Treasury Board of Canada Secretariat
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Notice to Pension Plan Members
Information concerning the three major public sector pension plans:
Public Service Pension Plan, Canadian Forces Pension Plan, and the Royal Canadian Mounted Police Pension Plan
As part of the ongoing objective to ensure the long-term sustainability of the public sector pension plans, the President of the Treasury Board would like to inform plan members that:
- the contribution rates they are paying towards their pension plan will be increased beginning in 2006 to achieve a more balanced cost-sharing ratio, and
- an amendment to the three pension plans, if enacted by Parliament, will change the formula by which plan benefits are coordinated with the Canada Pension Plan (CPP) or the Quebec Pension Plan (QPP) benefits in plan members' favour.
Increases in the plan member contribution rates
- Contribution rates will increase beginning in January 2006 for active pension plan members in the three major public sector pension plans, namely the Public Service Pension Plan (PSPP), the Canadian Forces Pension Plan (CFPP), and the Royal Canadian Mounted Police Pension Plan (RCMPPP).
- Increasing contribution rates ensures that pension plan members and the Government of Canada, as employer, contribute to the pension plans in a more balanced way.
- The current plan member contribution rates are 4 per cent on the portion of salary up to the maximum covered by the CPP or the QPP — $41,100 for 2005 — and 7.5 per cent on the portion of salary above this maximum.
- The current plan member contribution rates have been in effect since January 2000. In 1999, Public sector pension reform legislation was introduced and plan members contribution rates were frozen for the years 2000 to 2003. It was further decided that plan member contributions rates would remain unchanged for 2004 and 2005, to allow for consultation and review in regards to the rates that would apply for the period beginning in 2006.
- Currently, the Government is paying 72 per cent of the costs of the Public Service Pension Plan and PSPP plan members are paying only 28 per cent of those costs. A 60:40 cost-sharing ratio between the employer and the PSPP members, respectively, is the historical average for this plan.
- Currently, the cost-sharing ratio for the CFPP is 78:22 and for the RCMPPP is 75:25 between the employer and the plan members, respectively.
- To better align plan member contributions and the cost of plan benefits, the Treasury Board ministers have approved contribution rate increases to achieve a more balanced cost-sharing for the three pension plans.
- The following table sets out plan member contribution rates that will apply to all three pension plans starting in 2006.
Contribution rates
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | |
|
On earnings up to the maximum covered by the CPP/QPP |
4.0% | 4.3% | 4.6% | 4.9% | 5.2% | 5.5% | 5.8% | 6.1% | 6.4% |
|
On any earnings over the maximum covered by the CPP/QPP |
7.5% | 7.8% | 8.1% | 8.4% | 8.4% | 8.4% | 8.4% | 8.4% | 8.4% |
Coordination with the CPP/QPP
- In addition, as part of their ongoing examination of the three pension plans, the ministers responsible for the pension plans have further recommended an amendment to these plans. If this amendment is enacted by Parliament, the formula used to coordinate plan benefits with the Canada Pension Plan (CPP) or the Quebec Pension Plan (QPP) will be changed in plan members' favour.
- The pension plans are coordinated with the CPP/QPP (the CF and RCMP plans are coordinated with the CPP only). Under coordination, plan member benefits are reduced by a standard formula once the pensioner reaches age 65 (which is the normal age of eligibility for CPP/QPP) or immediately if he is entitled to a CPP/QPP disability pension. The CPP/QPP pension at age 65 may be more or less than the reduction of the PS, CF and RCMP pension since the provisions of each plan are different and the amount of benefit is calculated independently under each plan.
- If approved, the proposed
formula in all three plans will mean a smaller reduction in plan benefits
commencing in 2008:
- when the plan member retires and reaches age 65,or
- if a plan member is entitled to draw CPP/QPP disability benefits.
- The proposal is a technical amendment to the three pension plans that will adjust the reduction factor used in calculating the pension benefits at age 65. This amendment, if enacted by Parliament, would affect all plan members who turn 65 in 2008 and later.
- Beginning in 2008, the reduction factor would gradually be lowered from the current 0.7% reaching 0.625% in 2012.
The following chart sets out the adjustment factor that will apply when a plan member reaches age 65. The applicable adjustment factor will be determined by the year in which the member reaches age 65 and will remain unchanged in all subsequent years for that individual.
Adjustment for the period 2008 to 2012
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | |
|
Reduction factor at age 65 (in all 3 pension plans) |
0.700% | 0.685% | 0.670% | 0.655% | 0.640% | 0.625% | 0.625% |
- By lowering the reduction factor beginning in 2008, the pension reduction for individuals reaching age 65 in 2008 and later would be smaller than if the existing reduction factor was applied.
- For more information, see the following documents on the Treasury Board Secretariat Web site:
