Contributions changes will help secure future benefits, improve equity
Contributions changes will help secure future benefits, improve equity
The Board of Trustees accepted the task force recommendation that contribution rates edge up a total of 1.6 % to help fund the increased cost of paying lifetime pensions to members who are now living for 27 years in retirement (to age 87.7) on average.
Deficit can be eliminated with no benefit reductions
Members living longer
Improved life expectancy means more valuable pensions
About the Funding Task Force
How the task force conducted its review
About the deficit
How the Plan is managing the deficit
Rate increase to be phased in
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 task force’s review showed that the deficit can continue to be reduced with the stabilization contributions members are already paying, without making any changes to benefits. Task force members opted to recommend this increase in contributions over any benefit reductions because they were highly aware of the value members place on their pension benefits.
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.
The increased contributions will be invested to provide increased
lifetime benefits due to longer life expectancy.No changes to benefits are needed to keep the Plan secure for the future.
Contribution changes combined
These graphs show the change to two contribution rates from three, together with the 1.6% increase being phased in over three years.
The YBE and YMPE refer to earnings levels set by the federal government to determine Canada Pension Plan (CPP) contributions. The YBE is the Year's Basic Exemption, the earnings level below which a member does not contribute to the CPP. It is constant at $3,500. The YMPE is the Year's Maximum Pensionable Earnings, the maximum amount of earnings on which a member contributes to the CPP. For 2011 it is $48,300. You can see the net impact of the changes at sample earnings levels below.
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.
