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The ABCs of AVCs

All you need to know about making additional voluntary contributions (AVCs).

Additional voluntary contributions (AVCs) are extra non-locked in funds you may choose to contribute to your pension account on a regular basis in addition to your mandatory pension contributions. AVCs will be deducted from your salary each pay period by your employer and credited into your pension account to increase your savings for retirement. Employers do not match AVCs.

Many members have been able to reach their retirement savings goals because they made AVCs.

The real life story of Jack

Happy Jack

"I learned early in my adult life that planning for the future is an urgent and very important task since as we all know, tomorrow is never promised," began Jack* (not his real name), a CSS member for 39 years.

Jack's dad died suddenly when he was 22, leaving his mom and four children with $600.00 in the bank and a $580.00 VISA bill.

"The five of us shared his amassed fortune of $20.00," he said, as they had to struggle with a house mortgage, maintain a car loan and living expenses all on a single income.

Jack took on the opportunity of a supervisory role at a small co-op in Manitoba and often had morning coffee breaks in the co-op cafeteria. During one of those coffee breaks, Jack read his CSS Pension Plan annual pension statement with a chart that showed how contributing an extra $10.00 can give you an additional $100.00 monthly when you retire at 55. He recalls how, "our Credit Manager (a rough and gruff older lady) really gave me the gears when I came out with a mindless statement like, 'I wouldn't give up two beers just for something that might happen in the future.' After my ego healed from her publicly berating me, I took her advice and started on the path to extra contributions. It was Margie who set me on this path, not because she was mean, but because she understood the value of compounding interest over time and truly cared for my future."

Question 1: What's the minimum AVC that a member can contribute?

Answer: There's no minimum AVCs contribution. You can start with as little of a contribution as you're comfortable with and gradually increase it, if and when you choose.

Question 2: What's the procedure to make AVCs?

Answer: Your payroll department deducts your AVCs from your income every pay period to be credited into your pension account along with the mandatory contributions. If you want to begin making AVCs, speak with your payroll department to determine your limit and set an amount for AVCs deductions.

Back to Jack
Jack continued to make minimal extra contributions to his pension account, but he confessed, "my expenses were getting larger and it was becoming more difficult to stay committed."

Jack met his sweetheart, Jane* (not her real name), and after a few years, they got married. Like most young couples they struggled to make ends meet.

"Each year, when I got a pay raise, I would say I should be contributing more for our future and she would say we can't afford anymore. Her comments were something like, 'it's fine to save for the future, but we still have to be able to live for today,' and she was right," said Jack about his dilemma.

However, Jack's friend and Controller came to the rescue when he suggested that when Jack received his annual 2% raise, he should keep 1% to help with his monthly budget and contribute the other 1% to his pension as an additional voluntary contribution. Since pension contributions reduce taxable income, Jack would be benefitting from the extra contribution but will be paying lesser amount of income tax. Jack reasoned, "my net loss of monthly income would be negligible or non-existent."

Jack and Jane compromised and took this advice. Their monthly income slowly increased, and they were on a solid path to fully maximizing their voluntary contributions.

"Within five years, 18% of my wage (6% mandatory, 6% co-op matched, and 6% voluntary) was going into my pension for our future and our daily life was improving as well," Jack concluded.

Question 3: What is the maximum AVCs a member can contribute? 
Answer: The Canada Revenue Agency (CRA) sets the limit of the lesser of 18% of annual employment earnings or the CRA money purchase limit* (this amount changes yearly. Confirm the most recent figure with your payroll department to determine the maximum amount you can contribute as AVCs) for pension contributions. This limit includes both you and your employer's mandatory contributions plus any additional unmatched contributions.

Example using the 2019 CRA money purchase limit

2019 CRA Limit

Question 4: Can AVCs be withdrawn before retirement? 

Answer: Although AVCs are non-locked-in funds, members cannot withdraw from their AVCs before terminating employment. However, even though it's not mandatory, members can withdraw their AVCs when they leave an employer member. In this case, the funds in the AVCs account will be paid to the member as a lump sum, less tax.

Question 5: Can members temporarily stop making AVCs?

Answer: AVCs are very flexible in that members can choose when to begin, stop, reduce or increase their voluntary contributions based on their individual financial circumstance at every point in time. To make changes to your AVCs, contact your payroll department.

Question 6: Do AVCs reduce your taxable income?

Answer: Like the mandatory contributions, AVCs are deducted before income tax, thereby reducing your taxable income.

Comparison chart

Retirement savings goal achieved

Happy Jack and Jane

Jack initially wanted to retire with a million dollars at 54 but because there was a downturn in the investment markets the pension fund lost money in 2008, and he didn't reach his target at age 54.

"I also realized that I wasn't ready to retire anyway," he said.

In 2014, Jack reached his retirement savings goal.

"I was able to show my mom my pension account before she died. She was so proud and said she had never known a millionaire before and cried as she hugged me tightly. I truly felt rich, not because of the money, but because of the pride she had in me and the accomplishment I felt for my family. They would never have to endure the pain and strife I did when I started out," Jack said with a smile.

Jack will retire sometime next year to live his retirement dream. He has coached several of his staff and acquaintances and shared his experience to help them realize their goals in life. With a grade 12 education, he doesn't consider himself to be very smart, neither does he have a lot of investment knowledge, but he makes it a point to learn anything he could on important topics. He was never too proud to take advice from others, but also not too naïve to check the facts out himself.

Question 7: At retirement, can the AVCs be withdrawn as a lump sum?

Answer: Yes, unlike the mandatory contributions that must be converted to a retirement income, AVCs come with the additional option of withdrawing them as a lump sum less income tax.

Question 8: Can lump sums be transferred into the AVCs account? 
Answer: Due to the limit on contributions to the pension fund set by the CRA, lump sums cannot be transferred in to the AVCs account. Contributions into the pension fund must be made through the employer.

Question 9: Can inactive members, who are no longer employees of an employer member still make AVCs?

Answer: Members can only make contributions if they are working for an employer member of the Plan. When they no longer work for an employer member, they cannot make AVCs.

Question 10: How do I monitor my AVCs? 
Answer: You can monitor your AVCs from your myCSSPEN account. Register here if you don't have an account yet