Understanding your Pension

Table of Contents

Beginning at the Beginning

Perhaps the best way of understanding the intricacies of your pension plan is to begin at the beginning. For members already well along in their career or preparing to retire, this will either be information already known or perhaps information you wish you knew when you started.

There is a wealth of material available to you from within your Department/Nav Canada and also on the internet. The information presented below will be tailored as much as possible toward CFPA members primarily because our backgrounds have a definite affect on the amount of pension we receive upon retirement. Wherever required, leads and links will be presented which will allow you to gather more specifics than can be adequately presented here.

The New Employee

Our members come from both the military and from industry and when they join either Transport Canada (TC), the Transportation Safety Board of Canada (TSB) or Nav Canada (NC ) they find that contributing to a pension is compulsory. If you come from the military then you are already aware of pensions and pension contributions, however upon leaving the military, a decision must often be made as to whether you will accept an annuity, take your pension immediately, defer it, or roll it over into the new plan within the Public Service. In the case of a roll-over you would have a window of twelve months available to you in order to make a decision. For the military pilot the decision may depend on a number of important factors such as years of service, time-line between leaving the military and being hired on at TC or TSB and other personal considerations. Seasonal or part-time employees hired for less than six months do not contribute to the pension plan, whereas al indeterminate employees contribute from day one. Full time employees at Nav Canada contribute from the outset of employment as well.

At NC, military pilots do not have the option of rolling over their military pension, however there is a buy-back plan available. There is also a provision for administering any excess funds left over after a buy-back has been completed. NC members should contact their compensation advisor for more information on this item.

There are also buy-back provisions available to you which can be spread out over time due to the prohibitive costs involved. These buy-back provisions may be activated later on in your career if you desire, however they may be more expensive at that time due to the dollar value. One could argue that it is all relative, but when to buy-back your pensionable time becomes a personal decision based on research and perhaps speculation. The buy-back provision is presented here to ensure that you are aware of such an option.

Due to the individual situations affecting each member, we are reluctant to offer either casual or specific advice in this document. It is strongly recommend that you contact your financial advisor to determine whether or not you can buy back prior service in whole or in part and what the costs of doing so may be. There is a Service Buy Back Estimator site on the Treasury Board Secretariat (TBS) web-site which may assist you in this area and can be accessed at: http://compensation.pwgsc.gc.ca/

Note: The Treasury Board web-site carries a wealth of information and pensions can be accessed in the alphabetical index under that title from the home page. It is recommended that you review this information on an as required basis suited to your particular needs. The TBS web-site can be accessed at: http://www.tbs-sct.gc.ca/index_e.asp

For NC employees, a hard-copy document is produced once or twice a year updating information.

For the new arrival coming in to Government from private industry your pensionable service would commence from the day of starting work. In some cases however you may discover that your previous employer had an agreement with the Government which would allow you to merge a previous pension that you may have been contributing to with the PS plan. The Public Service Superannuation Act (PSSA) allows for the approval of agreements with specific outside companies such as other levels of Government as one example, for an established superannuation or pension fund/plan. You would have to either be aware of this information from your previous employer or contact the TBS web-site, Superannuation Act, Annex B - Pension Transfer Agreements to find out whether your previous employer falls into one of these selected groups.

For the new employee at Nav Canada, it has been determined that a similar series of agreements have been established and again you would have to acquire a list of the applicable companies from your compensation advisor. For all intents and purposes the PS and NC pension plans are very similar.

Assuming that as a new employee you have not been involved in a previous pension plan or unable to transfer it over, then what information should you be aware of. First and foremost it is imperative to realize that it is highly unlikely especially if you come from a civilian background, that you will ever reach the level of enjoying a full retirement benefit (70% of your best five years with the PS or six years at NC), due to the number of years it normally takes to accumulate the requisite experience in the industry.

Such a statement obviously needs qualifying. In order to be employed by either TC, TSB or NC in a pilot position, you must have first accumulated many years of professional flying experience. Whereas many employees in other fields can start their career at an early age and easily make their thirty-five years working for the Government or NC, pilots normally come in only after numerous years out in the field. As indicated above, military pilots have the option of rolling their pension over and continuing to build upon it, but civilian pilots for the most part can't.

This means that many of the civilian pilots join in their thirties or perhaps later and it is easy to see that in such cases they would be working well into their late sixties or seventies in order to accumulate a full pension. Assuming that most would probably be out in industry for approximately ten to fifteen years, it is foreseeable that a total working career could be approximately fifty years long. Very few of us would wish to work that long, especially if the only reason eventually for doing so was to acquire a full pension.

Note: The CFPA has on a number of occasions attempted to correct this problem with the Employer (TSB) but to no avail. Back when the PSSA was enacted, only two groups who were allowed an accelerated plan were the Corrections Officers and the Air Traffic Controllers. The rationale was that in these two occupations the burn-out rate would be high. Our arguments were based upon the fact that the majority of our members are unable to accumulate full pension benefits due to the reasons presented in the paragraph above and an alternative should therefore be designed. All proposals to date have been rejected.

As a new employee you must consider this fact and begin immediately to consider other options. You will basically be building your pension on the formula of 2% per year relative to your best five/six years of salary. For the moment, let us disregard the impact or implications of CPP/QPP and OAS and deal strictly with the pension issue.

Note: If you possibly do acquire thirty-five years of accrued pensionable service as some pilots are able to do, you no longer contribute to the pension plan but your payments upon retiring are based upon your highest continuous years of salary, regardless of when they occur. You must however continue contributing 1% of salary toward indexing until the first of January following your 69th birthday at which time it ceases.

However and it is a big however, due to complications imposed by the Income Tax Act, an important event happens as of the First (1st) of January after your 69th birthday. Your best five/six years of service do not count if they are accrued after that date! For TC/TSB members, there is a Pay-O-Gram available at the Public Works website, www.pwgsc.gc.ca/compensation/samb/samb-2002-004-e.html.

If it is unlikely that you will be able to acquire a total pension of 70% then the first question you must ask yourself is "How many years will I likely be able to work before retirement?"

Four things are important in answering this question. First, a few examples to illustrate the complexity of the Superannuation Act.

Example #1: If you retire at age 60 or later you are eligible to receive appropriate pension benefits gained for years of service provided you have been employed over two.

Example #2: If you retire after fifty-five but before age sixty, do not have at least 30 years of pensionable service accumulated and wish to receive a pension, you will suffer an immense penalty of 5% per year for each year below sixty. This could effectively wipe out most of your pension. (This penalty is prorated, i.e. if you are 4 1/2 years shy of 60, then the penalty would be 22.5%).

Example #3: Considering the factors in example #2 above, if you had other options available to you at age fifty-five such as a new job, you could defer your pension until age sixty before taking it. All this means is that the pension you had accumulated up to the time of deferral would be frozen (without indexing) until you are ready to start it. By deferring your pension, you do not suffer any penalties, but you don't increase it either.

It is strongly recommended that you refer to the Superannuation Act or Nav Canada Pension Plan as applicable for further details as many things can hinge upon whether you are being laid off, disability, years of service and age, departure and return to service, etc. You may find that upon review of the information available to you, it will still be advisable to seek out professional interpretations and guidance before selecting any course of retirement action.

The second item important to you is the impact of taxes on the gross amount and how much take-home will remain. Allied with this is the impact of any additional benefits you may wish to continue contributing to such as the Dental Plan, Health Care Plan, etc.

The third item of consequence is that even though we enjoy pension indexing, it sometimes comes under assault to be modified or removed. Hopefully that never occurs, but regardless, indexing is based on figures issued annually by Stats Canada, however it is obvious that there is a large discrepancy between the percentage you will receive and the true inflation in living expenses.

The fourth item is more of a statement of fact well worth considering and that is that a 50% pension accrued after 25 years of service is likely going to be very close in available income to what you will have if you continue working. To qualify such a statement, when you take into account all the expenses inherent in continuing to work such as clothing, transportation, lunches, etc., you may find it viable to leave around this time, especially as our salaries and pensionable allowances are becoming fairly high through recent negotiations

It is clear that a considerable number of members will not complete their thirty-five (35) years of pensionable service and therefore need to evaluate their career plans accordingly. Now that you have a basic impression of what you can expect and once you have answered the critical question of how long you intend/expect to continue working, you can begin looking at options.

What Options?

Many options may already be in your mind such as long-term investments, RRSPs, etc. and these definitely require serious consideration. Like all of us however, these opportunities tend to slip by due to outside expenses cropping up, additional family members coming along and a myriad of other causes which delay our financial build up for the future. Sometimes we need help.

It states on the Public Works and Government Services Canada (PWGSC) web-site (http://www.pwgsc.gc.ca/text/index-e.html) that employees should plan on taking a retirement course five to ten years prior to retiring. For members of our group it would be a better recommendation to take one as soon as possible after becoming employed. Members have often stated that they wished they had taken these courses earlier as the information derived from them was of immense value. Retirement courses are broad in scope and address many areas such as investments, will planning, income security, health and fitness and numerous other items of concern to you. By attending an early retirement course you will be able to discuss specific subjects with the experts that cannot be expanded upon here, but also by attending one of these courses, you will have early and valuable information at your disposal to begin planning for the future. The fact that you have read this document this far indicates that you are now becoming aware of the problem of starting your pension later in life and how it may affect retirement decisions now and in the future.

Pension plans by their nature are based upon securing as large a participant involvement as possible, not only for security and growth purposes, but also for support continuation into the future as members retire and are replaced by new enrollments. It can be seen therefore that in both the Government of Canada and NC there would be only one plan available for all the employees of each. In other words we as a small group cannot separate and form our own specific pension plan. If we could, the cost of doing so would be astronomical and of little value. Because of this fact, there is little hope in the foreseeable future of ever altering the primary plan to suit our particular needs. This leaves you the member in a position to basically ensure your own future.

The primary purpose of this document is to ensure that you were aware of the diminished returns you face in the pension plans due to joining at a later age and point you towards information which may be of assistance to you. The CFPA is not in the financial advisement business and would not dare to recommend specific options to you. Those are personal decisions that you must make and should be done in consultation with your own personal financial advisors.

Are there any Other Impacts I Can Expect In the Future?

Actually, yes. When the PSSA came into being, the PS unions at the time negotiated a reduced contribution plan which in essence was a save now but pay later plan. Basically the reduction reflects the fact that the contributions to the PS pension plan and the CPP/QPP are integrated. You contributed less on the PS plan on that portion of your salary up to the CPP/QPP maximum. Because of this there is a claw-back scheme in place at age 65, which reduces your PSSA Pension.

The same situation exists at NC in basically the same format, therefore both old and new members will be affected by the claw-back at age sixty-five.

When planning for your retirement you should analyze the situation carefully in respect of whether you will take CPP/QPP at age 60 or hold off until 65. At 65 the benefits paid will be higher, however the money accumulated from 60 to 65 , even at a lower rate is still quite significant and is in your hands to do with what you will including investing if so desired.

At that time Old Age Security kicks in which fairly well offsets the reduction in CPP/QPP, however the information above is very important to know to prevent surprises in the future when you may be planning for the additional income during retirement.

When preparing for actual retirement, research the sites and definitely talk to your compensation advisor. Some items such as CPP/QPP are not automatic and must be applied for well in advance in order to not lose any early payments. You also have to make a final decision at that time as to whether you will delay receipt of CPP/QPP until age 65 or take a reduced benefit at 60 as described above. On the issue of CPP/QPP, it is still a taxable benefit which can actually affect your taxable income. Some members elect to have an additional amount deducted at the source to offset surprises at the end of the year. Talk to your financial advisor about this too.

Refer for more information on this subject to the following site:
http://www.pwgsc.gc.ca/superannuation/faq_cppqpp-e.html#pp1

Also refer to this additional site which has a broader scope of excellent information including
Old Age Security: http://www.sdc.gc.ca/en/isp/pub/factsheets/retire.shtml

Other excellent sites to research CPP & QPP:

CPP:
http://laws.justice.gc.ca/en/C-8/19987.html 

QPP:
http://bsa.cbsc.org/gol/bsa/site.nsf/en/su07208.html#a1 

When do I stop contributing to the pension plan?

To determine the specifics on this question, you are directed to the Treasury Board, http://www.tbs-sct.gc.ca/index_e.asp access Pensions through the A-Z Index and click on the Act. Scroll down and review subsections 5(3), (3.1) & (4) which presents a series of situations based on different applied dates. Due the complexities presented in the PSSA, even reviews of specifics can lead to confusion, therefore if it is determined that the information you seek is not totally clear, you should seek out departmental pension experts and consult with them. You will note that even if you qualify to cease paying fully into the pension plan, you will still continue contributing under most cases about 1% of salary toward the maintenance of indexing.

Is there information readily available to me concerning the options of collecting or transferring pensions accrued while serving in the Canadian Armed Forces?

There is easy to read material available on the Treasury Board web-site (above). At the home page, click on the "Most Visited Pages", followed by "Your Pension Plan" and finally, "Part II B, Elective Service". Much of the material found on this site is casual or generic, therefore once again it is recommended that you may wish to consult with a departmental pensions expert if in doubt about your own personal situation.

Additional Information of Interest

In addition to the sites referred to above, there is a group called the Federal Superannuates National Association (FSNA) which is dedicated to representing Public Service pensioners, their families and survivors. They perform excellent service as advocates and watchdogs and can be accessed through the internet.

There is an interesting power-point series of slides on this web-site concerning pensions. These slides are available to the CFPA courtesy of PIPSC and Mr. Rudy Loiselle who designed the presentation and lectures on the subject. Some of the slides may appear vague or confusing but this is due to the fact that they are linked to Mr. Loiselle's presentation. Many of the slides covering specific data however are very worthwhile reviewing.

Summary

The following points are offered as a quick reference to the material detailed above.

  1. Contributing to a pension plan is compulsory when working for either the Government of Canada or Nav Canada,
  2. Military pilots must decide whether to accept an annuity, return of contributions if applicable, defer their military pension, or take it.
  3. Military pilots have the option of buying back service time while employed by the Government or Nav Canada.
  4. Indeterminate employees do not begin contributing to the PS pension plan for the first six months. Permanent NC employees contribute to their plan from the start.
  5. For industry pilots joining either the Government or Nav Canada, they should check with their compensation advisor to determine whether any previous employer was on a list of companies/agencies allowing for the pension to be transferred.
  6. Due to the fact that civilian pilots joining either TC, TSB or NC do so only after accumulating years of professional experience, it is unlikely that they will ever acquire a full pension before a reasonable retirement age.
  7. Pensions accrue at 2% of salary per year to a maximum of 70% of the best five (Government)/six (NC) years, however the best five/six years do not apply if accrued after the 1st of January following your 69th birthday.
  8. Your pension is based upon the highest continuous series of years even if such years take place after contributions to the plan are no longer necessary.
  9. The CFPA is unable to modify current pension plans to accommodate the late hiring problem, but is working on an alternative solution which would be part of the contract if accepted by the employer(s).
  10. Pensions are affected by many factors including taxes and optional deductions such as dental plans, etc.
  11. In both the Government and NC pension plans, a claw-back of your pension will occur at age 65, which may be offset by OAS kicking in.
  12. In the event of leaving at age fifty-five or later, but prior to age sixty, you may take a reduced pension but with high penalties attached, or defer it until age sixty.
  13. Retirement courses should be taken as soon as possible after starting and again at about five to ten years before retiring.
  14. Due to the likelihood of a diminished pension, you should plan well in advance for your future financial stability through investments, RRSPs, etc.
  15. Always talk to your compensation advisor as early as possible after hiring, at any time when you are involved in serious decision-making such as buy-backs and again well before your actual retirement.
  16. Access the links presented above for accurate and more detailed information.