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Calculating Commuted Values

In Canada, a member of a defined benefit pension plan who terminates their membership may receive their pension entitlement in the form of a lump sum. This “commuted value” (CV) is the present value of the expected monthly lifetime retirement pension that they would have received from the plan.

The method for calculating CVs is prescribed by pension legislation, using the CIA’s actuarial Standards of Practice published by the Actuarial Standards Board. Section 3500 of the Standards of Practice contains detailed guidance on the assumptions and methods to be used to calculate CVs.

To calculate a CV payable from certain defined benefit pension plans, the interest rate assumption is determined monthly based on bond yields, historically using only Government of Canada bond yields. However, beginning December 1, 2020, the Standards of Practice have been updated with requirements for a more market-based calculation that also reflects yield information from provincial and corporate bond indices.

The CIA has selected FTSE Russell to provide these monthly bond market yields.

FTSE Russell Page

Learn more about this change to CV calculations on a special episode of the CIA’s Seeing Beyond Risk podcast.

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