Buying Prior Service
Prior service is service you performed in the past that you may purchase to enhance your Local
Authorities Pension Plan (LAPP) retirement benefit in the future.
How will buying prior service affect my LAPP pension?
Buying prior service will increase your pensionable service. This means that your future LAPP benefit
will be higher and you may be able to retire with an unreduced LAPP pension sooner.
You can estimate how buying prior service might affect your pension by using the online Pension
Estimator:
1. Visit www.lapp.ca
2. Click on Members, and then Complete a Pension Estimate
3. Run two pension estimate calculations:
•
One with only your LAPP service
•
One that includes your LAPP service and the prior service
Compare these two estimates to see how buying prior service will impact your LAPP pension. You
should consider the cost of the prior service, the length of time it will take you to pay for the prior service,
and how long it will take for the increase in your pension to offset the cost of buying the service. In
addition, you may need to consider the impact that a Past Service Pension Adjustment (PSPA) might have
on your RRSP contribution room.
You may find it helpful to speak with someone in the financial or retirement planning industry before
making your decision.
How will buying prior service impact my pension reduction?
To receive a LAPP pension, you must be vested and at least 55 years of age. You can retire with an
unreduced pension starting at age 65 regardless of how long you have been a member of LAPP. However,
if you retire between 55 and before 65, your pension may be reduced.
• To retire with an unreduced pension, you must be at least 65 years of age, or your age plus your
years of pensionable service must equal at least 85 (we refer to this as having 85 points).
• If you retire early – at any age between 55 and 65 – with fewer than 85 points, your pension will
be reduced by three per cent per year for each year you are short of age 65 or 85 points,
whichever is less. The maximum pension reduction is 30%.
Buying prior service will increase your pensionable service. For each year of prior service, you will be
one point closer to reaching 85 points.
How do I apply to buy prior service?
If you would like to buy a period of prior service you should contact your current employer. Once you
have applied to purchase a period of prior service, you will be sent a Buyback Proposal that lists:
• How buying prior service will affect your pension,
• How much it will cost you to buy the prior service,
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•
•
•
How much service you can buy,
How to pay for your prior service, and
When your election and payment(s) must be made by.
If the period you have requested to buy is not eligible for purchase, it will not be included in the Buyback
Proposal.
How do I elect to buy prior service?
Your Buyback Election must be returned by the election due date shown in your Buyback Proposal. Once
your Buyback Election has been received, the prior service will be credited to your LAPP account
upfront. If you stop making payments, the credited pensionable service will be prorated accordingly.
Please note that your election cannot be made online and must be returned before any payments can be
applied.
If the Buyback Election due date is not met, you will have to apply for a new Buyback Proposal. If this
happens, the cost to purchase the prior service may increase.
How do I pay for prior service?
If the cost is $500 or less, you will have to pay the full amount by the first payment due date shown in
your Buyback Proposal. You can pay with a lump sum payment through your employer or with a transfer
from a Registered Retirement Savings Plan (RRSP) or Locked-In Retirement Account (LIRA) set up
through your financial institution.
If the cost is over $500, your first payment must be made by the first payment due date shown in your
Buyback Proposal. You can pay with a lump sum payment through your employer, instalments through
your employer, or with a transfer from an RRSP or LIRA set up through your financial institution.
To learn more about the various payment methods, see the Frequently Asked Questions at www.lapp.ca
and at mypensionplan.ca.
• Why would I use my RRSP to pay the cost of a leave or past service?
• Can I make extra payments when I buy service?
What are the tax implications of buying prior service?
For service after 1989, the tax rules require that you have adequate RRSP room to allow for the
certification of the PSPA associated with the prior service you are buying. This PSPA represents the value
allocated by the Canada Revenue Agency (CRA) to the increase in your LAPP benefit entitlement and
will reduce your RRSP contribution room.
If applicable, your Buyback Proposal will provide you with the PSPA associated with the period of prior
service. Please make sure you understand how this PSPA may affect your ability to purchase the service.
You should also make sure you understand how you can use a qualifying transfer from an RRSP or LIRA
to reduce or eliminate the PSPA that is reported to CRA.
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Your buyback contributions are tax-deductible in the year of payment and will be shown on your annual
T4 Statement of Remuneration Paid. In most cases, you will be able to deduct at least a portion of your
payments against your income. For detailed information, refer to the federal tax department’s Pension and
RRSP Tax Guide, available from any district taxation office.
Will I be charged interest if I buy prior service?
Your Buyback Proposal will indicate the amortization options. If the cost of the prior service is more than
$500, your Buyback Proposal will also indicate the applicable financing interest rate, which will be set
when you apply to buy the prior service and is charged on the outstanding balance so the faster you pay
for the service the less interest you will be charged.
What if I decide not to make full payment?
If you know at the time your receive your Buyback Proposal that you will not be buying the full period of
prior service, please contact LAPP as soon as possible for more information on how to buy a portion of
your service. Reducing the amount of service you will be buying before you have started to make
payments may result in a smaller PSPA.
If you have already started to make payments toward your prior service and decide to buy only a portion
of the service covered in your Buyback Proposal, the credited pensionable service will be prorated
accordingly. Please note that the PSPA will not be prorated.
What happens if I leave LAPP before I’m done buying the prior service?
You must be an active LAPP participant in order to make payments towards your prior service.
If you stop participating in LAPP, you will have 90 days from your termination date to finish making
payment. If you do not pay the full outstanding balance, the credited pensionable service will be prorated
accordingly. Please note that the PSPA will not be prorated.
This document provides general information only. Should anything in this document conflict with governing
legislation, the latter shall apply.
Alberta Pensions Services Corporation (APS) proudly serves LAPP and provides responsive and focused member
service on behalf of the Plan. If you need more information, please contact APS through the Member Services
Centre.
Mail:
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LAPP c/o APS
5103 Windermere Blvd. SW
Edmonton, Alberta T6W 0S9
Telephone:
E-mail:
Website:
1-877-649-LAPP (5277)
memberservices@lapp.ca
www.lapp.ca
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