Lump-sum pension payments
You may be able to receive a lump-sum payment in lieu of a monthly pension. Here's what you need to know about eligibility, tax considerations and more.
You may be eligible to receive a lump-sum payment of your pension. This could apply if:
- You ended your employment with an employer participating in BC's College Pension Plan before your earliest retirement age and are transferring your pension's commuted value to a registered retirement savings vehicle
- You have an illness or disability that has shortened your life expectancy
- You are a limited member and your former spouse (the plan member) has reached their earliest retirement age
- You are a limited member and your former spouse (the plan member) has removed their funds from the plan
- You are the beneficiary of a plan member who has died
- The commuted value of your pension benefit is less than 20 per cent of the year's maximum pensionable earnings in the year you apply for your pension, making you eligible for a small benefit refund
If you are eligible for and select a lump-sum payment, it will usually be transferred to a locked-in retirement savings vehicle such as a locked-in retirement account (LIRA) or other eligible retirement plan.
We will not deduct income tax from any funds transferred to a locked-in retirement savings plan. However, the Income Tax Act limits the amount of a commuted value payment that can be tax-sheltered. You must take any part of your commuted value over the limit as a cash payment, and we will deduct income tax from it.
We deduct tax at the following rates for Canadian residents, where applicable:
- 10 per cent for payments of $5,000.00 or less
- 20 per cent for payments of $5,000.01 to $15,000.00
- 30 per cent for payments of $15,000.01 or more
You will receive a T4A slip for the cash payment portion.
Canada Revenue Agency (CRA) sets the tax rates listed above. These rates do not represent the tax you may owe. This amount is based on your tax rate in the year you receive the lump-sum payment. You may owe more income tax in the year you receive the lump-sum payment.
Members who are not Canadian residents
When we transfer the lump sum payment, we base the tax withheld on the cash portion on your country of residence. An amount commonly withheld is 25 per cent.
Canada Revenue Agency and tax withholding
Canada Revenue Agency (CRA) may agree to reduce the taxes withheld on the cash portion of a lump-sum payment if you deposit the payment into a single registered retirement savings plan (RRSP). Visit the CRA website or contact the CRA to find out if you qualify.
You may need to submit a form to CRA to determine your eligibility. If you qualify, CRA provides you with a letter of authority. You must send a copy of this letter to the plan along with your Termination Selection Statement. The year noted on the letter of authority must be the same year that you receive your payment. Based on the information in the letter, we will reduce the amount of tax withheld from the cash payment.
An accountant or independent financial advisor can help you understand these tax implications. You can also contact CRA for more information.