TSF and CPP Integration, What Does It Mean?
by Michel Plamondon
Most teachers are
aware that the pension that he/she will receive from the Teachers’
Superannuation Fund (TSF) is integrated with the Canada Pension Plan (CPP)
but many people don’t know what it means in terms of actual dollars.
In this article, I
will use an example to illustrate the effects of what is often referred
to as the CPP offset.
Section 22 (1) of the
Teachers’ Superannuation Act reads: "When a person receiving a
pension under this Act reaches the age of 65, the pension payable under
this act shall be reduced by 0.7% of the person’s average salary rate
for the five highest years of salary for each year of service after July
1, 1972 up to a maximum of thirty five years, and that reduction shall
be computed only on that part of the teachers’ salary which
constitutes the yearly maximum pensionable earnings (YMPE), as defined
in the Canada Pension Plan".
Let’s take a teacher
who will retire this year on June 30, 2001 with 32 years of service,
certificate V at age 55. The pension payable to that teacher would be
calculated using this formula:
Years of Service x 2%
x Average of the 5 Years of Highest Salary
| Year |
Salary |
YMPE |
| 2000/01 |
$
48,392. |
$
38,300. |
| 1999/00 |
$
47,327. |
$
37,600. |
| 1998/99 |
$
46,399. |
$
37,400. |
| 1997/98 |
$
45,489. |
$
36,900. |
| 1991/92 |
$
45,235. |
$
32,200. |
| Total: |
$232,842. |
$182,400. |
| Average: |
$
46, 568. |
$
36,480. |
Pension: $46,568. x 2%
x 32 = $29,803.52 ($2,483.63 monthly)
CPP Offset: $36,480. x
0.7% x 29* = $7,405.44 ($617.12 monthly)
*Years of Service
After 1972
This offset is
calculated when you retire but it is not applied until you reach the age
of 65. However, it will be adjusted upward at the same rate that your
TSF pension is indexed which is 60% of the Consumer Price Index (CPI) to
a maximum of 4% a year. By the time a teacher reaches 65, the CPP offset
will be higher than the figure calculated in the example depending on
the CPI.
It should be noted
that a disability pension is integrated immediately if receiving a
Canada Pension Plan Disability Pension at the same time.
To recap, the
fictional teacher in our example will receive his/her teacher’s
pension for 10 years without reduction. Anytime between age 60 and 65,
this teacher can elect to receive a pension from the Canada Pension
Plan. If the pension from the Canada Pension Plan is taken before age
65, there is a penalty of 1/2% a month for every month the pension is
taken before age 65 (maximum 30%). At age 65, the CPP offset will be
applied. However, at 65, the teacher becomes eligible for old age
security benefits.
