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Pensions and Benefits

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The Co-ordination of the Public Service Pension Plan with the Canada Pension Plan or Quebec Pension Plan

Introduction

When the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP) were introduced on January 1, 1966, the federal government, like most Canadian employers offering a pension plan for their employees, decided to co-ordinate the new CPP/QPP with the Public Service pension plan . It did this so that its employees would not have to set aside a greater proportion of their salary for retirement savings.

This document provides an overview of the co-ordination of the Public Service pension plan with the CPP/QPP by describing its impact on:

the contribution rates paid by a Public Service pension plan member to each separate plan, notably the Public Service pension plan and the CPP/QPP;
the Public Service pension at age 65 when the CPP/QPP retirement pension is normally paid;
an early Public Service pension; and
an early or delayed CPP/QPP retirement pension.

A list of useful links and helpful telephone numbers has been included at the end of this document to provide sources of more detailed information on pension issues.

Part I–Contributions

When you are appointed to a position in the Public Service for an indeterminate period, or once you have worked in the Public Service for six consecutive months, you and your employer, the federal government, begin to make contributions to the Public Service pension plan.

In addition, you and the federal government, like all Canadian workers and employers, must also contribute to the Canada Pension Plan (CPP), if you work outside Quebec, or the Quebec Pension Plan (QPP), if you work in Quebec.

Under the CPP/QPP, you will pay contributions on your annual earnings between a set minimum and a set maximum level:

the minimum level, known as the Year's Basic Exemption (YBE), is set at $3,500;
the maximum level is set every year by the CPP/QPP and is known as the Year's Maximum Pensionable Earnings (YMPE). In 2008, it is set at $44,900.

Since the Public Service pension plan is co‑ordinated with the CPP/QPP, employees contribute to the Public Service pension plan as of January 1, 2008 at two rates:

4.9 per cent on the portion of salary up to the maximum covered by the CPP/QPP (YMPE); and
8.4 per cent on the portion of salary above the maximum covered by the CPP/QPP (YMPE).

The following graph illustrates the contributions you make to each plan in 2008.

PART II–Your Public Service Pension

The co-ordination of the Public Service pension plan with the CPP/QPP affects not only your contributions but also your benefits. You contribute less to the Public Service pension plan on earnings up to the maximum covered by the CPP/QPP ($44,900 for 2008) and your Public Service pension is reduced to partially recognize benefits payable from the CPP/QPP. This means that Public Service pension plan benefits are reduced automatically by a standard formula once you reach age 65 (which is the normal age of eligibility for CPP/QPP), or if you are entitled to draw CPP/QPP disability benefits at any age.

Public Service pension before age 65

You are entitled to a Public Service pension (immediate annuity), if you retire:

at or after age 60 with two (2) or more years of pensionable service; or
at or after age 55 with 30 or more years of pensionable service.

A Public Service pension is calculated according to the following basic pension formula:

2 per cent

number of years of pensionable service

your average salary for the five consecutive years of your highest-paid service

Table 1-Public Service pension before age 65

Leslie retires on May 19, 2008 at age 60 with 27 years of pensionable service and a "best-five" average of $60,000.

Applying the formula to Leslie's situation, we find:

2 per cent

$60,000

$32,400

Thus, Leslie's Public Service pension at age 60 will amount to $32,400.

Public Service pension at age 65

Normally, at age 65, you become eligible to receive a lifetime CPP/QPP retirement pension. Accordingly, the month following your 65th birthday, your Public Service pension will be recalculated (reduced) to take into account that, during your public service employment, you were making lower Public Service pension plan contributions on the part of your salary covered by the CPP/QPP. Note however that, if you are receiving a Public Service pension and you are entitled to receive a CPP/QPP disability benefit before age 65, your Public Service pension will be reduced as of the date of your entitlement to the CPP/QPP disability benefit.

The reduction in your Public Service pension is based on the following:

the number of years of pensionable service to your credit under the Public Service pension plan ; and
the average maximum pensionable earnings (AMPE)¹ under the CPP/QPP for the year of your retirement.

Effective January 1, 2008, the reduction factor used to calculate your pension at age 65 is lowered from the 0.7% in 2007 to 0.625% in 2012. For plan members reaching age 65 in 2008 or later (or earlier in case of disability), the pension reduction at age 65 will be smaller commencing in 2008. The year you reach age 65 will determine the reduction factor applied to your pension.

At age 65 (or earlier if you begin to receive a CPP/QPP disability benefit), your Public Service pension reduction is calculated using the following method:

The applicable reduction factor (see the table below)

the number of years of your pensionable service

the lesser of: the AMPE for the year of your retirement
OR
your average salary for the five consecutive years of your highest-paid service

Reduction factor applied to your pension when you reach age 65

You reach age 65	2007 or earlier	2008	2009	2010	2011	2012 or later
Your year of birth	1942 or earlier	1943	1944	1945	1946	1947 or later
Reduction factor	0.700%	0.685%	0.670%	0.655%	0.640%	0.625%

In this case, Leslie will reach age 65 in 2013 and the applicable reduction factor will be 0.625 per cent.

Once the amount of the reduction is calculated, it is then deducted from the Public Service pension you had before age 65. (See Table 1 for calculation.)

Public Service pension
before age 65

–

Public Service reduction
at age 65

Public Service pension
at age 65

Table 2–Public Service pension at age 65

Following our example and the amendment mentioned previously, when Leslie attains age 65, his Public Service pension, not considering any pension increases due to indexing, will be calculated as follows:

0.625 percent

$42,460*

$ 7,165

* Leslie's "best-five" average salary is $60,000. The AMPE is $42,460 for 2008.
Since the AMPE is the lower of the two numbers, the AMPE is used for the purposes of this calculation.

Leslie's Public Service reduction at age 65 will equal $7,165.

Therefore, Leslie's Public Service pension at age 65 is $25,235.

$32,400
(Public Service pension before age 65)

–

$7,165
(Public Service reduction at age 65)

$25,235
(Public Service pension at age 65)

While your Public Service pension is reduced at age 65, you are eligible for a CPP/QPP retirement pension at this time. Please note that your CPP/QPP retirement pension at age 65 may be more or less than the reduction of your Public Service pension, since the provisions of each plan (Public Service pension plan and CPP/QPP) are different and the amount of a benefit is calculated independently under each plan. For example, the maximum contributory period, the age of eligibility for retirement benefits, and the average earnings used in determining the pension are different under the plans. This is similar to what occurs in other employer‑sponsored pension plans.