Grossed up Pension

[Canuck1965]

Afternoon all,

Got a letter from my ex's new lawyer, in it she mentions my pension would have to be grossed up to take into consideration the taxes the ex will have to pay when she finally start to withdraw this pension in the future.

Question What does it mean "grossed up" and what percentage do they use for this typically??

Thanks

[OrleansLawyer]

Question What does it mean "grossed up" and what percentage do they use for this typically??

If someone gives you 50k in cash, you have 50k to spend.

If someone gives you 50k in RRSP, you may only end up with 35k-40k to spend (depending on your tax rate).

If you need RRSP to give someone 50k cash, you "gross up" the 50k to an amount that, after tax, will yield 50k.

An actuarial report was likely prepared for the pension. That will show an assumed tax liability for each withdraw class (20% chance retire 60, 50% chance retire 65, tax rate X, tax rate Y, etc) which lead to an overall tax rate. This shows the total tax liability for you, and the liability on the asset.

If the pension is being divided equally, some people will wash it; meaning, you get 50%, she gets 50%, we never talk about pension in equalization again (because assumed same asset and liability for both of you).

If there is a less than equal division, or if it is being used to pay equalization, some people will use your assumed tax rate for simplicity. This is generally higher than the actual tax rate, and thus a disadvantage to you - but if the amount is not high it may not be worth fighting over.

Ultimately, the tax rate is the one your ex will pay in retirement. What does her financial advisor say her income in retirement will be? That allows you to calculate her average tax rate, which would then be applied to her share of the pension for grossing up purposes.

[Serene]

If it is a then and now pension it is taxed in the hands of the pensioner. My hubby's SA does not speak to grossing up...