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HOOPP

Buying Back Service

Buying Back Service

During your working life, there may be times when you take a leave of absence, for example to have a baby or to travel. Or perhaps there was a time when you worked for a HOOPP employer but were not a contributing member of the Plan. As a result, there may be gaps in your contributory service. Buying back those periods is a way to increase your pension at retirement.

When you buy back service, you gain additional contributory service and eligibility service in the Plan, increasing your overall pension at retirement. However, as your age, earnings, and years in the Plan increase, so does the cost of the buyback.

Please note that deferred members are not eligible to buy back service.

In general, the monthly lifetime pension you receive in retirement is based on a formula that takes into account your earnings and how much contributory service you have built in the Plan. If you start your pension before age 60, your pension may be reduced depending on your years of eligibility service. To learn more about how your pension is calculated, please visit How Your Pension Works.

What periods of service can you buy back?


There are two types of prior service that you can buy back:

Service with a HOOPP employer

    • A period of time when you were employed by a HOOPP employer but not enrolled in the Plan. If you did not join HOOPP on the date you were hired by your employer, you can buy this period back.

    • Prior employment service with a new participating employer. If you work for an organization that joined HOOPP after you were hired, can purchase the period of time you were employed with that organization before it joined HOOPP.

    • A waiting period to join your previous pension plan if you joined HOOPP due to a divestment.

    • A period when you were on a leave and not making contributions. This could include periods when you were off work on a pregnancy leave, parental leave or other leave.

    • A period of former HOOPP service for which you received a termination benefit. For example, if you terminated from a HOOPP employer and transferred the value of your pension benefit to a locked-in retirement account (LIRA), you can buy this period back.

    • A period of time you were off work due to a layoff or strike while you were employed by a HOOPP employer.

    Prior service with another pension plan

    If you were a member of a different Canadian pension plan, you may be able to transfer that service to build your HOOPP pension.

    To find out whether a period of past service with another pension plan is eligible to be transferred to HOOPP, please contact Member Services.

    When is the best time to buy back service?


    You can buy back service at any time before you retire or terminate your membership in the Plan. However, as your age, earnings and years in the Plan increase, so does the cost of the buyback.

    Here is an example of how buying back service today can increase your future pension. Each buyback situation is unique, so the amounts represented here may not be typical.

    buyback-lisa

     

    Lisa was a member of HOOPP for two years. Since she didn’t contribute during her leave, she didn’t build service in the Plan for two years.

    Before she retired, Lisa completed a buyback of this two-year period. As a result, she had 27 years of contributory service when she retired, rather than 25 years. Because Lisa increased her contributory service and eligibility service, she received a larger pension at age 55.

    In the example below, we assume that Lisa’s average earnings at retirement are $60,000 and she retired on Jan. 1, 2021.

     

     

    LISA'S PENSIONWITHOUT BUYBACKWITH BUYBACK OF HER FORMER SERVICE
    Lifetime pension$2,040/month for life$2,280/month for life
    Bridge benefit$270/month until age 65$300/month until age 65
    Total lifetime pension payments over 25 years$612,000$684,000
    Total bridge benefit payments until age 65$32,400$36,000
    Total HOOPP benefits over 25 years$644,400$720,000

    Lisa bought her two years of service when she was age 42, and had earnings of $40,000.  At the time, she had 12 years of HOOPP service.  Based on buyback rates at the time, those two years would cost Lisa $11,950.  For that cost, Lisa receives nearly $77,100 in additional benefits under the retirement scenario above – nearly six-and-a-half times what she paid for the buyback. * See disclaimer

    How to pay for a buyback

    In most buyback situations, you have the option of making a payment either with cash or by transferring funds from a registered account, such as a registered retirement savings plan (RRSP) or a locked-in retirement account (LIRA). HOOPP will let you know how you can pay for your buyback and advise you of any tax implications.

    How much does it cost?

    The cost of your buyback depends on a variety of factors, such as your age, earnings, years of service, and the service that you are purchasing in HOOPP.  If the service you are interested in buying back would help you reach a key milestone, such as 15 years of eligibility service, the cost of the buyback will reflect that value of that service. Reaching such milestones means any early retirement reductions that might be applied to your pension will be significantly reduced.

    In general, the sooner you complete your buyback, the lower the cost will be. To request a buyback estimate which outlines the cost of your buyback and how much it would increase your pension in retirement, please contact Member Services. Please note, you must be a HOOPP member to request a buyback estimate.

    How to request a buyback

    Contact Member Services, and we will send you a buyback package that includes a personalized quote and all the forms you will need. Your quote will be valid for 90 days from the date of issue. After that time, you will need to apply for a new quote, as the cost of your buyback may have changed. 

    Do I have to buy back all of my past service at the same time? Buying_back_service

    You may decide to buy back all or a portion of your service. If you decide to buy back a portion of your service, HOOPP will apply your buyback to your most recent period of eligible service. You have the option to buy back any remaining service later; however, the cost will go up as your age, earnings and years of service increase.

    If you decide to buy back past service, it will be your responsibility to send HOOPP all required paperwork and make sure that you (either directly or through your financial institution) pay for the buyback before the quote expires. Your buyback package will include all the forms you will need, as well as a detailed checklist to help ensure that you provide everything that’s needed.

    What are the tax implications of buying back service?

    Your buyback quote package will contain information regarding tax implications that you may need to consider with respect to completing a buyback. The following is a summary of some of the applicable tax rules:

    Benefit limits

    The Income Tax Act limits the amount of pension benefits that you can accrue in a calendar year. HOOPP will notify you if your buyback brings these limits into play. 

    Source of funds

    Most eligible periods of past service can be purchased with cash or with registered funds (for example, from a registered pension plan, an RRSP or a LIRA). However, there are some restrictions that apply to periods of former vested service that occurred before 1992: 

    • Only registered funds can be used to purchase a period of HOOPP service that occurred prior to 1992 for which you received a payment of the commuted value.
    • You can only purchase a period of pre-1992 service while you were a member of another pension plan with funds directly from that pension plan.

    If there aren’t enough funds to transfer directly from your prior pension plan, or if you can’t transfer those funds to HOOPP, you may be able to make up the difference with cash or other registered funds. Please note that when buying back service HOOPP cannot accept funds that come directly from a spouse, parent, friend, or another third party on your behalf.
     

    Past service pension adjustments (PSPA)

    Paying for a buyback with cash usually results in a past service pension adjustment (PSPA). A PSPA reflects the value of the pension you purchased.

    HOOPP is required to calculate and report PSPAs to the Canada Revenue Agency (CRA) for approval to ensure that the tax limits on contributions for retirement savings are not exceeded. The CRA will reduce your available RRSP contribution room by the amount of the PSPA.

    If you don’t have enough RRSP contribution room, you may have to withdraw funds from your RRSP to complete the buyback. You may want to consider using registered funds from an RRSP or a LIRA to pay for your buyback to reduce the PSPA or eliminate it entirely.

    HOOPP cannot finalize a buyback until the PSPA has been certified by the CRA.

    Tax deductibility

    If you use registered funds to pay for your buyback, the purchase is not tax-deductible because you have already received a tax deduction for these funds.

    If you use cash to purchase past service that occurred after 1989, the full amount may be tax deductible. HOOPP will issue a tax receipt for the year the PSPA is certified by the CRA. If there is no PSPA, the tax receipt will be issued for the year in which the cash payment is received.

    If you use cash to purchase past service that occurred before 1990, different tax rules apply. The amount that you can deduct will depend on whether you were a contributing member of a registered pension plan during the calendar year(s) being purchased. HOOPP will provide you with more detailed information in your buyback quote package.

    Interest paid on money borrowed to purchase past service is not tax-deductible.

    We recommend that members seek professional tax advice for information regarding tax implications when purchasing past service.

    *Disclaimer: For simplicity, the figures used in the table above do not factor in any cost of living increases that may be applied. Lisa’s pension is calculated using the average year’s maximum pensionable earnings from 2016 to 2020.

    This example and calculation are for illustrative purposes. Your annual pension will differ from this example due to your personal circumstances. Your actual benefit entitlements, based on verified data, will be paid in accordance with the HOOPP Plan Text and applicable legislation in effect at the time you retire. For this reason, you should not rely upon the example for decision-making purposes.

    Member responsibility: be sure to follow up!

    It’s important to follow up with your financial institution or former pension plan to ensure that the funds have been sent to HOOPP. The funds and completed forms must be received on or before the quote expiry date indicated in your package. HOOPP does not follow up with your financial institution(s) or former pension plan to confirm whether or not the funds have been sent.

    This document provides a simplified overview of HOOPP's benefits based on the terms of the HOOPP Plan Text at the time of publication. From time to time, HOOPP may amend the HOOPP Plan Text. In cases where the information provided in this document differs from that contained in the HOOPP Plan Text, the HOOPP Plan Text will govern. More details, including the full HOOPP Plan Text and a complete description of the Plan and its benefits, can be found on hoopp.com.