Cash payments (refunds) under a defined-contribution pension plan
In some situations, a member is entitled to a cash payment (refund). A
defined contribution plan must provide for certain payments. Others may be offered as options.
A plan
must provide cash payments for the following situations:
A plan
may provide cash payments for:
A plan also offers different
types of pensions.
How to obtain a cash payment (refund)
Generally, to obtain a cash payment (refund), a member must make an application to the plan administrator. All refunds are taxable. However, it is possible to defer taxation if the amounts can be deposited directly in an
RRSP or a registered retirement income fund (RRIF).
Unless otherwise indicated, a member is entitled to a refund at any time, even if he or she does not have a transfer right, if all the required conditions are met.
Phased retirement: to reduce the number of hours worked before retirement
An active member who is 10 years or less away from the normal retirement age (for example, at least 55 if the normal retirement age is 65) and who reaches an agreement with the employer reduce the number of hours worked, can receive a payment under the pension plan to offset the reduction in employment income.
The member can decide how much he or she wants to receive under the plan, but not more than the smallest of the following amounts:
- 70% of the reduction in employment earnings resulting from a reduction in the number of hours worked
- 40% of the maximum pensionable earnings (MPE) under the Québec Pension Plan for the year in question ($27 400 in
2024
- the member's account balance.
The payment must be made in a lump sum for the entire year, on the date chosen by the member. If work hours are reduced during a period lasting more than one year, the member can receive more than one payment, but not more than one in any single year.
The payment received is an advance on retirement savings. Thus, the member's account balance will be reduced by the amount paid. Moreover, since he or she will still be an active member of the plan, pension plan contributions related to work during the period of reduced hours will continue to be made and credited to the member's account.
An employer is not required to agree to a reduction in work hours. In the event of refusal, the worker cannot take advantage of this measure.
A worker is not required to retire when the period of phased retirement ends, unless the agreement with the employer so requires.
To be entitled to phased retirement, no minimum percentage of reduction in work hours is required.
Note that...
There is
another phased retirement measure; it can give entitlement to a cash payment. A member cannot benefit from both measures simultaneously.
A helpful example...
Victor is 56 years old and earns $50 000 a year. He reaches an agreement with his employer to reduce the number of hours worked by 45%. As a result, his employment earnings will be reduced by $22 500, leaving him with an annual salary of $27 500. The amount credited to his account is $250 000.
In 2024, he is entitled to a maximum payment of $15 750 from the pension plan.
In other words, $15 750, which is 70% of the reduction in earnings, is less than 40% of the MPE in 2024, which is $27 400. That is also less than the balance of his account.
His income in 2024 could be as much as $43 250 ($27 500 + $15 750).
Advance on retirement savings under the plan (between ages 55 and 65)
A member can obtain an advance on his or her retirement income by opting for a lump-sum payment if he or she is:
- between the ages of 55 and 65
- entitled to a pension under the plan, because, for example, active membership has ceased
- does not want to begin receiving a pension right away
The maximum annual advance
The maximum advance cannot exceed 40% of the maximum pensionable earnings (MPE) under the Québec Pension Plan in the year in which payment of the pension begins less the amount of any temporary pension from another pension plan, annuity contract or life income fund (LIF). In
2024, the advance cannot exceed $27 400.
Retirement savings are less than 20% maximum pensionable earnings under the Québec Pension Plan ($13 700 in
2024)
A member is entitled to a refund of his or her member contributions and employer contributions if, at the time active membership ceases, their total is less than 20% of the maximum pensionable earnings (MPE) under the Québec Pension Plan, that is, $13 700 in
2024. However, the member must not already be receiving a retirement pension under the plan.
A member can ask for a refund of additional voluntary contributions at the following times:
- within 90 days following receipt of a statement of cessation of active membership, if the member is more than 10 years away from the normal retirement age under the plan (for example, under 55 and the normal retirement age is 65)
- thereafter, once every 5 years, within 90 days following the anniversary of the date on which active membership ceased.
The plan can, however, have provisions that allow a member to receive a refund at other times.
Refund imposed by the plan administrator
In this case, the plan administrator can decide to make a refund even if the member has not asked for one. The administrator will inform the member of the decision and the member will have 30 days to indicate how payment of the sums credited to his or her account is to be made (for example, by transferring the refund to an
RRSP or by a direct, cash payment). If the member does not give payments instructions, the administrator will decide how to make the payment (for example, by a direct, cash payment). The notice must mention such a possibility.
Non-residency in Canada
Regardless of the total amount credited to a member's account and even if the member has already started receiving a retirement pension under the plan, he or she can receive a refund of the account balance or, if he or she are already receiving a pension, a payment that represents the value of future pension payments. The member must meet all 3 of the following conditions:
- has not lived in Canada for at least 2 years
- active plan membership has ceased
- no longer works for the employer who sponsors the plan.
Contributions in excess of tax limits
If the total plan contributions (member, employer and additional voluntary) exceed the limits under tax rules, a refund of the excess must be made.
As soon as the plan administrator finds that the contributions credited to a member's account exceed the amount allowed under tax rules, the member must receive a refund of the excess. The member does not have to make an application.
In this case, the amount cannot be transferred directly to an
RRSP for tax deferral purposes.
Additional voluntary contributions
A member's additional voluntary contributions (if any) can be refunded if both of the following conditions are met:
- active plan membership has ceased
- the additional voluntary contributions have not already been converted into an additional pension.
A member can ask for a refund of additional voluntary contributions at the following times:
- within 90 days following receipt of a statement of cessation of active membership, if the member is more than 10 years away from the normal retirement age under the plan (for example, under 55 and the normal retirement age is 65)
- thereafter, once every 5 years, within 90 days following the anniversary of the date on which active membership ceased.
The plan can, however, have provisions that allow a member to receive a refund at other times.
Sums transferred from a previous plan
A member can receive a refund of sums transferred from a previous plan if all 3 of the following conditions are met:
- active membership in the plan has ceased
- the sums in question could have been refunded under the rules of the plan from which they came
- the provisions of the plan allow such refunds.
Retirement savings are less than or equal to 40% of the maximum pensionable earnings under the Québec Pension Plan ($27 400 in
2024)
A member is entitled to a refund of the sums credited to his or her account if both of the following conditions are met:
- He or she is at least 65 years of age.
- His or her total
locked-in retirement savings in defined contribution pension plans, in the defined contribution component of any defined benefit plans, in simplified pension plans (SPPs), in life income funds and locked-in retirement accounts, in locked-in RRSPs and in voluntary retirement savings plans (VRSPs) are less than or equal to 40% of the maximum pensionable earnings under the Québec Pension Plan ($27 400 in
2024).
The refund application must include a duly completed copy of
Schedule 0.2 of the
Regulation respecting supplemental pension plans.
Phased retirement benefit: an incentive to remain at work longer or to return to work
If the plan allows, a member can reach an agreement with his or her employer to withdraw an amount from his or her account in the form of a phased retirement benefit, while working full-time or part-time. The member must be at least 55 years of age but under 65.
The calculation and payment terms of a phased retirement benefit must be included in the agreement. However, the annual payment cannot exceed 60% of the maximum life income that the member could withdraw if the amount credited to the members account were instead in a life income fund (LIF).
An agreement cannot provide for age conditions or other conditions that would be more advantageous.
Note that...
The employer is not required to allow a member to receive a phased retirement benefit. Also, the employer can add conditions. If the employer refuses, the member will not be able to use the measure.
There is
another phased retirement benefit: it gives entitlement to a cash payment. A member cannot receive both benefits for the same period.
A helpful example...
Daniel, aged 56, reaches an agreement with his employer to receive a phased retirement benefit. The amount credited to his account as at 31 December 2023 is $250 000.
In
2024, he is entitled to a payment of $9750, that is, 60% of $16 250 (0,065* × $250 000), whether or not his work hours are reduced.
* Factor for a person aged 56 on 31 December 2023, based on the life income fund (LIF) reference rate of 6% for
2024 set out in
Schedule 0.6 of the
Regulation respecting supplemental pension plans 
.
Disability that reduces life expectancy
A member can obtain a refund of the amounts credited to his or her account, in one or several payments, if the following 4 conditions are met:
- he or she has a physical or mental disability
- the disability reduces life expectancy
- he or she is already entitled to a pension under the plan (for example, active membership has ceased) the plan's provisions allows such a refund.
Other useful information