, some of which could be as small as a few minutes, will be added together onto one total Buyback Proposal for the year. This Buyback Proposal will be sent to you at the start of the year once your employer submits the previous year-end payroll information to LAPP.
You will also find any active buyback proposals available for purchase by logging in to Your Pension Profile at the top right corner of this website and then selecting Buyback Purchase from the drop-down menu.
If you still believe you have received a Buyback Proposal in error, please contact your employer.
What is the process to buy a leave?
If you want to look at buying a leave, the best place to start is with your employer's Human Resources or Payroll & Benefits area. If your employer tells us that you have a leave of absence that can be purchased, you will be sent a package called a Buyback Proposal early in the year. This Buyback Proposal will tell you what you need to know to purchase the gap in your service.
You need to let us know you want to purchase your leave of absence:
The due date shown on your Buyback Proposal will be set based on these timelines. Payment(s) must be made according to the schedule shown on your Buyback Proposal, but you can also pay for the entire buyback in one payment. You can even transfer funds from an RRSP to pay for your buyback.
If you miss these timelines, you may still be able to purchase the leave but it could cost much more. If it costs more, it could be because you are paying for the full cost of that additional service, rather than just your own contributions.
How do I pay for a buyback when I leave my employer
If you are already making payments towards a leave of absence when you leave your LAPP employer, you will have 90 days to finish paying for the buyback. You are also able to take a break from making payments if you go on another period of leave.
If you do not complete the payment, the amount of service attached to that leave of absence will be credited based on what you have paid for to-date.
If you leave your LAPP employer and immediately start with a new LAPP employer with no break in service, you can continue making payments as you were before. You can arrange this with your new Human Resources or Payroll & Benefits department.
If you do not return to work at the end of your leave of absence, or if you change to a position with your employer where you are no longer a member in LAPP, you must apply to purchase the leave period within 30 days of the day you stop contributing to the Plan.>
Can I pay for less than the whole amount?
You may have a set amount of money you want to pay towards your buyback, or perhaps your finances change before you are finished paying, and you decide you no longer wish to make payments. You can pay for a portion of the service you wish to buy instead of the full amount. This is sometimes called prorating your service.
For example, if the cost of buying one year of service was $10,000 and you decided to stop making payments after paying $5,000, you would receive credit for about half a year's service (before any interest charges get factored in).
As a member of a Registered Pension Plan, the benefits you earn under LAPP are subject to the Income Tax Act. For every year that you are active in LAPP, your employer will report a Pension Adjustment (PA) which represents the value allocated by the Canada Revenue Agency (CRA) to the increase in your LAPP benefit entitlement and will reduce your Registered Retirements Savings Plan (RRSP) contribution room. When the Canada Revenue Agency (CRA) reviews your tax return, they will consider this PA in determining the amount of RRSP contribution room that will be available to you for the following year.
Likewise, if you buy prior service that occurred after 1989, a Past Service Pension Adjustment (PSPA) will be associated with the prior service you are buying. This PSPA represents the value allocated by CRA to the increase in your LAPP benefit entitlement and will reduce your RRSP contribution room.
How is my RRSP Contribution Room affected?
A PSPA has the same effect on your RRSP contribution room as making an RRSP contribution. CRA will only certify the PSPA if it is less than your total available RRSP contribution room. If the PSPA cannot be certified by CRA, you will not be able to proceed with buying the service unless you do a Qualifying Transfer (see below).
How much is My PSPA?
To help you decide whether to buy a period of service we will provide you with an estimate of your PSPA in your Buyback Proposal.
What is a Qualifying Transfer?
Prior service can be bought using funds from an existing RRSP or Locked-In Retirement Account (LIRA). This type of transaction is called a Qualifying Transfer and will reduce your PSPA by the value of the funds transferred from the RRSP or LIRA. This means you can reduce or even eliminate the amount of RRSP contribution room taken up by buying prior service. If you wish to make a Qualifying Transfer, be sure to indicate on your Buyback Election the amount you will be transferring from your RRSP or LIRA.
Is timing important?
If the Qualifying Transfer is the only payment you will be making to buy the prior service, we must receive the funds before any other payment, and before the payment due date shown on the Buyback Proposal.
We will adjust the PSPA before sending it to CRA which will help you maximize your RRSP contribution room. If any other payment is received by us before the transfer of registered funds, the full PSPA will be reported to CRA.
Will My PSPA Be Certified By CRA?
If your existing RRSP contribution room is higher than the PSPA (less any Qualifying Transfers), CRA will certify the PSPA and reduce your RRSP contribution room accordingly. We will notify you once your PSPA has been certified by CRA.
What if I don’t have enough RRSP Contribution Room?
If the PSPA cannot be certified because it is higher than your RRSP contribution room, CRA will contact you and supply you with the information you will need to complete a Qualifying Withdrawal. This means you would remove the required amount from your RRSPs and pay tax on the withdrawal. If you cannot complete a Qualifying Withdrawal, you will not be able to proceed with buying the service. For more information about Qualifying Withdrawals, please contact CRA.
What if I decide not to make a full payment?
If you know at the time your receive your Buyback Proposal that you will not be buying the full period of prior service, please contact LAPP as soon as possible for more information on how to buy a portion of your service. Reducing the amount of service you will be buying before you have started to make payments may result in a smaller PSPA.
If you have already started to make payments toward your prior service and decide to buy only a portion of the service covered in your Buyback Proposal, the PSPA will not be prorated. We will report your PSPA to CRA after your first payment is received and will not be able to amend the PSPA once it has been issued.
You may increase your future LAPP pension by buying prior service. Examples of prior service could include:
Your employer’s pay and benefits coordinator will be able to tell you which types of past employment are eligible. You can also contact us if you have any questions about this sort of buyback. Your payments for prior service are tax deductible within the maximum limits set under federal tax rules.
Purchasing Probationary Service
You can also purchase service from a period when you were delayed from contributing to the plan by your employer. This is called probationary service.
If you are wishing to buy a period of probationary service, the time frame in which you apply to buy that service means the cost will be calculated one of two ways.
Within 5 years of Becoming a LAPP Member and You Are Still With That Employer:
Service will be costed on a contributions and interest basis. This means that you will pay what would have been your contributions (and interest those contributions would have earned) as if you had been paying regular pension contributions during a time when your employer may have postponed your enrollment in the plan. Your employer will then pay their portion of the contributions for that service.
More Than 5 years After Starting to Work for That Employer or You Have Left That Employer:
The service will be costed based on what amount of money is required today to fund what your pension will be in the future for that period of service. This type of costing is called actuarial, and includes, assumptions about potential interest changes over time, as well as your salary, age, and life expectancy. The cost using this calculation basis will likely be higher.
Buying Prior Service if You can’t transfer
If you have contributions with another Registered Pension Plan (RPP) that doesn’t have a transfer agreement with LAPP, you may be able to take a lump-sum payout of those funds and buy some or all of that service under LAPP.
Buying prior service will increase your pensionable service. This means that your future LAPP benefit will be higher and you might be able to retire with an unreduced LAPP pension sooner.
Before you begin this process, there are many factors you will need to consider. We encourage you to speak to an independent financial advisor before deciding to remove your benefit from your previous RPP. However, there are other important considerations which you should bear in mind:
Am I Eligible?
You can only establish your service under LAPP from a previous RPP if you are able to take the payout of your benefits from that plan as a lump-sum.
Any service earned before 1992 under another RPP cannot be established as prior service under LAPP.
What Will it Cost?
The cost of prior service is based on what amount of money is required today to fund what your pension will be in the future for that period of service. This type of costing is called actuarial reserve, and includes assumptions about potential interest changes over time, as well as your salary, age, and life expectancy.
The value of the lump-sum benefit you receive from your previous RPP may be less than the cost of buying the equivalent prior service under LAPP. This means that you may not get credit for all of your prior service unless you pay for any resulting shortfall.
Visit our online Buyback Estimator to get an estimate of the cost to buy your prior service. You can apply to buy a period of prior service through your employer’s pay and benefits coordinator. If the prior service is from a period of previous employment, we may need information from your previous employer.
Contact us or your employer’s pay and benefits coordinator will be able to help you determine when this is the case.
How Will it Impact My LAPP Pension?
You can estimate how buying prior service might affect your pension by using the online Pension Estimator:
1. Visit the LAPP Pension Estimator
2. Click on the button next to "Check here to provide your own service estimate"
3. Run two pension estimate calculations:
Compare these two estimates to see how buying prior service will impact your LAPP pension. You should also consider the cost of the prior service, the length of time it will take you to pay for the prior service, and how long it will take for the increase in your pension to offset the cost of buying the service. You should also consider the impact that a Past Service Pension Adjustment (PSPA) might have on your RRSP contribution room.
Can I Change My Mind?
Removing your pension benefit from your previous plan is very likely an irrevocable decision.
Are There Locking-In Requirements?
The lump-sum payout from your previous RPP may be locked-in. Before deciding to remove your benefits, it is important to know if the locking-in rules applicable to those benefits will allow your funds to be transferred into LAPP. Most RPPs are subject to the locking-in rules of the jurisdiction (i.e. province) in which the benefits are accrued.
If those funds are used to buy prior service with LAPP, they will be administered in accordance with the Alberta locking-in rules.
In certain situations, benefits paid out from an RPP must remain “locked-in” (LIRAs, RPPs, etc.) until they are used to fund your retirement. Financial institutions are responsible for ensuring these funds stay locked-in.
Are There Tax Consequences?
Removing the benefit from your previous RPP to purchase your prior service under LAPP may have tax consequences that should be considered.
For service after 1989, the tax rules require that you have adequate RRSP room to allow for the certification of the PSPA associated with the prior service you are buying. This PSPA represents the value allocated by the Canada Revenue Agency (CRA) to the increase in your LAPP benefit entitlement and will reduce your RRSP contribution room. Please make sure you understand how this PSPA may affect your ability to buy the service. You should also make sure you understand how you can use a qualifying transfer from a registered retirement savings plan (RRSP) or locked-in retirement account (LIRA) to reduce or eliminate the PSPA that is reported to CRA.
What Are The Deadlines?
If you’ve decided to buy your prior service, your application should not be made until your lump-sum benefit has been removed from your previous RPP. You can speak to your employer for more information on how to apply to buy prior service. Once you have applied you will be sent a Buyback Proposal that lists the following:
If the period you have requested to buy is not eligible for purchase, it will not be included in the Buyback Proposal.
Before leaving Your employer
If you are considering buying prior service, such as probationary service, you must let LAPP know before you leave your job with your LAPP employer.
Paying For A Buyback When You Leave Your Employer
If you are already making payments towards a buyback when you leave your employer, you will have 90 days to finish paying for the buyback, unless you leave your current LAPP employer and start with a new LAPP employer with no break in service,
If you do not complete the payment, the amount of service attached to that leave of absence will be credited based on what you have paid for to date.
There are many ways to pay for the service you might wish to purchase. If you are an active employee, your payment options are based on the amount of your buyback. If you have left your employer, please see the Buyback Proposal for your payment options.
You can also find any active buyback proposals that are available for purchase by logging in to Your Pension Profile at the top right corner of this website and selecting Buyback Purchase from the drop-down menu.
To learn more about buying a leave of absence, you can read Buying Service or Leaves of Absences.
Checkout our easy online process where you can make your election, choose your payment option, and upload any required forms quickly and easily.
| Buybacks $750 and Under | Buybacks Over $750 |
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If you prefer the paper process, you will need to complete the Buyback Election form included in your Buyback Proposal package.
The following table provides the payment options that are available if you send in a paper election:
| Buybacks $750 and Under | Buybacks Over $750 |
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You may have a set amount of money you want to pay towards your buyback, or perhaps your finances change before you are finished paying, and you decide you no longer wish to make payments. You can pay for a portion of the service you wish to buy instead of the full amount. This is sometimes called prorating your service.
For example, if the cost of buying one year of service was $10,000 and you decided to stop making payments after paying $5,000, you would receive credit for about half a year's service (before any interest charges get factored in).
Paying Via Pre-authorized Debit
Paying Via Personal Cheque/Bank Draft
Transferring Funds From a RRSP/LIRA
Online bill payment and credit or debit card payments are not available forms of payment.
You are not required to send a copy of your Buyback Election form to LAPP or employer if you choose the online option.
Try out the LAPP Pension Estimator and access printable forms, member newsletters, annual reports, investment information and more.
Discover how much purchasing prior service through tax-deductible buybacks will increase your monthly retirement income or help you retire earlier.
Your Pension Profile allows you to view your information, send documents, and request assistance and more via Secure Messages!