What happens if the cost-sharing ratio is reached either before or after the projected dates of 2008 (for above the YMPE) and 2013 (for up to the YMPE)?
As previously stated, legislative changes in 1999 to the PS pension plan stated that the plan member share of the costs of the pension plan cannot increase past 40%. (Plan member contribution rates under the CF and RCMP pension plans could never exceed those of public service employees.)
This means that, should the cost-sharing ratio be reached before or after the projected dates of 2008 and 2013, plan member contribution rates will have to be revisited by the ministers of the Treasury Board.
Are contribution rates affected by the growing number of PS, CF and RCMP pensioners?
The Office of the Chief Actuary regularly carries out an actuarial valuation on the three public sector pension plans and the upcoming retirements have been anticipated. This valuation takes into account all demographic changes that may be experienced by the plans and would therefore take into account the growing number of pensioners. Plan members can rest assured that they will receive their benefits, since they are fully guaranteed by the Government of Canada.
Why is the Government increasing plan member contribution rates when there was a surplus in the three public sector superannuation accounts in 1999?
Lawsuits were initiated to challenge the September 1999 legislated provisions for managing surpluses in the three public sector pension plans. As a result, pending a final decision by the courts, it would be inappropriate to comment on this issue.
However, the Government of Canada must continue to manage the public sector pension plans to ensure the long-term sustainability of the pension plans and must be accountable to Canadian taxpayers.
What is the impact to employees as a result of the increase in contribution rates beginning in 2006?
In 2006, an employee earning $50,000 will have to pay an additional $150 in contributions. This increase will be mitigated by the fact that it is tax-deductible at the employee's applicable marginal tax rate. For example, an employee, living in Ontario and earning $50,000, will pay after tax (federal and Ontario combined tax rate of 31.15%) an amount of $103.28 for 2006.
How do the three pension plans contribution rates compare to other pension plans?
The current PS, CF and RCMP contribution rates are among the lowest when compared to other major public sector pension plans. The following table provides a sample comparison with other Canadian public sector pension plans:
Pension Plan Sponsor
Plan Member Contributions
Value of Contribution based on
Up to the YMPE
Above the YMPE
PS, CF and
RCMP pension plans
Quebec Teachers Pension Plan
Ontario Teachers Pension Plan
Ontario Public Service and Ontario Public Service Employees Union
Ontario Municipal Employees Retirement System
Alberta Public Service
Coordination with the Canada Pension Plan and the Quebec Pension Plan
Why are pension benefits under the three pension plans reduced at age 65?
When the CPP/QPP was introduced in 1966, the Government of Canada decided to co-ordinate the new plan with the pension plans that it sponsored for its personnel, rather than requiring contributors to pay additional contributions for their CPP/QPP coverage. As a result, the benefits of the CPP/QPP became available to plan members without any increase in their monthly pension contributions. While the contribution amount remained the same, a portion went to the CPP/QPP and the remaining served to pay for modified coverage under the three plans.Since contributions to the three pension accounts were reduced, it was necessary to have a corresponding adjustment to payable benefits, to recognize those lower contributions and the fact that there will be a CPP/QPP benefit payable.
This co-ordination means that plan members contribute to the CPP/QPP by paying contributions on their annual earnings between a minimum and maximum level. The minimum level, known as the Year's Basic Exemption, is set at $3500 for 2005. The maximum level is set every year and is known as the Year's Maximum Pensionable Earnings (YMPE). In 2005, the earnings on which CPP/QPP contributions are required are those up to $41,100.
In 2005, employees contribute to the CPP/QPP at a rate of 4.95%. Plan members of the three public sector pension plans contribute as follows:
- 4% of their earnings up to the YMPE; and
- 7.5% of their earnings above the YMPE.
When is the reduction factor applied to the PS, CF and RCMP pension?
PS, CF and RCMP pension benefits are reduced automatically by a standard formula:
- when a plan member retires and reaches age 65 (which is the normal age of eligibility for CPP/QPP); or
- if a plan member is entitled to draw CPP/QPP disability benefits.
What is the current formula to reduce a PS, CF and RCMP pension?
The reduction of a PS, CF and RCMP pension to account for the coordination with CPP/QPP is determined by the following formula:
the number of years of pensionable service under the PSPP, CFPP and RCMPPP
the lesser of:
the 1 for the year of
your average salary for the
five consecutive years of
your highest-paid service
1 The AMPE is the average of the YMPE (Year's Maximum Pensionable Earnings) for the year of your retirement and the four preceding years. The YMPE and the AMPE are determined in accordance with the provisions of the CPP/QPP. If you ceased to be employed in the Public Service in 2005, the AMPE would be $39,780.
Why is the change in the reduction factor necessary at this time?
When the CPP/QPP was introduced in 1966, it was decided to coordinate the three major pension plans with the CPP/QPP (CF and RCMP plan members contribute to CPP only). Since contributions to the three pension plan accounts were reduced, it was necessary to have a corresponding adjustment to payable benefits, to recognize those lower contributions and the fact that there will be a CPP benefit payable. When a PS, CF and RCMP plan member retired and reached the age of 65, the pension would be reduced to take into consideration the payment of a CPP/QPP benefit.
However, when the existing reduction factor was adopted in 1966, it was recognized that it would not produce the desired result for all time. At some point in the future, the reduction factor in the three major pension plans would have to be revisited as the public sector pension plans and the CPP/QPP evolved. For example, differences in contributory periods under the public sector pension plans and the CPP/QPP would affect the current coordination feature.
Will this amendment affect all active employees and pensioners?
No, the amendment, if enacted by Parliament, will affect only employees and pensioners who turn 65 in 2008 or later. The existing reduction factor will continue to apply to individuals who turn 65 prior to 2008.
What is the financial impact on plan members benefits?
The financial implications of the change to the reduction factor will vary depending upon a plan members' career and earning patterns. 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 example, an individual who earns more than the CPP/QPP maximum throughout his/her career and who turns age 65 in the year 2013 will see a smaller reduction to his/her annual public sector pension of approximately $29.00 per year of service. For an individual with 30 years of service that would represent approximately $870.00 annually.
Do other pension plans bring similar amendments to their plans?
Co-ordination with the CPP/QPP is a common feature found in many Canadian pension plans in both the public and private sector. In recent years, a number of other plans have made changes to their pension formula.
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