Contribution changes

As we reported in our March 2011 newsletter, contributions will increase by 0.8% on January 1, 2012 for members and employers. Further contribution increases of 0.4% will take place in 2013 and 2014 for a total increase of 1.6% over 3 years.

These contribution increases are necessary to help fund the increased cost of paying lifetime pensions due to the increased life expectancy of our members. The average CAAT Plan member retiring today is expected to live to age 88, which is substantially longer than the average Canadian. It’s great news for members and makes the lifetime guaranteed pension more valuable. It also means the Plan needs to set aside more funds to secure these additional monthly pension payments to members.

Two-tier contribution rates

Also being introduced in 2012 is a change to the way contributions are calculated. Currently, contributions made on the first $3,500 of earnings (and on earnings above the YMPE) are at the higher contribution rate. Starting January 1, 2012, members (and employers) will contribute at the lower rate of 11.1% on all pensionable earnings up to the YMPE. Contributions on earnings above the YMPE will continue to be at the higher rate. This change improves fairness for members at different earnings levels, and simplifies the calculation of contributions.

(The YMPE is set by the Canada Revenue Agency and increases each year. The 2012 YMPE is $50,100). In each of 2013 and in 2014, both the lower and higher contribution rates will increase by 0.4%.

Pension deductions to become consistent throughout year – goal is equity

A new procedure to be introduced by 2013 will spread contribution deductions equally across all pay periods.

The new ”annualized” method will mean contributions are calculated based on salary rates, and deducted in equal amounts from each pay period throughout the year. This new method does not affect contribution rates; it simply divides contributions evenly throughout the year, eliminates fluctuations and provides a predictable deduction each pay. This method is consistent with pension industry standards and removes inequity among members who join and leave the Plan at different points in the year. Employers will begin to apply this smoother calculation method to contributions by 2013.

Currently, contributions are deducted from each pay based on a member’s year-to-date total pensionable earnings – with members contributing at the higher rate on the first $3,500 of earnings during the year, then at the lower rate on earnings up to the YMPE, then at the higher rate again on earnings above the YMPE. This “step-rate” method (which in 2012 would be applied to the two-tiered rates explained above), is the main reason contributions fluctuate throughout the year.