How does a pension buyback work? |
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By Jason Heath, CFP on December 3, 2025
Estimated reading time: 5 minutes
By Jason Heath, CFP on December 3, 2025
Estimated reading time: 5 minutes
A DB pension plan member may have the opportunity to buy back pensionable service to increase their future pension. Is this a good idea, and how do you do it?
If you work for an employer with a defined benefit (DB) pension plan, you may be eligible to buy back service. This means you can pay for periods during which you did not contribute as if you were a member of the plan during those years. This will increase your future pension entitlement.
A common situation is when you were on leave, including maternity or parental leave. Another example might be if you transfer from one DB pension to another when you start a new job, and the new pension has a more lucrative pension formula.
When you buy back service, you can use money that is in your registered retirement savings plan (RRSP). This is not considered an RRSP withdrawal. The funds can be transferred on a tax-deferred basis to the pension and boost your future payments in exchange for giving up some of your RRSP savings.
Although you could use money in a tax-free savings account (TFSA) or from another source if your RRSP was insufficient, this could be subject to a limit. If the pension buyback exceeds your........