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.
If you leave your job at WorkSafeBC before you turn 55, you have several options for the contributions you’ve already made to the plan.
One option is to transfer your pension’s commuted value (a lump-sum payment that equals the current value of your future pension at retirement) to a registered retirement savings vehicle, such as a LIRA (locked-in retirement account) or another eligible retirement plan.
If you choose this option, the Income Tax Act limits the amount that you can transfer to a registered retirement vehicle. This amount may be locked in. Any amount over this limit is paid to you in cash with tax withheld.
The value of these amounts is shown on your Termination selection statement, which you will receive when you end your job at WorkSafeBC. The amount of the commuted value is guaranteed for a limited time period. If, after the guarantee date, you are still eligible to receive a commuted value, you must re-apply and we will recalculate the commuted value for you. It may be lower or higher than the original commuted value, depending on changes in interest rates since the original calculation.
Transferring the locked-in payment
You can only transfer your commuted value of the deferred pension benefit to one financial institution. This financial institution must complete and sign a section of the Termination selection statement. You must submit the completed statement to the pension plan so that we can transfer the locked-in portion of your pension benefit.
Taxes on a Commuted Value
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. Any part of your commuted value over the limit must be taken 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 or less
- 20 per cent for payments of $5,000.01 to $15,000
- 30 per cent for payments of $15,000.01 or more
You will receive a T4A slip for this cash payment portion.
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 (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.
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.