Parental Leave and Pensions: What to do?

[parkette]

I recently found out that I'm pregnant (yay!). This is coming at a good time for us, and I'm looking forward to the next 8 months of planning, and hoping that all goes well.

My question is about what we should do about my pension while on parental leave. I work for the Canadian federal government, and I am fortunate to have a generous parental leave- I am topped up to 93% of my pay, for a full year. Certain deductions will also cease, so I will essentially get full pay for a year. Amazing!

I have worked with this department since I was in university, on and off for about 12 years. I have about 8 years of pensionable time accumulated. While I love my job, I don't necessarily love the direction our government, and in turn our department, is headed. I am working on an exit plan. After discovering MMM earlier this year, I decided I wanted to retire in 10 years, by the time I'm 40. My husband will be 45, and is pretty much on board.

For background purposes, we are mostly invested in real estate. We own 3 rental houses in Canada, and 1 in Australia. Most of our savings is tied up in superannuation, which we are unlikely to be able to touch until between 55 and 65. We have a small amount of non-taxable investments. My short-term goal is to increase these investments so that we are more diversified.

After my parental leave, I will have the option of paying into my pension to qualify it for another year of pensionable time. The fed pension is generous, and I anticipate that when I leave the public service I will leave it intact and access it somewhere between 55-65. However, given my short-term goal of increasing our own non-taxable investments (we have lots of room), I am thinking that it would be better to invest it on our own, especially given that we will have to fund the gap between ER and the pension kicking in.

To summarize the question: When considering parental leave, should I pay into my pension while off to increase it later on, or should I do my own investing for use between 40-55?

Input from other Canadian feds is also appreciated in case I totally have the facts wrong re. parental leave!

[parkette]

Now that I'm back at work after the holidays, I was able to dig up a bit more information.

I will have to pay into the pension regardless for the first 3 months of mat leave. I have the option to pay the remaining 9 months after I return to work, or not. Both contribution rates are single, so the gov't will pay the other portion.

I pay roughly $150 per check towards my pension, so I estimate that I would owe about $3,000 to buy the remaining 9 months.

If I RE from the federal public service, I will at the earliest be able to access the reduced pension at age 60.

[MorningCoffee]

I had a different pension plan, but did a buyback and it payed off big time. YMMV.

I suggest you contact your pension board to get more info on your options and the numbers for each scenario. Don't forget to take into account the matched contributions (which seems to be what you indicated - mine didn't do that. I was responsible to pay both employee and employer portions). Crunching the numbers will help to decide what's best.

[Deano]

We don't work for the feds, but my wife and I are both teachers in Ontario and about to experience the same issue as you.

If you trust in your pension and believe it will be there (or mostly be there) in 20-30 years time, it makes complete sense to buy out the missed contributions. If you don't, take the 3k and put it into something you believe in. I'm not being flippant here, pensions like yours and mine are increasingly coming under attack. Part of this is structural and demographic, but another large part is the attitudes of government and business leaders (same thing?).

For us, we're not going to put the money back into the pension…the law only guarantees us what we've put into it and I'd feel more comfortable investing in a balanced and diversified portfolio.

[MikeStache]

Now that I'm back at work after the holidays, I was able to dig up a bit more information.

I will have to pay into the pension regardless for the first 3 months of mat leave. I have the option to pay the remaining 9 months after I return to work, or not. Both contribution rates are single, so the gov't will pay the other portion.

I pay roughly $150 per check towards my pension, so I estimate that I would owe about $3,000 to buy the remaining 9 months.

If I RE from the federal public service, I will at the earliest be able to access the reduced pension at age 60.

Congrats on your upcoming arrival and it's cool to see another Islander Mustachian! (I grew up in PEI)

My wife is currently off on leave and paid her pension during parental leave. I agree that it's worth it if you trust in the plan.

Are you sure about accessing the pension at 60? Last time I looked at DW's pension stuff the magic number was a service time + age combo of 85. So if you have 30 years of service, you could leave at 55 (which I think is the minimum age). That would depend on the "off" portion of the "on and off" with the government that you mention. I could be wrong about that however. Her pension is something I'm nt as knowledgeable about as I should be.

Also, depending on how long you want to be off and if you can afford it, the government also has the option of unpaid Care and Nurturing leave of up to 5 years. They don't hold your specific position but when you come back, you go on a priority list for jobs at your level. My wife is using this to stay at home with our daughters a few more years until our oldest is in school and youngest is 2. It will delay FI for a few years but it's something she's always wanted and we think it's worth it. 

[parkette]

Thanks for all the comments! I think I expected that commenters would recommend I stash the money in my own investments, which probably shows that I'm undervaluing my pension. I realize that a federal pension is great, but I also feel that it can be "golden handcuffs."

Morning Coffee: Thank you for the suggestion to check in with the pension centre. I'll have them run scenarios for me to see what the best decision is.

Deano: I feel relatively confident that my pension will be there when the time comes. I know the trend is headed the other way in most circumstances, but the federal pension fund is stable, and I don't feel it will be discontinued. We will, however, pay a larger portion, and I think that's fair). That being said, I wouldn't necessarily be surprised if things change, which is also why we're looking at building various income streams. I would trust the fund enough to pay into it, but I like having a backup plan :)

MikeM: Yay another Islander! We're few and far between on here. From what I understand re: the pension rules are that there is the "magic 85" number- years of service + age, but that only applies to a full pension. Otherwise, there is the 60/2 rule, where if you have 2 or more years of service you can tap into your pension at 60 (reduced of course).
I am keeping the extra 5 years in mind. Our plans change regularly, but my thinking is that I will take the year off with the first, go back for a year, have a 2nd, then take mat leave plus a year or two while they're in their early years. It makes more sense for my husband to be off with the kids (and he would love to), so we'll see how it all plays out. Lots of variables!