Time for a minivan? Your pension and your children
Having a child is a good time to consider some work and pension-related issues, from buying back service for time off to working part time and updating your pension beneficiary information.
Top up your pensionWhen you take time off work to look after your child, you won’t be receiving your regular salary or contributing to your pension. This will affect your current income, and it will also affect your pension when you retire. Remember, your pension is calculated based on your years of pensionable service and the average of your five highest years of salary. The more pensionable service you have, the greater your pension.
Although you normally accumulate pensionable service by working and contributing to the plan, you can also buy back service to cover the period of an approved maternity, parental or adoption leave.
The cost to do this is calculated using the length of your leave, along with the employee and employer contribution rates and your full-time equivalent salary when you apply to buy service. You’ll be responsible for paying your employee share, and your employer will pay their share. Sign in to My Account and use the personalized purchase cost estimator to see how much this might cost.
You must meet criteria and timelines under pension plan rules. For example, you have five years from the end of a leave, or 30 days from termination of employment, to buy a leave. The Income Tax Act has its own rules too.
Boost your contributory service with a child-rearing creditYour total pensionable service isn’t the only factor influencing your pension. Your years of contributory service count as well. We use this to calculate if you’re eligible for an unreduced pension.
You can apply to have the time you took off work to raise your child or children count as contributory service, called a child-rearing credit. There’s no cost involved – all you have to do is apply, and we’ll add up to five years of time you took off work looking after your child to your years of contributory service.
Returning to work part-time?
If you return to work part time after a leave, you will restart contributing to the plan. Your pension contributions and pensionable service will be adjusted to reflect your part-time salary.
Protecting your beneficiariesYour pension may provide some financial security for your family when you die. If you have a spouse, they are automatically your beneficiary and will receive your pension benefit. If you have a child, you may want to name them as an alternate beneficiary in case your spouse also dies or to provide for your child on your death.
Depending on your situation, you may wish to name your child as a primary beneficiary. If you have a spouse, they will have to give up their right to be the automatic beneficiary of your pension for you to do this. Consider also naming a trustee for your beneficiary to manage your pension on your behalf if your child is under age 19.
You may wish to speak with a legal professional to establish or update your will and discuss your options as they relate to your pension and protecting your family.
Planning for your new future
Having a child is one of life’s most significant and exciting events. And as with all major changes in your life, it’s wise to take a few moments to review your financial situation and consult an independent financial adviser, including your options when it comes to work and your pension.