How Taking Long Term Leave Impacts Your Public Service Pension Plan (PSPP) and What You Can Do About It

Nobody knows what’s around the corner, but one thing is certain, life is full of twists and turns. Whether it’s parental leave, caring for a family member, going back to school, or recovering from an illness, taking leave from your employment may be required  

However, what you may not realize is that taking long term leave can affect your Public Service Pension Plan (PSPP) pension. If you’re planning to take long term leave or have recently returned to work, it’s important to understand the potential impact on your pension and steps you can take to feel secure in your retirement and financial future.  In this blog, we’ll review how long term leave can influence your pension, how you can mitigate disruptions, and the options available to you.  

Breaking Down How Long Term Leave Impacts Your Pension 

Your PSPP pension is a Defined Benefit pension, paid into by you and your employer. Your pension is primarily based on your pensionable service (the periods of employment that count toward your pension) and highest average earnings (the average pensionable earnings from the highest-earning periods of your career).  

During a period of long term leave, pension contributions may continue, be reduced or stop altogether, depending on the type of leave and your employment circumstances. While rules vary by long term leave type, this has a greater impact on the factors that shape your pension.  

Pensionable Service 

Pensionable service is used to calculate your PSPP retirement benefit. If a leave period is not counted as pensionable service, you may retire with fewer years of service than expected. 

The impact on your pension could result in: 

• A lower monthly pension benefit 
• A reduced retirement income 
• Potential changes to when you can retire 
• Delay when you become vested in the Plan  

Pension Contributions 

During unpaid leave periods, regular pension contributions may not be deducted from your pay. Depending on your circumstances, you may: 

• Continue contributing while on leave 
• Repay contributions after returning to work 
• Have the option to purchase the service later 

Depending on the type and length of leave, periods of reduced or no earnings may affect your future Canada Pension Plan (CPP) pension, since CPP is based on earnings and contributions. You can learn more about your potential CPP payments from the Government of Canada.  

Retirement Timing 

Pensionable service determines at what age you can retire. If you’ve taken a period of leave, this time may not be counted towards your service time, meaning you may need to work longer to reach retirement eligibility thresholds or to achieve your desired retirement income. 

The Solution: Buying Back Service  

For Provident10 Public Service Pension Plan (PSPP) members, authorized long term leaves of absence may be eligible for purchase or “buy back”, to close gaps in pensionable service and preserve retirement benefits.  

How to Buy Back Your Service 

To buy back your service, you must ask your employer to submit a request form to Provident10. If the request is eligible, you will then receive a contract that is required to be submitted by you back to Provident10 within 45 days.  

At Provident10, applications to purchase unpaid leave should be submitted through your employer within 90 days of returning to work for the cost to be based on the member contributions that would’ve been paid had the leave not occurred. If the application is received after 90 days, the cost is calculated based on the actuarial assumptions associated with the PSPP and could be significantly higher. 

Payment Options for Buying Back Service  

You can make buy back payments by:  

• Writing a cheque to the PSPP Fund 
• Transferring from existing registered retirement savings plan (RRSP) to PSPP Fund 
• Having payroll deductions from employer payroll (interest charges apply) 

What is the Benefit of Buying Back Your Service? 

Whether or not to buy back your pension after long term leave is a personal decision, dependent on your personal circumstances.  

By choosing to buy back your service, you can:  

• Maintain or increase your future pension income 
• Protect your retirement eligibility age or help you retire earlier 
• Reach vested status sooner 
• Improve your long term retirement security 

Questions to Ask About Long Term Leave and Your Pension 

If you’re planning on taking long term leave or have recently returned to work, it is worth learning your options as soon as possible. To help you make an informed decision, good questions to ask are: 

• Can I continue making pension contributions while on leave? 
• Will my leave count as pensionable service? 
• What are my options for purchasing service later? 
• Are there deadlines I need to be aware of? 
• How could this leave affect my projected retirement date? 
• What impact could this have on my future pension benefit? 

Making Informed Decisions for a Secure Retirement  

It’s important to have a clear understanding of your pension and how the decisions you make today can impact your future. 

Taking time away from work is sometimes necessary, and in many cases, beneficial for your health, family, education, or personal development.  

Even though long term leave impacts your pension, it doesn’t have to derail your retirement plans. Having the right information and taking timely action can help you preserve your pensionable service, stay on top of contributions, and keep your retirement goals on track. 

Looking for more information on buying back your long term leave? Register for a Retirement Ready Session or get in touch with our team. 

About Provident10 

Since 2017, Provident10 has been serving the public service employees of Newfoundland and Labrador. At more than 68,000 members (and growing), we are one of the largest public service pension plans in Atlantic Canada. 

We deliver plan administration services and oversee management of the Public Service Pension Plan investment portfolio with one goal in mind: protecting the financial health of the Plan and helping Plan members navigate their pension journey.