How is my Pension Calculated?

Transcription

1 How is my Pension Calculated? Ensuring you have adequate income when you retire requires careful attention. In non-working years your income will come from different sources, including your Public Service Pension Plan (PSPP), the Canada Pension Plan (CPP) and savings. To plan for your future, it is useful to know what your approximate monthly pension payments from PSPP will be. The complete pension formula In 1966, CPP was created and PSPP adjusted both its contribution level and pension formula. On January 1 st each year, the federal government sets the level on which you pay towards CPP. This is called the Yearly Maximum Pensionable Earnings (YMPE). In 2016, the YMPE is $54,900. PSPP is designed so you pay a lower PSPP contribution rate on salary on which you also make CPP contributions. You pay a higher contribution rate on the part of your salary that is higher than the YMPE. At retirement, the average YMPE matching the years that make up your average highest five consecutive years of salary are used to calculate your pension. This is the calculation formula: Salary up to the YMPE x 1.4% x Service = $ PLUS Salary over the YMPE x 2% x Service = $ The two totals are added together to give you an estimated annual unreduced pension. The quick estimate The easiest way to get an estimate of your future PSPP pension is to use the pension estimator at mypensionplan.ca. Mypensionplan.ca is a secure website for members where you can access your personal pension information when you need it and calculate future benefits. You can also update beneficiary and address information and review your pension highlights. If you are looking for a pension estimate and don t want to do the calculations yourself, check out the estimator at mypensionplan.ca. There is also an online calculator at that does not use your personal information. The basic pension formula is determined by Regulation and, depending on your circumstances, may be affected by other factors when your pension is actually calculated. Page 1 of 6 806PS/March 2016

2 Calculating your own estimate The following pages provide sample calculations and spaces for you to do your own calculations. You can also use the attached chart to get a rough estimate of your pension. To use the chart, look across the top of it for your salary and down the left edge for your service. The estimated unreduced pension amount is shown where the two points intersect. Your length of service figure is shown on your Pension Highlights. Your service can also be found on mypensionplan.ca. You may have to estimate your future earnings. Basic information Years of pensionable service: Highest five consecutive years salary: + = $ 5 = $ Now refer to the attached chart to see what the estimated annual unreduced pension is for your length of pensionable service and the average of your highest consecutive five years salary. If you are going to be 65 or older when you retire, you can skip the next section and go right to the section in this information sheet called What else affects my pension? Does my retirement age affect my pension? Yes. There are a number of factors that determine your eligibility for pension and affect your pension amount. The normal retirement age is 65. You can retire after age 55 if you have two* years of PSPP service. You must start receiving your pension by December 31 in the year in which you turn 71. You can retire at 65 with an unreduced pension if you have at least two* years of service in PSPP. * If you left PSPP before February 1, 2000 you will need five years of service to qualify for a pension. Page 2 of 6 806PS/March 2016

3 If you will be under 65 when you retire, you can receive an unreduced pension as early as age 55 if you have 85 points (years of service plus age). age + service = If this adds up to 85, you can skip the rest of this section and right to the section called What else affects my pension? If your age plus service totals less than 85 points your pension will be reduced for early retirement. Currently, the reduction is three per cent for each year you retire early. This reduction is based on your years short of age 65, or your years short of 85 points, whichever you would reach first. Here is an example Retirement age Years of service Years from age =... 5 (a) Years from (60 +21) =... 4 (b) (age + service) Number of years retired early... 4 (take the lower of (a) or (b)) Let s say the estimated annual pension is $11,300. Now you need to calculate the pension after the reduction for early retirement. We arrive at this figure by doing the following calculation: 3% x 4 years = 12% then 100% - 12 % = $11,300 x = $9,944 ( 12 gives a monthly pension of $828). Had this employee worked another two years, she or he would have been 62 and had 23 years of service. Age plus length of service would equal 85 points and the pension would not need to be reduced. If you are thinking about retiring early, use this formula to calculate your reduced pension. Points needed LESS points you accumulated (your age + service) 85 (your age + service ) = (a) Age needed LESS your age your age = (b) Page 3 of 6 806PS/March 2016

4 Which is lower? The lower of (a) or (b) is the number of years you are retiring early. Calculate your reduced pension: Estimated pension amount (taken from the attached chart or from your earlier calculations) = $ 3% X the lower of (a) and (b) above = (c) % 100% (c) % = (d) % reduction factor Estimated pension (from above) $ X the reduction factor (d) % = (e) $ reduced pension Reduced pension (e) $ 12 = $ monthly pension What else affects my pension? There are two other choices that can affect the amount of your monthly PSPP pension income, pension choice options and the coordination option. Pension Options All the PSPP pension options will pay your pension for as long as you live. If you have a pension partner when you retire, you will be required to select a pension that ensures your pension partner is paid a lifetime benefit if you die. At the time you retire, your pension partner can waive his or her right to the benefit by signing a waiver form. The waiver form will be included in the package of information PSPP will send you when you retire. When it is time to make your pension choice, you will be sent a Retirement Benefit Statement and you can request a meeting with your human resources branch or PSPP s Member Services Centre. The pension estimator at mypensionplan.ca will also provide information on the various options. Pension coordination Coordination allows for flexible retirement planning. It lets you increase your monthly payment temporarily from the time you retire until you turn 65. At age 65, the increase to your monthly payment stops and a reduction to your monthly payment begins. The reduction will continue as long as you live. If you are interested in learning more about coordination, please see the coordination information sheet. Page 4 of 6 806PS/March 2016

5 Cost-of-Living Adjustments (COLA) COLA is applied to pensions every year. COLA is at least 60 per cent of the increase in Alberta s consumer price index. Retirement income Your PSPP pension makes up only a portion of your retirement income. You must also consider other sources of income to plan for your retirement years. Now that you have an idea of your estimated PSPP pension, you can begin to assess your future financial position. Contact the federal government for information on Old Age Security, Canada Pension and the Guaranteed Income Supplement (GIS). Your future financial position Monthly PSPP pension Old Age Security Canada Pension other pension RRSP income other income GIS (federal supplement) other There are many financial planning books. There are also people in the retirement planning industry who can assist you. This document provides general information only. Should anything in this document conflict with governing legislation, the latter shall apply. Alberta Pensions Services Corporation (APS) proudly serves PSPP and provides responsive and focused member service on behalf of the Plan. If you need more information, please contact APS through the Member Services Centre. Mail: PSPP c/o APS 5103 Windermere Blvd. SW Edmonton, Alberta T6W 0S9 Telephone: PSP (1777) memberservices@pspp.ca Website: Page 5 of 6 806PS/March 2016

6 Estimate of an Unreduced Normal Form of a Pension Payable monthly Based on an Average Salary and Years of Service (YOS) after 1965, Pension to begin in 2016 YOS $ 40 $ 45 $ 50 $ 55 $ 60 $ 65 $ 70 $ 75 $ 80 $ 85 $ 90 $ 95 $ 100 $ 105 $ 110 $ 115 $ 120 $ 125 $ 130 $ 135 $ 140 $ 145 $ 150 $ 155 $ $93 $140 $187 $233 $280 $327 $373 $420 $467 $513 $560 $607 $653 $700 $747 $793 $840 $887 $933 $980 $1,027 $1,073 $1,120 $1,167 $1,213 $1,260 $1,307 $1,353 $1,400 $1,447 $1,493 $1,540 $1,587 $1,633 $105 $158 $210 $263 $315 $368 $420 $473 $525 $578 $630 $683 $735 $788 $840 $893 $945 $998 $1,050 $1,103 $1,155 $1,208 $1,260 $1,313 $1,365 $1,418 $1,470 $1,523 $1,575 $1,628 $1,680 $1,733 $1,785 $1,838 $117 $175 $233 $292 $350 $408 $467 $525 $583 $642 $700 $758 $817 $875 $933 $992 $1,050 $1,108 $1,167 $1,225 $1,283 $1,342 $1,400 $1,458 $1,517 $1,575 $1,633 $1,692 $1,750 $1,808 $1,867 $1,925 $1,983 $2,042 $131 $196 $262 $327 $393 $458 $524 $589 $654 $720 $785 $851 $916 $982 $1,047 $1,113 $1,178 $1,243 $1,309 $1,374 $1,440 $1,505 $1,571 $1,636 $1,702 $1,767 $1,833 $1,898 $1,963 $2,029 $2,094 $2,160 $2,225 $2,291 $148 $221 $295 $369 $443 $516 $590 $664 $738 $812 $885 $959 $1,033 $1,107 $1,180 $1,254 $1,328 $1,402 $1,476 $1,549 $1,623 $1,697 $1,771 $1,845 $1,918 $1,992 $2,066 $2,140 $2,213 $2,287 $2,361 $2,435 $2,509 $2,582 $164 $246 $328 $411 $493 $575 $657 $739 $821 $903 $985 $1,067 $1,150 $1,232 $1,314 $1,396 $1,478 $1,560 $1,642 $1,724 $1,806 $1,889 $1,971 $2,053 $2,135 $2,217 $2,299 $2,381 $2,463 $2,546 $2,628 $2,710 $2,792 $2,874 $181 $271 $362 $452 $543 $633 $724 $814 $904 $995 $1,085 $1,176 $1,266 $1,357 $1,447 $1,538 $1,628 $1,718 $1,809 $1,899 $1,990 $2,080 $2,171 $2,261 $2,352 $2,442 $2,533 $2,623 $2,713 $2,804 $2,894 $2,985 $3,075 $3,166 $198 $296 $395 $494 $593 $691 $790 $889 $988 $1,087 $1,185 $1,284 $1,383 $1,482 $1,580 $1,679 $1,778 $1,877 $1,976 $2,074 $2,173 $2,272 $2,371 $2,470 $2,568 $2,667 $2,766 $2,865 $2,963 $3,062 $3,161 $3,260 $3,359 $3,457 $214 $321 $428 $536 $643 $750 $857 $964 $1,071 $1,178 $1,285 $1,392 $1,500 $1,607 $1,714 $1,821 $1,928 $2,035 $2,142 $2,249 $2,356 $2,464 $2,571 $2,678 $2,785 $2,892 $2,999 $3,106 $3,213 $3,321 $3,428 $3,535 $3,642 $3,749 $231 $346 $462 $577 $693 $808 $924 $1,039 $1,154 $1,270 $1,385 $1,501 $1,616 $1,732 $1,847 $1,963 $2,078 $2,193 $2,309 $2,424 $2,540 $2,655 $2,771 $2,886 $3,002 $3,117 $3,233 $3,348 $3,463 $3,579 $3,694 $3,810 $3,925 $4,041 $248 $371 $495 $619 $743 $866 $990 $1,114 $1,238 $1,362 $1,485 $1,609 $1,733 $1,857 $1,980 $2,104 $2,228 $2,352 $2,476 $2,599 $2,723 $2,847 $2,971 $3,095 $3,218 $3,342 $3,466 $3,590 $3,713 $3,837 $3,961 $4,085 $4,209 $4,332 $264 $396 $528 $661 $793 $925 $1,057 $1,189 $1,321 $1,453 $1,585 $1,717 $1,850 $1,982 $2,114 $2,246 $2,378 $2,510 $2,642 $2,774 $2,906 $3,039 $3,171 $3,303 $3,435 $3,567 $3,699 $3,831 $3,963 $4,096 $4,228 $4,360 $4,492 $4,624 $281 $421 $562 $702 $843 $983 $1,124 $1,264 $1,404 $1,545 $1,685 $1,826 $1,966 $2,107 $2,247 $2,388 $2,528 $2,668 $2,809 $2,949 $3,090 $3,230 $3,371 $3,511 $3,652 $3,792 $3,933 $4,073 $4,213 $4,354 $4,494 $4,635 $4,775 $4,916 $298 $446 $595 $744 $893 $1,041 $1,190 $1,339 $1,488 $1,637 $1,785 $1,934 $2,083 $2,232 $2,380 $2,529 $2,678 $2,827 $2,976 $3,124 $3,273 $3,422 $3,571 $3,720 $3,868 $4,017 $4,166 $4,315 $4,463 $4,612 $4,761 $4,910 $5,059 $5,207 $314 $471 $628 $786 $943 $1,100 $1,257 $1,414 $1,571 $1,728 $1,885 $2,042 $2,200 $2,357 $2,514 $2,671 $2,828 $2,985 $3,142 $3,299 $3,456 $3,614 $3,771 $3,928 $4,085 $4,242 $4,399 $4,556 $4,713 $4,871 $5,028 $5,185 $5,342 $5,499 $331 $496 $662 $827 $993 $1,158 $1,324 $1,489 $1,654 $1,820 $1,985 $2,151 $2,316 $2,482 $2,647 $2,813 $2,978 $3,143 $3,309 $3,474 $3,640 $3,805 $3,971 $4,136 $4,302 $4,467 $4,633 $4,798 $4,963 $5,129 $5,294 $5,460 $5,625 $5,791 $348 $521 $695 $869 $1,043 $1,216 $1,390 $1,564 $1,738 $1,912 $2,085 $2,259 $2,433 $2,607 $2,780 $2,954 $3,128 $3,302 $3,476 $3,649 $3,823 $3,997 $4,171 $4,345 $4,518 $4,692 $4,866 $5,040 $5,213 $5,387 $5,561 $5,735 $5,909 $6,082 $364 $546 $728 $911 $1,093 $1,275 $1,457 $1,639 $1,821 $2,003 $2,185 $2,367 $2,550 $2,732 $2,914 $3,096 $3,278 $3,460 $3,642 $3,824 $4,006 $4,189 $4,371 $4,553 $4,735 $4,917 $5,099 $5,281 $5,463 $5,646 $5,828 $6,010 $6,192 $6,374 $381 $571 $762 $952 $1,143 $1,333 $1,524 $1,714 $1,904 $2,095 $2,285 $2,476 $2,666 $2,857 $3,047 $3,238 $3,428 $3,618 $3,809 $3,999 $4,190 $4,380 $4,571 $4,761 $4,952 $5,142 $5,333 $5,523 $5,713 $5,904 $6,094 $6,285 $6,475 $6,666 $398 $596 $795 $994 $1,193 $1,391 $1,590 $1,789 $1,988 $2,187 $2,385 $2,584 $2,783 $2,982 $3,180 $3,379 $3,578 $3,777 $3,976 $4,174 $4,373 $4,572 $4,771 $4,970 $5,168 $5,367 $5,566 $5,765 $5,963 $6,162 $6,361 $6,560 $6,759 $6,957 $414 $621 $828 $1,036 $1,243 $1,450 $1,657 $1,864 $2,071 $2,278 $2,485 $2,692 $2,900 $3,107 $3,314 $3,521 $3,728 $3,935 $4,142 $4,349 $4,556 $4,764 $4,971 $5,178 $5,385 $5,592 $5,799 $6,006 $6,213 $6,421 $6,628 $6,835 $7,042 $7,249 $431 $646 $862 $1,077 $1,293 $1,508 $1,724 $1,939 $2,154 $2,370 $2,585 $2,801 $3,016 $3,232 $3,447 $3,663 $3,878 $4,093 $4,309 $4,524 $4,740 $4,955 $5,171 $5,386 $5,602 $5,817 $6,033 $6,248 $6,463 $6,679 $6,894 $7,110 $7,325 $7,541 $448 $671 $895 $1,119 $1,343 $1,566 $1,790 $2,014 $2,238 $2,462 $2,685 $2,909 $3,133 $3,357 $3,580 $3,804 $4,028 $4,252 $4,476 $4,699 $4,923 $5,147 $5,371 $5,595 $5,818 $6,042 $6,266 $6,490 $6,713 $6,937 $7,161 $7,385 $7,609 $7,832 $464 $696 $928 $1,161 $1,393 $1,625 $1,857 $2,089 $2,321 $2,553 $2,785 $3,017 $3,250 $3,482 $3,714 $3,946 $4,178 $4,410 $4,642 $4,874 $5,106 $5,339 $5,571 $5,803 $6,035 $6,267 $6,499 $6,731 $6,963 $7,196 $7,428 $7,660 $7,892 $8,124 $481 $721 $962 $1,202 $1,443 $1,683 $1,924 $2,164 $2,404 $2,645 $2,885 $3,126 $3,366 $3,607 $3,847 $4,088 $4,328 $4,568 $4,809 $5,049 $5,290 $5,530 $5,771 $6,011 $6,252 $6,492 $6,733 $6,973 $7,213 $7,454 $7,694 $7,935 $8,175 $8,416 For salaries in excess of $160,970 and/or for service commencing before 1966, please see your employer. This table overstates pensions estimated for future years because the YMPE typically increases each year. Page 6 of 6 806PS/March 2016