What is Commuted Value for Pensions in Canada?

When you retire, you have the choice of taking a lump sum payout of your pension’s commuted value or a pension lifetime monthly benefit.

Commuted value is the net present-day lump sum value of a future pension benefit. The total amount of your pension’s commuted value (CV) is calculated using standards, as required under the Ontario Pension Benefits Act, and depends on many factors including future interest and mortality rates, and inflation.

Your pension commuted value is not determined by investment returns on the pension plan’s assets.

Once you retire, or you are laid off by your employer, they will provide you with a pension statement that has the ‘commuted value’ of your defined-benefit pension plan on it.

Depending on the company you work for and how long you’ve worked there, the commuted value of your pension could be 500k, 800k, or even 1 million dollars or more, so choosing how to manage that money is a critically important decision.

You’ll be presented with a choice between:

  1. A “lump-sum distribution”, which is a one-time payment from your pension administrator.
  2. A “regular pension payment” (also referred to as a Lifetime Monthly Benefit), where you receive a set monthly payment for life. In some cases, depending on your plan, this can continue after you pass away and payments are sent monthly to your spouse until he/she passes.

We’ve put together a list of the pros and cons of taking the lump-sum pension payment option (also known as ‘lump-sum distribution) vs. regular monthly pension payments (also known as ‘lifetime monthly benefit’) over on our blog post here.

Let us analyze your multiple income streams in retirement. We’ll make sure to minimize your income tax. Retirement planning is about budget and taxes. You address your spending. We address tax minimization.

Consult with a professional to help you with this key financial decision.

Bruce Youngblud, CFP, CIM 

Bruce Youngblud is a known pension expert in southern Ontario who specializes in helping individuals prepare for retirement. He advises clients on Canada pension plans, auto worker pensions, government pensions, tax planning, and estate planning. Get a free consultation to analyze and discuss your pension options. Schedule a 15-minute call here with one of our Certified Financial Planners!

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