Because the Plan offers so many flexible choices, you often have decisions to make about your pension. We’re introducing our new “Making Choices” series with the launch of three convenient booklets that outline some of your options. Read them online, download the print-friendly PDF or request a copy from your Human Resources department.
Making choices: Commuted value or Deferred pension?
Should you take the commuted value or defer your pension? Ultimately, the decision is yours. Although the commuted value option may be a good idea for some, keeping your pension benefit with the Plan has its advantages. Be sure to consider all the facts before making your decision.
If at the end of your 24-month period of extended membership, you have not moved to another CAAT Plan employer or transferred your pension to another plan, you will be able to choose from 2 options: deferring your pension or transferring the commuted value of your pension out of the Plan.
Taking a deferred pension: Your benefit stays in the Plan
Your deferred pension is the amount of pension you earned in the Plan during your active membership, up to the date you terminated your employment. At the end of your 24-month membership extension, no matter how young you are, you can choose to defer your pension. By deferring your pension, you keep it in the CAAT Plan to collect when you retire. Your pension continues to grow with inflation protection increases during the period before you retire.
You can start your deferred pension between the ages of 55 and 71. If you start your deferred pension before you turn 65, which is the normal retirement age in the Plan, your pension will be reduced by 5% for each year your early retirement precedes age 65. This reduction reflects that you will be collecting the pension for a longer period than a member who retires later. If you start your deferred pension early (before age 65), you will receive an additional payment called the bridge benefit until age 65.
A deferred pension has its benefits
When you opt for a deferred pension, you’ll receive these advantages:
- The peace of mind of knowing you’ll have a reliable stream of monthly pension payments, for life. You can’t outlive your pension.
- You don’t have to worry about complex investments, market downturns or paying the fees associated with managing an investment portfolio.
Inflation protection to partially offset the impact of inflation
- before you start your pension
- after you start your pension
- A lifetime pension payable to your surviving spouse.
- The flexibility to transfer it in future to another employer’s pension plan if they permit transfers.
Taking a commuted value: Your benefit leaves with you
The commuted value is what your pension is worth in a lump sum based on current interest rates. You have the option to transfer your commuted value at the end of your 24-month membership extension, as long as you not eligible for an immediate pension, (under age 55 or under age 50 if you had 20 years of service at termination).
Under pension law, a commuted value is locked in, meaning the funds must be transferred to a locked-in retirement account and used for your retirement income. Funds cannot normally be withdrawn from a locked-in retirement account before age 55, and all funds must be withdrawn or converted to an annuity by age 71.
A commuted value transfer has its risks
If you are considering transferring your commuted value out of the Plan, be sure to factor the following into your decision:
- You will be required to invest the commuted value yourself and you will be responsible for the costs and risks associated with managing your retirement funds.
- You might outlive your retirement savings.
You will give up:
- The right to a guaranteed pension from the CAAT Plan payable for your lifetime.
- A lifetime pension paid to your surviving spouse upon your death
- The flexibility to transfer your pension to some pension plans at a future employer
- You will have no further entitlement from the Plan
- The Income Tax Act limits the amount you can transfer to a locked-in retirement account. Any excess that you take in cash will be taxed at your current marginal tax rate, reducing the lump sum available to invest to generate retirement income.
At the CAAT Pension Plan our ultimate goal is to pay a predictable stream of pension payments. If your career path takes you away from employment with a CAAT Pension Plan employer, consider the risks and costs of managing your commuted value versus the advantages of a future pension from the Plan. If you have any questions about deferring your pension or taking your commuted value, contact us.
Reach your retirement goals - Joining the Plan
When you join the CAAT Pension Plan you immediately start building a secure, life-long retirement income.
What do you get when you join the Plan?
A pension that grows the longer you work
The defined benefit pension formula uses your best five consecutive years of earnings no matter when they occurred during your career in the college system: you receive the best possible pension, whether you scale back or take on more responsibility in later years.
The formula also uses your years and months of service in the Plan - the longer you contribute to the Plan, the bigger your pension will be.
Tax effective, employer-matched contributions
The contributions you make to the Plan throughout your career are tax-deductible – meaning you pay less income tax as a result of contributing to the Plan. And your contributions are matched by your employer, dollar for dollar, tax-free.
A choice of retirement dates
The Plan offers flexibility in choosing a retirement date to meet your unique needs. You can:
- retire at age 55 once vested, or as early as age 50 if you have 20 years of pension service.
- retire with an early unreduced pension when your age + service = 85, or you are at least 60 with 20 years of service, or,
- retire before reaching these milestones on an early reduced pension with a low reduction factor.
- retire with a “normal” pension at 65, or continue to build a larger pension up to age 71.
Members who retire before age 65 receive an additional payment called a “bridge benefit”, payable until age 65.
A pension paid for your lifetime
Your pension will be paid every month from retirement, for the rest of your life. You don’t have to worry about complex investments, market downturns, or outliving your pension.
Inflation protection for increased value
The impact of inflation is partially offset through the Plan’s inflation protection provision, helping pensions retain purchasing power over time.
Survivor benefits to protect your loved ones
A lifetime pension is payable to your surviving spouse. If you die before retirement, survivor benefit options are available.
A pension that goes with you
Your pension belongs to you. Even if you leave your employment for a different job, you will have the option to take your pension with you or leave it in the Plan to collect when you reach retirement age.
Reach for your goals
The CAAT Plan is a safe, worry-free way to invest in your future retirement income as you work. With flexible retirement options and a secure lifetime pension, the Plan helps you meet your retirement goals, whatever your goals may be.
Choosing your retirement date
Retire in June or August? Beginning or end of the month? Trying to choose your retirement date? Be sure to consider all the facts before making your decision.
Pensions start on first of the month
In the CAAT Plan, your retirement date is always the last day of the month in which you retire. Pensionable service, on which your pension calculation is based, is calculated as fractions of a year. For every day in the year up to your last day worked, you receive credit – the number of calendar days up to your last day worked is divided by 365 (or 366 in a leap year) to determine your total pensionable service. You cannot earn more than one year of service in a year.
Your monthly pension payments start the first calendar day of the month, or earlier if the first calendar day is on a weekend or holiday, after your retirement date as long as the Plan has received your forms and supporting documents on time.
Maintaining a steady flow of income
If your last day of work is at the end of the month, your income will not be interrupted. Your pension payments will start at the beginning of the month after your retirement date, ensuring a smooth transition from working income to retirement income.
If you stop working towards the beginning or middle of the month, your employment earnings will stop with your last pay, and your pension won’t start until the first of the following month, potentially interrupting your income flow.
Can your retirement date affect your pension?
If you stop working in the middle of the month of your retirement, you do not receive pensionable service for the entire month. You will receive credit only for the calendar days up to your last day worked.
Your earnings for the month will only reflect the earnings for the days you worked –so, your Highest Average Pensionable Earnings (HAPE - the 60 consecutive months your earnings were highest) may to be lower than if you had worked the entire month.
When to retire
Lump sum vacation payout or vacation?
June retirements are common in the college system. Current year vacation pay is paid in a lump sum in June. For members retiring in June, the choice to contribute on that payment means the lump sum is included in the final month’s earnings. If your final 60 months of earnings are also the highest, this will mean a higher HAPE.
By retiring at the end of June…
You could increase your HAPE: If your final month’s earnings are among your highest, the additional vacation earnings could result in a slightly higher pension.
You can collect your pension longer: You would receive 2 more months of pension payments on July 1 and August 1 than if you were to retire at the end of August.
By retiring at the end of August…
You could increase your service: The additional service would increase your pension. If you were to retire before age 65 on a reduced pension, the extra service would mean a lower reduction factor.
You can collect your health benefits longer: You would receive 2 more months of employer-paid health benefits. In retirement, health benefits are 100% member paid.
The vacation pay lump sum only applies for vacation pay in respect of the current vacation entitlement year. Vacation payouts for past year vacation entitlements are not pensionable and not part of the earnings for the HAPE calculation.
Working past age 65
Did you know…you can keep working past age 65 and continue earning a CAAT Plan pension?
And, new rules for the Canada Pension Plan (CPP) allow you to collect your CPP pension while continuing to work and give you the option to either continue or stop your CPP contributions.
Working past 65 – Your CAAT Pension and CPP
If you decide to work past age 65, you will continue to contribute to and build your CAAT Plan pension.
Collecting CPP while working
Although you must retire to start your CAAT Plan pension, you can choose to collect your Canada Pension Plan (CPP) pension, as you continue working. If you collect CPP while working, you can choose to continue or stop your CPP contributions.
If you continue to contribute to CPP, you will build CPP’s Post-Retirement Benefit, which will be paid in addition to your CPP pension beginning the following year for life.
Delaying the start of CPP
You also have the option to delay the start of your CPP pension beyond age 65. If you do, you will continue to contribute to CPP and build your regular CPP pension (which is different from the CPP Post-Retirement Benefit). When you do start your CPP pension, it will be increased to reflect the delayed start.
Reaching ages 70 and 71
You must stop contributing to CPP at age 70 and, by December 1 of the year you turn 71, you must start collecting your CAAT Plan pension even if you keep working, as mandated by the Income Tax Act.
Making the best decisions for you
To decide what’s best for your own financial situation:
- Contact Service Canada for estimates of your CPP at different start dates and compare the total monthly payments you would miss by waiting to start it with the increased amount of pension you would receive by waiting. How long would you need to live to recoup the missed payments by collecting a larger pension later?
- Consider that both your CPP pension and employment earnings will be taxable income and may invoke the claw back of certain benefits such as Old Age Security.
- If you decide to start CPP while working, compare CPP contributions with those for the CAAT Plan and the corresponding amount of additional pension you would build in each plan to decide whether or not to continue to contribute to CPP. You can get an estimate of your CPP post-retirement benefit on Service Canada’s website:
CAAT Support members can purchase strike period
The recent work stoppage involving OPSEU CAAT Support staff took place from September 1 - 19, 2011.
Service and earnings
During this period of time, members of the CAAT Plan who participated in the strike did not make contributions to the Plan.
Members of the CAAT Plan who participate in a work stoppage remain active members during the strike period. However, any payments received while on strike are not considered pensionable earnings for the purposes of the pension plan. The strike period is considered a break in service, which can be purchased once the strike has ended.
Because of the “One Day Rule” under the pension plan, a full time member who works and contributes to the Plan for at least one day in a given month will earn that full month of service. The One Day Rule was in effect at the time of the strike, but was eliminated as of July 1, 2012. Therefore if you took part in the 2011 OPSEU CAAT Support strike, you still earned service for the full month of September because you worked and contributed to the plan in September after the strike ended. However, since you did not receive pensionable earnings for the period of time you were on strike, your pensionable earnings for September will only reflect your actual earnings when you returned to work.
How this affects your pension
The pension formula considers two factors: your pensionable service and your earnings, specifically your average pensionable earnings for the 60 consecutive months that your earnings were highest. The highest 60 months of earnings typically occur in the last 5 years before retirement, therefore if the month of September, 2011 is included in your highest 60 months of earnings, the reduced earnings in September because of the strike period could lower your average and, ultimately, your pension.
By purchasing the period of time you were on strike, you can restore your earnings for the month of September, maintaining your highest average pensionable earnings on which your pension is based.
The cost of the purchase
The cost of purchasing the strike period is 2 times member contributions based on:
- Your annual rate of pay at the beginning of the strike, and
- The contribution rates in effect at the time of the purchase
The cost is 100% payable by the member, and the payment must be made in a lump sum. You can make the purchase at any time up to termination or retirement. Note that the cost of the purchase will increase when contributions increase, as they are scheduled to do in 2012, 2013 and 2014.
If you are considering making a purchase of the strike period, contact your Human Resources department to complete the 2011 Strike Purchase form.
If you are more than 5 years away from retiring, a service purchase will likely not impact your ultimate retirement pension, as the highest years of earnings are typically the last 5. However, a purchase should still be considered if you plan to stop working at your College in the next 5 years.
We suggest you seek independent financial advice before making this, or any service purchase.
Every situation is unique and you should consider all the factors before you make decisions about your pension. Contact the CAAT Plan if you need help understanding the impact of your choices.