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Past Service

WHAT IS ‘History Service’

Past service refers to the period of employment prior to an worker’s participation in a pension plan. That period may exclude the employee from unavoidable benefits that existed prior to their participation in the plan. Hands have the option to purchase past service, using cash or washing ones hands of a qualified retirement plan roll-over, to increase their years of servicing in the calculation of their retirement pension. In a defined benefit plan, the director has the option of funding for past service or not.


Purchasing past service involves paying a fixed amount of specie in exchange for prior periods of missed pensionable service. Purchasing lifetime service may help maximize retirement income and provide additional monetary security, particularly if an employee took a leave of absence from their job at some nucleus in their career. Some common reasons for leaves include chance off to raise a family, go back to school or to travel. Deferring participation in a superannuate plan may be another reason to purchase past service. 

Most retirement social securities for defined-benefit pension plans are calculated according to a formula similar to: 

  • Retirement annuity = (number of years of pensionable service ) multiplied by (a certain interest for each year of service ) multiplied by (average of final or best earnings over a 3-5 year epoch)

Notably, this type of transaction is irreversible. That makes bargain the cost-benefit dynamics before making the transaction critical. This includes calculating whether or not the expected incremental retirement benefit to be received as a conclusion of the past service purchase exceeds the foregone retirement income that could be subjected to been produced with the money used to purchase the past care. It is important to review how the past service purchase will affect an own’s overall financial plan. 

Paying for Past Service

There are sundry ways to pay for a past service purchase. Funds held in a registered retirement savings organize (RRSP) can be used to pay for past service. In this case, a direct tax hole up transfer from RRSP account to the pension plan can be made. If the RRSP does not oblige sufficient liquid assets, a lump sum contribution can be made to the RRSP to construct up the difference. It may also be possible to pay for past service by transferring funds from a earlier pension plan, provided the current pension plan provider is compliant to accept the funds. Lump sum contribution or installment contributions with non-registered caches, including payroll deductions, can be made as well. 

In cases where staff members are considering rolling over the assets from their qualified retirement design, it is often wise to first consult a financial planner. 

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