Pension is Not That Simple!
Teachers contribute both to the Teachers’
Superannuation Fund (TSF) and the Canada Pension Plan (CPP). The two
plans are integrated. It means that teachers contribute less to the TSF
as would otherwise be required if the two plans were not integrated.
Instead of contributing 9% of their salary on the portion of their
salary up to the year’s maximum pensionable earnings (YMPE), as defined
in the Canada Pension Plan, teachers contribute only 7.3%, a saving of
1.7%. For 2009, the YMPE will be $46,300.
Since teachers enjoy a lower contribution rate to the
TSF because of integration, the pension that they will eventually
receive will also be affected. Nothing is free in this world. Section
22(1) of the Teachers’ Superannuation Act reads: "Where a person
receiving a pension under the Act reaches the age of 65 years, the
pension payable under this Act shall be reduced by 0.7% of the person’s
average salary for the highest five years of salary, for each year of
service after July 1, 1972, and that reduction shall be computed only on
that part of the person’s salary which constitutes the "year’s maximum
pensionable earnings" as defined in the Canada Pension Plan.
In the past, this reduction was referred to as the
CPP offset. The new methodology being used in pension circles now breaks
down your pension into a lifetime benefit and a bridge benefit. The
lifetime benefit is payable for the rest of your life, the bridge
benefit is payable from the time you retire until you reach the age of
65, at which time this bridge benefit terminates.
What does this all mean in terms of dollars and
cents? Let’s illustrate using the example of a teacher holding a
certificate V, who will retire June 30, 2009 at age 55 with 32 years of
service.
The pension payable to that teacher would be
calculated using the following formula:
Years of Service x 2% x Average of the Five Years of
Highest Salary
It is very important to realize that this formula
includes both the lifetime benefit and the bridge benefit. It should
also be noted that the school year is used to calculate the average
salary and that the calendar year is used to calculate the average YMPE.
|
Year |
Salary
|
YMPE |
|
2008/2009 |
$ 64,188 |
$ 23,150 ($46,300 x .5) |
|
2007/2008 |
$ 62,318 |
$ 44,900 |
|
2006/2007 |
$ 59,311 |
$ 43,700 |
|
2005/2006 |
$ 56,068 |
$ 42,100 |
|
2004/2005 |
$ 54,331 |
$ 41,100 |
|
2003/2004 |
$ 20,250 |
($40,500 x .5) |
| |
|
|
|
Total
|
$296,216 |
$215,200 |
| |
|
|
|
Average |
$ 59,243 |
$ 43,040 |
Total Pension: Lifetime Benefit + Bridge Benefit
$59,243 x 2% x 32 years = $37,916 ($3,159.66 monthly)
Bridge Benefit or CPP offset at age 65
$43,040 x 0.7% x 32 years = $9,641 ($803.41 monthly)
or
| |
Yearly
|
Monthly |
|
Lifetime Pension |
$28,275 |
$2,356.25 |
|
Bridge Benefit until age 65 |
$ 9,641 |
$ 803.41
|
| |
$37,916 |
$3,159.66 |
All yearly figures are rounded off to the nearest
dollar.
To recap, the fictional teacher in our example will
receive the lifetime pension and the bridge benefit for 10 years until
age 65. 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 ½% a month
for every month the pension is taken before age 65 (maximum 30%). At age
65, the bridge benefit will terminate. However, at age 65, the teacher
becomes eligible for old age security benefits. Presently the maximum
old age security benefits are $516.96 a month.
