# How to Calculate Pension Maximum Transfer Value (MTV)

If you have a defined benefit pension plan, it’s important to understand what the Maximum Transfer Value (MTV) is and how it can affect you. When you leave your current employer, if you decide to take the commuted value you may not be able to tax shelter the entire amount.

Canada Revenue Agency limits the amount that can be transferred on a tax-sheltered basis to a Locked-In Retirement Account (LIRA). The MTV is a limit imposed by the Income Tax Act based on your age. If your plan allows portability (the ability to transfer the commuted value) for members who are retirement-eligible, your entitlement may hit the MTV. Also, with interest rates at an all-time low (the lower the interest rate, the higher your commuted value), your likelihood of hitting the MTV is even greater.

 Attained Age Present Value Factor Attained Age Present   Value Factor Under 50 9 73 9.8 50 9.4 74 9.4 51 9.6 75 9.1 52 9.8 76 8.7 53 10 77 8.4 54 10.2 78 8 55 10.4 79 7.7 56 10.6 80 7.3 57 10.8 81 7 58 11 82 6.7 59 11.3 83 6.4 60 11.5 84 6.1 61 11.7 85 5.8 62 12 86 5.5 63 12.2 87 5.2 64 12.4 88 4.9 65 12.4 89 4.7 66 12 90 4.4 67 11.7 91 4.2 68 11.3 92 3.9 69 11 93 3.7 70 10.6 94 3.5 71 10.3 95 3.2 72 10.1 96 or over 3

### Calculating MTV

If you’re under Age 50 the formula for calculating the MTV is pretty straightforward:

MTV = present value factor X annual benefit

For example, if you’re age 45 and your annual benefit at age 65 is \$20,000, then your MTV would be:

MTV = 9 X \$20,000 = \$180,000

As long as your commuted value is less than \$180,000, you can transfer the full amount to a tax-sheltered LIRA.

If you’re over age 50 and you have a decent pension plan, it’s quite possible you could hit the MTV and not be able to shelter your full commuted value.

For example, if you’re age 58 and your annual benefit at age 65 is \$30,000, then your MTV would be:

MTV = 11 X \$30,000 = \$330,000

Unfortunately, calculating the MTV isn’t always so easy. If you’re over age 49, the MTV will need to be prorated based on your age at month of interest update.

For example, if you’re born January 2, 1952 and the commuted valued is updated with interest for a payment in March 2013, your age at date of calculation would be 61.1667. Since you’re between age 60 and 61, the factor will need to be prorated. If your annual benefit at age 65 is \$35,000, then your MTV would be:

Present Value Factor at Age 61 = 11.7

Present Value Factor at Age 62 = 12

MTV = 11.7 + [(12 – 11.7) X 0.1667] X \$35,000 = \$411,250.35

If your Commuted Value was \$390,000, then:

LIRA = MTV = \$390,000

Excess Transfer Amount = \$411,250.35 – \$390,000 = 21,250.35

When you received your option forms they should state whether you’re over the MTV, although it’s handy to understand how the MTV works.

### Excess Transfer Amount

If you’re over the MTV, you should find out if your employer allows you to transfer your excess amount to your RRSP. If not you’ll have to receive the excess in taxable cash subject to withholding taxes, which will be taxed at your marginal tax rate when you file your income tax; this can easily push you into a higher marginal tax bracket if your excess amount is substantial.

Provided your employer allows you to transfer the excess transfer amount to your RRSP, you’ll need to provide your notice of assessment as proof you have sufficient room. The ability to tax-shelter the excess amount should be taken into consideration if you’re thinking about taking the commuted value or a deferred pension.

Have you ever hit the MTV when transferring your commuted value? Do you know if your employer allows you to transfer the excess to your RRSP?

About the AuthorSean Cooper is a single, 20-something year old, first time home buyer located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University. You can read some of his other articles here.

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### Sean Cooper

Sean Cooper is a single, 20-something year old, first time home buyer located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University. You can read some of his other articles here.
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BakerMan
5 years ago

It sure is funny that the Canadian Government allows you to work past 65, but yet they have the maximum MTV set to only go to 65. I guess the Federal Mafia has to have a way to rob you even if it do mean that they are taking around 6-7 years of your retirement life. This should be illegal and the practice stopped.

Trevor MacKinnon
6 years ago

If I had excess from my commuted value and have room in my rrsp limit to transfer to, would I then get a tax deduction from those rrsp’s.

Thank you

Nick
6 years ago

Yes you would, but you would not see any money. The excess will be added to your income, and when you contribute to your RSP, you will get a tax deduction for the same amount, which will result in a wash.

jared
11 years ago

Note that prorating of the MTV stops at age 65, and from 65 onwards, your integer age (rounding down) at month of interest update will be used.

Rohit @ The Money Mail
11 years ago

Pretty complicated stuff! Unfortunately, I started working in an era when my company had stopped the defined benefits plan and stared a defined contribution plan :(