Phased retirement and defined benefit plans
Two measures may be available to you if you reach an agreement with your employer to:
In the first case, you can receive a benefit which does not result in any reduction in the amount of your retirement pension.
In the second case, you can receive an advance on your retirement savings. Thus, your benefits will be reduced by an amount equivalent to the payment that you received.
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.
Phased retirement benefit
If your plan allows, you can reach an agreement with your employer to receive a phased retirement benefit under the plan while continuing to work full-time or part-time, if you are:
- at least 60 years old
- at least 55 years old and receiving or entitled to receive an unreduced early pension
- under 65 years old
Worth knowing about...
As of age 65, the provisions for a postponed pension apply.
If the normal retirement age under the plan is under 65, you must choose between a phased retirement benefit and a postponed pension for the period between the normal retirement age and age 65. You can successively receive one then the other but not both simultaneously.
The phased retirement benefit does not reduce the amount of your retirement pension. If the plan so provides, you can also accumulate new benefits during phased retirement, which will increase your retirement pension.
The calculation and payment terms of a phased retirement benefit must be included in the agreement. However, the amount of the benefit cannot exceed 60% of the amount of the pension to which you are entitled or are already receiving, excluding any pension resulting from excess member contributions1, additional voluntary contributions or sums transferred to the plan.
- Excess member contributions
Member contributions, with interest, which have been made for work carried out since 1 January 1990 (or before that date, if the plan so provides), cannot be used to fund more than 50% of the value of the pension accrued for that period. Such contributions, with interest, are excess member contributions.
Example: If the value of your pension is 100 000 $ and your member contributions, with interest, are 60 000 $, your excess member contributions are 10 000 $ (60 000 $ − 50% × 100 000 $).
An agreement cannot provide for age conditions or other conditions that would be more advantageous.
A helpful example...
You are 60 years and entitled to a retirement pension of 2 000 $ a month. Your excess member contributions provide an additional pension of 200 $ a month. In addition, the plan provides you with a bridging benefit of 400 $ a month until age 65. Thus, if you retire, your pension will be 2 600 $ a month until age 65 and 2 200 $ thereafter.
The maximum phased retirement benefit is 1 400 $ a month, that is, 60% of 2 400 $ since the additional pension of 200 $ a month is not included in the calculation.
If you were retired and return to work...
If you are retired member and you return to work for an employer who is party to the same plan and if you receive a phased retirement benefit, your retirement pension will be suspended.
Instead, you can simply choose to continue receiving your retirement pension in addition to your salary.
Reduction in work hours and cash payment from a plan
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 ($23 480 for 2020)
- the value of your benefits in the plan
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.
This payment is thus an advance on your retirement savings. Therefore, your plan benefits will be reduced by an amount equivalent to the payment that you received. Moreover, since you are still an active member, you will continue to accumulate new benefits while working during this period.
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 $50 000 a year. You reach an agreement with your employer to reduce the number of hours worked by 45%. As a result, your employment earnings will be reduced by $22 500, leaving you with an annual salary of $27 500. The value of your benefits under the plan is $250 000.
In 2020, you are entitled to a maximum payment of $15 750 from your pension plan.
In other words, $15 750, which is 70% of the reduction in your earnings, is less than 40% of the MPE in 2020 ($23 480). That is also less than the value of your benefits.
Your income in 2020 could be as much as $43 250 ($27 500 + $15 750).