The pension calculation
Your pension is calculated using a formula and the pension of each Plan member is calculated using the same formula. The variables in the formula are your earnings and your years of service. Knowing the formula in advance means you can predict your approximate pension income and identify the best time for you to retire.
Pension formula
Annual pension formula
| 1.3% | x | highest average earnings to AYMPE | x | pensionable service |
| + | ||||
| 2% | x | highest average earnings above AYMPE | x | pensionable service |
Bridge benefit formula
If you retire before age 65, you receive an additional payment called a bridge benefit. The bridge benefit is paid every month until you turn 65.
Annual bridge benefit formula:
| 0.7% | x | highest average earnings to AYMPE | x | pensionable service |
Definitions
Highest average earnings
These are your earnings during the 60 consecutive months that your pensionable earnings were highest. This design ensures your pension is calculated based on your best earnings.
AYMPE
The Average of the Year’s Maximum Pensionable Earnings. The YMPE is the maximum earnings on which you contribute to the Canada Pension Plan (CPP). On your earnings above the YMPE you do not contribute to CPP. The AYMPE is based on the last year in which you contributed to CPP and is calculated using the YMPE for that year and each of the previous four years. In 2011, the AYMPE is $46,080.
Pensionable service
The total of the years and months of that you contributed to the Pension Plan. The longer you contribute to the Plan, the higher your pension will be.
Retiring at age 65
The "normal retirement date" is the last day of the month in which you turn 65. At age 65 you are eligible for an immediate unreduced pension, no matter how much service you have. We refer to this as normal retirement. If you choose to retire when you reach age 65, you will receive a "normal retirement pension". Like all CAAT pensions, it will be paid to you every month for the rest of your life. If you have a spouse who outlives you, he or she will receive a survivor pension after your death.
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Your normal pension has no early retirement reduction, unlike the pensions of some who retire before reaching age 65, and it will receive some inflation protection for cost of living increases when granted. Your CAAT Plan pension will likely be the foundation of your total retirement income, which will also include government pensions and your savings.
Meet Norma, retiring at age 65
She’s been working at the College for 29 years. She’s going to retire at age 65, the same time her husband retires from his employment. He won’t have a pension from his work, but they’ll both receive government benefits and Norma will receive a pension from the CAAT Plan for life. As part of her financial planning, Norma wants to know how much she’ll be able to contribute to their total retirement income.
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Norma’s pension will be called a “normal retirement pension” because she is going to start it when she turns 65.
Here’s how we would calculate Norma’s pension:
Norma's pension calculation
The calculation will use Norma’s highest average earnings and all her years and months of service in the Plan.
Norma’s highest average earnings are $62,300. The AYMPE in 2011 is $46,080.
The difference between her highest average earnings and the AYMPE is $16,220.
She has 29 years of pensionable service
| 1.3% | x | $44,840 | x | 29 |
| + | ||||
| 2% | x | $17,460 | x | 29 |
| = | $26,780 |
Norma’s lifetime pension is $26,780 a year.
She’ll receive monthly payments of $2,231.64, paid to her for the rest of her life.
Norma’s pension will receive inflation protection annually, when it is granted. If she dies before her husband, he’ll receive 60% of the pension she was receiving at the time of her death, for the rest of his life.
If you’re curious about what your pension might look like when you’re ready to retire, why not try our new Pension Estimator? Simply type in your highest average earnings and total pensionable service (you can find these numbers on your most recent annual pension statement), and let the Estimator show you your projected retirement dates and estimated pension amounts.
Calculating Norma’s highest average earnings and AYMPE
We total her highest consecutive 60 months of earnings, then divide by 5 to get an average amount.
2011: $65,200
2010: $63,800
2009: $62,000
2008: $61,500
2007: $59,000
Total: $311,500
Highest average earnings: $311,500/ 5 = $62,300
AYMPE for 2011
2011: $48,300
2010: $47,200
2009: $46,300
2008: $44,900
2007: $43,700
Total: $230,400
Average YMPE: $230,400 / 5 = $46,080
Retiring before age 65
Even if you're not close to age 65, you've probably given some thought to what you’re going to live on when you retire. Perhaps you have been considering early retirement.
As a Member of the CAAT Pension Plan, you have early retirement options that will allow you flexibility when planning your future.
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If you retire between age 50 and any time before age 65, you will be taking "early retirement." This means you will get an immediate early retirement pension, made up of two parts - your lifetime pension, plus an additional payment called the bridge benefit, which is payable until you turn 65.
Earliest possible retirement age
You can choose to retire on an immediate early reduced pension once you reach age 55 with at least 2 years of pensionable service or Plan membership or as early as age 50 if you have 20 years of pensionable service.
Your early retirement pension will be either:
- Unreduced, or
- Reduced
You qualify for an early unreduced pension, as soon as you meet 1 of 2 criteria:
85 Factor
Your age + service = 85 or more.
Every year you earn 1 point for your age and if you’re full time, 1 point for service, so every year you earn 2 points towards the 85 factor.
60/20 Rule
You are at least age 60 with at least 20 years of pensionable service.
If you do not qualify for an early unreduced pension, your pension and your bridge benefit will be reduced. The reduction factor is 3% per year (0.25% per month) for each year and month you are away from the earliest date you are eligible for an unreduced pension. This is a permanent adjustment to your pension payment.
Calculating an unreduced pension
At 58, Simon is starting to consider the idea of retiring. He has only recently come to appreciate the value of the pension he has earned over the past 28 years in the College system. His RRSPs suffered during the market downturn in 2008, and he does not expect his personal investments to fully recover before he retires. He now realizes he’s in a good position after talking to some of his friends, most of whom also lost money, but do not have a lifetime pension to count on.
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Simon knows he can retire now, but he and his common law wife plan on doing a lot of travelling after she retires in 2 years, and he wants to make sure his retirement income will keep up with their plans.
The decisions Simon faces around retiring are career and lifestyle decisions. The right time for Simon to retire is the time that he determines based on his retirement lifestyle goals.
If Simon stops working now, his early unreduced pension calculation will look like this:
Simon's pension calculation
Simon’s highest average earnings are $87,560. His earnings above the AYMPE are $41,480. He has 28 years of service.
| 1.3% | x | $46,080 | x | 28 |
| + | ||||
| 2% | x | $41,480 | x | 28 |
| = | $40,002 |
Simon would receive a pension of $40,002 a year, or $3,333.49 a month for the rest of his life.
In addition, because he is under 65, he would receive a bridge benefit, paid from the time he retires until he turns 65.
The bridge formula uses his earnings up to the AYMPE.
| 0.7% | x | $46,080 | x | 28 |
| = | $9,032 |
Until he turns 65, Simon’s annual pension payments will be $49,034 (his lifetime pension of $40,002 plus his bridge benefit of $9,032).
At age 65, when his bridge benefit stops, he will continue to receive his annual lifetime pension of $40,002.
Should Simon retire now?
Simon is concerned, because his friends have told him that since he has qualified for an unreduced pension already, he has attained a so-called “magic number” and he will stop earning a pension even if he keeps working.
Has he earned as much as he can in the pension plan, now that he’s reached the “magic number” of the 85 Factor?
No. Simon’s friends are misinformed. Since Simon has qualified for the 85 Factor (his age + service = 86), he is entitled to retire from the CAAT Plan with an unreduced pension. If he continues working, his pension will continue to grow.
If Simon keeps working until he’s 60, not only will he add 2 years of service to his pension calculation, but his earnings will likely have increased as well. The CAAT Pension Plan has no caps on the amount of service or earnings you can accrue in the Plan. As long as you are working at a CAAT employer and under age 71, your pension will keep growing. Many members retire long after they first qualify for an unreduced pension, and start their pension at the time that works best for them.
Regardless of when Simon decides to start his pension, it will be paid to him for the rest of his life. Simon’s pension will receive inflation protection annually, when it is granted. If he dies before his spouse, she will receive 60% of the pension he was receiving at the time of his death, for the rest of her life.
If you’re curious about what your pension might look like when you’re ready to retire, why not try our new Pension Estimator? Simply type in your highest average earnings and total pensionable service (you can find these numbers on your most recent annual pension statement), and let the Estimator show you your projected retirement dates and estimated pension amounts.
Retiring early with a reduced pension
At 56, Ursula has been thinking about retirement for some time now. She has worked hard her whole adult life; the last 23 years of her career spent at a college. Her husband retired from a college last year, and he has been enjoying his retirement. Ursula is anxious to spend more time with him, looking after their first grandchild.
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Ursula would be happy to accept the modest reduction in her lifetime pension in order to start her retirement as soon as possible and receive her pension for longer. She would like to know how much income she can expect to receive if she retires early, and if the early retirement reduction will have a big impact on her monthly income.
Calculating Ursula’s pension reduction
Ursula is 56 and has 23 years of service.
Although she has more than 20 years of service, she is under age 60 and does not qualify for an unreduced pension under the 60/20 Rule. And, since her age + service = 79, she does not qualify for an unreduced pension under the 85 Factor.
Since Ursula does not yet qualify for an unreduced pension, her pension will be reduced by 3% x the earliest she is eligible for an unreduced pension (in other words, the earliest date she would either turn 65 or qualify for the 60/20 Rule or the 85 Factor). To calculate her reduction, we test all 3 possible scenarios:
Age 65
Ursula is 9 years from age 65, resulting in a reduction of 27%
65 - 56 = 9 x 3% = 27%
60/20 Rule
Ursula has more than 20 years of service, but she is 4 years away from age 60. Both criteria must be met to qualify for the 60/20 Rule
60 - 56 = 4 x 3% = 12%
85 Factor
To calculate the 85 factor we assume 2 points per year (1 point for each year of service and 1 point for each year of age).
Ursula is 6 points from the 85 factor since her age + service = 79. We divide 6 by 2 which gives us 3 years, and a reduction of 9%.
(85 - 79 ) / 2 = 3 x 3% = 9%
Ursula would qualify for the 85 Factor first, in 3 years, therefore her pension and her bridge benefit will both be permanently reduced by only 9%.
Ursula's reduced pension calculation
Ursula’s highest average earnings are $60,000.
In 2011 the YMPE is $46,080. The difference between them is $13,920. She has 23 years of service.
| 1.3% | x | $46,080 | x | 23 |
| + | ||||
| 2% | x | $13,920 | x | 23 |
| = | $20,181 | |||
| less early retirement reduction of 9% | -$1,816 | |||
| = pension from age 56 | $18,365 | |||
Bridge benefit (until age 65)
| 1.3% | x | $46,080 | x | 23 |
| = | $7,419 | |||
| less early retirement reduction of 9% | -$668 | |||
| = bridge benefit (paid to age 65) | $6,751 | |||
Ursula’s pension including bridge benefit (up to age 65) = $25,116 per year ($18,365 + $6,751).
From the time of her retirement at age 56, up to age 65, Ursula would receive $2,093 / month or $25,116 / year. Her pension and the bridge benefit will receive inflation protection to help her pension keep pace with inflation.
After age 65, the bridge benefit and any inflation protection payments applied to it stop, and Ursula’s pension will be made up of the lifetime pension only. Income tax will be deducted from the benefit. At age 65 she can start OAS, and CPP pensions with no reduction.
What is the bridge benefit?
The bridge benefit is a special payment made to all members who retire before age 65 on an early pension. If you retire early on a reduced pension, the bridge is reduced by the same factor as the lifetime pension. It is paid each month until you turn 65 when it stops. It receives the same inflation protection applied to the lifetime pension each year. The calculation approximates the amount of CPP benefit you earned while in the CAAT Plan.
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These days, you can start your reduced CPP pension as early as age 60 along with your early retirement pension. This does not mean that your bridge benefit has an impact on your entitlement to the CPP in any way. In fact, you can collect your CAAT Plan pension and bridge benefit along with your reduced CPP benefit from as early as age 60. Although once you turn 65 you are no longer entitled to receive a bridge benefit, you continue to collect your pension and reduced CPP benefit for the rest of your life.
If you retire early and get a bridge benefit, it’s paid with the regular pension in one deposit.
A few months before you turn 65 we’ll send you a letter to remind you that the bridge will stop. The month you turn 65 will be the last month you receive the bridge benefit.
If you’re curious about what your pension might look like when you’re ready to retire, why not try the Pension Estimator? Simply type in your highest average earnings and total pensionable service (you can find these numbers on your most recent annual pension statement), and let the Estimator show you your projected retirement dates and estimated pension amounts.