Voluntary contributions are tax-deductible contributions that you may be able to contribute over and above your required contributions to the UBC Faculty Pension Plan (FPP). Although they do not attract employer contributions, there are many benefits to making them if you have contribution room available.
You get immediate tax relief by deducting your contributions from your current year’s taxable income. In effect, your contributions are made with pre-tax dollars.
Contributions grow tax free
The investment earnings that are accumulated are not taxed and grow on a tax-sheltered basis until they are withdrawn. The compounding effect of tax sheltered investment growth can be significant.
You will pay tax on both your investment earnings and your contributions when you withdraw them from the FPP. However, you have deferred this tax liability to the future as your marginal tax rate will likely be lower in retirement than during your contributing years.
Convenience of Payroll Deductions
We can arrange to deduct voluntary contributions from your semi-monthly pay. Payroll deduction is a quick and convenient way to save. Your tax deduction at source is also reduced – you receive an immediate tax credit each pay rather than waiting until you file your tax return. To start making voluntary contributions by payroll deduction, submit a completed Voluntary Contribution Form to the UBC Pension Administration Office by campus mail, fax or email to email@example.com.
Enhance Your Retirement Income
Statistics show that we are living longer and healthier lives. As a result, retirement often lasts much longer and it is important to know that there will be adequate savings to meet your retirement income needs. The FPP is designed to provide a typical 30-year service member with a target income replacement rate of 50% or higher of their final year’s salary. Pensions from government administered income security programs, additional voluntary contributions and personal resources will provide additional sources of income at retirement.
Low Management Fees
Management and administrative fees charged to the UBC FPP Investment Funds are typically much lower than investment vehicles provided by external financial institutions. To view the most current fee information, sign in to your account at mysunlife.ca/ubcfpp, select my financial centre > Accounts > Account fees. Also, the FPP does not charge transfer out fees or transaction fees for cash withdrawals. Fees have a significant impact on the value of your investments over time. Lower fees mean that more of your money stays invested and continues to grow.
Voluntary Contributions are Accessible
Your voluntary contributions and accumulated investment earnings are not locked-in and can be withdrawn in cash (subject to withholding taxes) or transferred on a tax-sheltered basis to an RRSP at a Canadian financial institution at any time.
Registered Retirement Savings Plans vs UBC Faculty Pension Plan
The following explains the differences between the two primary vehicles for accommodating voluntary contributions, Registered Retirement Savings Plans (RRSPs) and the UBC Faculty Pension Plan. A key point to note is that RRSP contribution room is different from the available contribution room for your FPP.
Registered Retirement Savings Plans
An RRSP is a registered retirement savings plan that you arrange with a financial institution. Contributions to RRSPs are deductible from taxable income, reducing income tax payable for the year in which the contributions are claimed. The amount that you can contribute to your RRSP is found under the RRSP Deduction Limit Statement section of your most recent Notice of Assessment from the Canada Revenue Agency (CRA). Generally, the amount you are able to contribute to your RRSP is based on your earned income and pension plan contributions for the previous calendar year, plus any unused contribution room.
In order to be deductible in the current taxation year, contributions to your RRSP must be made either during the year or up to 60 days after December 31st of the current year.
UBC Faculty Pension Plan
Allowable voluntary contributions to the FPP are calculated based on your taxable earnings and total required contributions to the pension plan in the current calendar year (as opposed to the previous calendar year for RRSPs). Therefore, only actively employed FPP members are eligible to contribute. Contributions must be made by December 31st of the current year and are only deductible from your current year’s taxable income. Unlike RRSPs, there is no first 60 day contribution window.
To determine if you have voluntary contribution room and for information on how to make voluntary contributions, use the Contributions Estimator calculator on the FPP website. Input your annual salary and your estimated voluntary contribution room will be calculated. Alternatively, the Contribution Estimator is available by signing in to your account at mysunlife.ca/ubcfpp, then select my financial centre > Requests > Contribute.
Since RRSP contribution room is calculated using previous year’s earnings and FPP contributions are calculated using current year’s earnings, it is possible to make contributions to both plans in the same year. Furthermore, voluntary contributions to the FPP will reduce your RRSP contribution room in the following taxation year.
Choosing Between the Two Vehicles
Key considerations when deciding whether to make voluntary contributions to an RRSP or the FPP:
Voluntary Contributions to an RRSP
- Flexibility to make contributions in the first 60 days of the following year.
- Professional investment advice is often available.
- Gain access to a wider range of investment options.
- Take advantage of income splitting opportunities by contributing to a Spousal RRSP.
- Availability of government programs: Homebuyer’s Plan and Lifelong Learning Plan.
- Ability to transfer to the FPP on a tax-sheltered basis at any time.
- Management and administrative fees may be higher than the FPP.
Voluntary Contributions to the UBC Faculty Pension Plan
- Convenience of having your contributions deducted from your pay.
- Reduce tax deductions at source – you can receive the tax credit each pay period rather than waiting until you file your tax return.
- Maintain one account and have retirement savings under the same roof.
- At retirement, use your voluntary contributions for the UBC Faculty Pension Plan retirement income options. Visit Retiring to learn about the available options.
- Ability to withdraw cash at any time with no transaction fees.
- Ability to transfer to an RRSP at a financial institution on a tax sheltered basis at any time with no transfer out fees.
- Management and administration fees are often lower.
Making Voluntary Contributions
If you have any questions about voluntary contributions, please contact Lily Lee at 604-827-2208 or use the Online Contact / Feedback Form.