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The key interest rate for most Canadian pensions is the Bank of Canada five-year bond yield. This is often the number used to help calculate your commuted pension value. On Feb. 10 2016, the five-year yield hit an all time low of 0.41 per cent. That was the best day for a commuted value pension (or best month as they are usually valued monthly). As I write this, the five-year yield is now 1.14 per cent — or almost triple where it was in mid-February.

Before you think the pension opportunity is now gone, keep in mind where it has been: In March 1990, the five-year yield was 11.6 per cent. We are still at unbelievably low bond yields, and you are still in a golden period for getting huge lump sums in place of your pension. Time will tell if this golden period is coming to an end, but some analysts believe that we will never see a rate as low as 0.41 per cent again in our lifetimes.

To better understand the power of interest rates on your pension value let’s start with the humble annuity. A pension is essentially like buying an annuity. In this case you would pay a lump sum today and in return you would receive a monthly payout for the rest of your life. An annuity is also kind of like buying a lifetime GIC and locking in the rate. Today, you wouldn’t get very excited locking in a lifetime GIC that pays out 2 per cent. You also wouldn’t get that excited locking in an annuity with that type of return. For example, today you would need to put in $1 million as a 65-year-old couple in order to guarantee a payout of $51,000 a year until you both pass away. As unexciting as those rates and payouts would be, a pension commuted value is the opposite. Today it is tremendously exciting.