Your contributions
You may already know about the benefits of belonging to a defined benefit pension plan: when you retire you will receive monthly payments for life and leave survivor benefits to your spouse when you are gone. But just how much do you know about the contributions you're making as a member of the CAAT Pension Plan?
In March 2011, the Board of Trustees approved a change that will see contribution rates edge up over three years, starting in 2012.
Read the Newsletter article: Contribution changes will help secure future benefits and improve equity
Contributing to your future
The CAAT Pension Plan makes it easy to save for retirement and build a stable, predictable retirement income. You contribute a percentage of your earnings into the Plan each pay and your employer matches your contributions dollar for dollar.
Your contributions, and those of your employer, are prudently invested in the Plan fund from which your pension is paid when you retire. Contributions are used to fund your benefit, but your benefit is worth so much more than just the contributions you made.
In the CAAT Plan, your benefit is defined up front: your pension is calculated using a formula, and the determining factors are your earnings and your service in the Plan.
Contribution Rates
With each pay, you contribute a percentage to your retirement future based on your contributory earnings and your employer matches your contributions.
Rates in 2011
Contributory earnings are the earnings on which you pay pension contributions. They are based on your contributory earnings, which include basic salary and other payments such as shift premiums and coordinator allowances, but do not include overtime pay, most lump sum termination payments, and certain other types of payments.
Considering the Canada Pension Plan
You pay into to the Canada Pension Plan (CPP) during the course of your career and will receive a CPP pension when they retire. CPP contributions are made on a fixed amount of income. The minimum amount of earnings under which you do not pay into to the CPP is called the Year's Basic Exemption (YBE) and is currently $3,500. The maximum amount of earnings over which you do not pay into CPP is called the Year's Maximum Pensionable Earnings (YMPE). For 2011 the YMPE is $48,300.
In 2011, for earnings on which you contribute to CPP, you contribute to the CAAT Pension Plan at the lower rate. For earnings on which you do not contribute to the CPP, you contribute to the CAAT Plan at the higher rate.
| Earnings to YBE | Earnings between YBE and YMPE | Earnings above YMPE | |
| <$3,500 | $3,501 - $48,300 | >$48,300 | |
| Contribute to CPP? | no | yes | no |
| CAAT Contributions | 12.1% | 10.3% | 12.1% |
Rates in 2012
Starting in 2012, contribution rates will change.
The increase will be phased in over three years beginning in 2012, as follows:
2012: + 0.8%
2013: + 0.4%
2014: + 0.4%
The contributions collected as a result of these increases will be invested to provide increased lifetime benefits due to longer life expectancy. They are not needed for deficit reduction.The Plan's deficit can continue to be reduced with the stabilization contributions members are already paying.
Contribution rate reduced on first $3,500 of earnings
Also being introduced in 2012 is a change to the way contributions are calculated. As shown in the chart, members will contribute at a lower rate on the first $3,500 of their earnings. This change has no material impact on Plan funding but does improve fairness for members at all earnings levels in terms of what they pay into the Plan. It also simplifies the Plan, making it easier to explain and less costly to administer.
How the contribution changes affect deductions from pay
This chart shows the total and change in contributions deducted from pay through the phase-in period at sample earnings levels. Pension contributions are tax deductible. All examples use the 2011 Year's Maximum Pensionable Earnings (YMPE) of $48,300. Contributions rates are different on earnings up to and above the YMPE.
Contribute as long as you work (until you turn 71)
If you decide to work past the normal retirement age of 65, you can keep contributing and earning more retirement income until you stop working. However once you turn 71, you must stop contributing to the fund and start collecting your pension, even if you continue working.
Contributions for breaks in service
If, during your membership, you have any breaks in service during which you stop making contributions to the Plan (such as a leave of absence), you can consider restoring the lost contributions and build a bigger pension by purchasing service.
A valuable benefit
Meet Marie. She wants to make sure her pension is worth more than what she’s contributed. At age 62, she’s contributed $73,200 to the fund over the course of her 21 years in the college. Her college contributed a matching amount.
Her highest average earnings – the average of her earnings over the course of the 60 months that they were at their highest - are $63,000.
Read more...
Marie is retiring on a lifetime pension of about $20,000 per year. She will receive an additional annual payment of $6,400 - called the bridge benefit - until she turns age 65. She will also receive increases under the Plan's inflation protection provisions.
When she reaches age 65, the bridge benefit will be removed from her payment, and she will already have received $79,800 - over $6,000 more than she paid in contributions.
The average Canadian lives to about age 80. By that age, Marie will have received $382,800.
However CAAT Pension Plan members tend to live about 5 years longer than the Canadian average. By the time she turns 85, Marie will have received payments of $483,800.
To quote Marie, “Not bad for a tax deductible investment of $73,200!”
Tax free contributions
One of the most cost effective aspects of belonging to a defined benefit pension plan is often one of the most overlooked. Under the Income Tax Act, the federal government provides several forms of tax relief to Canadians who make contributions to registered pension plans like ours.
Read more...
First, you receive immediate tax savings when you contribute to the Plan. Your pension contributions are deducted from your gross income, which reduces your taxable income – the amount on which your taxes are deducted. By the end of the year, the income on which you pay taxes has been reduced by the amount of your pension contributions. This has the same effect as an RRSP contribution – but your employer reduces your tax right away, so that you don't have to wait until you file your tax return.
Secondly, your contributions are 100% matched, or doubled, by your employer. These contributions are not a taxable benefit to you – you do not count this as income.
Finally, like your RRSP savings, the contributions you and your employer make are allowed to accumulate in the pension fund tax-free. Once you retire and begin collecting your pension from the Plan, income tax will be applied to your payments. However, in most cases, it will be at a lower marginal tax rate than when you were employed.