Basic question about pension terminology
June 27, 2019 9:00 PM   Subscribe

What is the difference between "transfer value" and "commuted value" of a pension? I've seen both terms in some readings and I don't really understand the definitions.
posted by NoneOfTheAbove to Work & Money (1 answer total)
 
Is this about Canada?

If so, what they are referring to are the cashing out of a pension and transferring it to another tax deferred account. The commuted value is the total cash amount you get, calculated as the equivalent amount of cash that would generate your pension payments.

The transfer value is the smaller portion of the commuted value that you can transfer into the new account tax free. The difference is the amount that you have to pay taxes on immediately just as if it were income.

The transfer value is calculated using a formula. The formula assumes your pension only pays you the same amount each year. But if your pension pays you an increasing inflation adjusted amount each year, that extra bonus is considered immediately taxable income.

Here is a pretty good explanation with examples.
posted by JackFlash at 9:54 PM on June 27


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