Phased retirement and defined contribution plans
Two measures may be available to you if you reach an agreement with your employer to:
In both cases, you will receive an advance on your retirement savings. Thus, the balance of your account will be reduced by the amount that you receive. Moreover, if you are still an active member, contributions made for work during this period will continue to be credited to your account.
To take advantage of one of those options, you must make an application with your plan administrator.
Your employer is not required to allow you to receive a phased retirement benefit or to reduce you work hours. Also, the employer can add conditions. If the employer refuses, you will not be able to use the measures.
You cannot take advantage of both measures simultaneously.
You do not have to retire at the end of the period covered by your agreement with your employer, unless the agreement requires you to.
If your plan allows, you can reach an agreement with your employer to withdraw an amount from your account as a phased retirement benefit while continuing to work full-time or part-time. You must be at least 55 years of age but under age 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 your could withdraw if the sums credited to your account were in a life income fund (LIF).
An agreement cannot provide for age conditions or other conditions that would be more advantageous.
A helpful example...
You are 56 years old and you reach an agreement with your employer to receive a phased retirement benefit. The amount credited to your account as at 31 December 2014 is 100 000 $.
In 2015, you are entitled to a payment of 3 900 $, that is, 60% of 6 500 $ (0,065* x 100 000 $), whether or not your work hours are reduced.
* Factor for a person aged 56 on 31 December 2014, based on the life income fund (LIF) reference rate of 6% for 2015 set out in Schedule 0.6.
If you are still an active member, are less than 10 years from the normal retirement age (for example, you are at least age 55 if the normal retirement age is 65) and reach an agreement with your employer to reduce your work hours, you can receive a payment from your pension plan to offset your loss of income.
You can choose the amount that you wish to receive from your plan, but it cannot be 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 (21 000 $ for 2014)
- the balance credited to your account
The amount must be paid to you in a lump-sum for the year, at the time you choose. If your work hours are reduced for more than one year, you can receive more than one payment, so long as the maximum payment for a particular year is not exceeded.
To be entitled to phased retirement, there is no minimum percentage of reduction in your work hours.
A helpful example...
Suppose you are 56 years old and earn 30 000 $ a year. You reach an agreement with your employer to reduce your number of hours worked by 45%. As a result, your employment earnings will be reduced by 13 500 $, leaving you with an annual salary of 16 500 $. The amount credited to your account is 100 000 $.
In 2015, you are entitled to a maximum payment of 9 450 $ from your pension plan.
In other words, 9 450 $, which is 70% of the reduction in your earnings, is less than 40% of the MPE in 2015 (21 440 $). That is also less than your account balance.
Your income in 2015 could be as much as 25 950 $ (16 500 $ + 9 450 $).