What happens to your pension after you retire?
Changes to your pension at age 65
The Canada Pension Plan and your OPTrust pension: The Canada Pension Plan (CPP) provides retirement benefits to individuals who have contributed to it during their employment. Your OPTrust pension is designed is to provide you with a combined pension income – from both OPTrust and CPP – that equals approximately 2% of your average salary multiplied by your years of credited service in the OPSEU Pension Plan.
In effect, when a pensioner retires before age 65, OPTrust pays the full 2% pension benefit. However when you were a contributing plan member, you made reduced contributions to the OPTrust plan on the portion of your earnings that is also covered by CPP. This contribution “integration” is taken into account in the way your OPTrust pension is calculated starting at age 65.
Starting at age 65, your 2% pension will be made up of an OPTrust portion plus a CPP portion.
Even though the normal age for starting CPP benefits is 65, you can apply for a CPP pension as early as age 60. If you receive an early CPP pension, it is reduced 6% for every year you are less than 65. CPP annual maximum benefits increase every year to reflect changes in the cost of living. The maximum monthly CPP retirement pension in 2011 was $960.
The CPP benefit calculation can be complex. As well, CPP benefits and contributions change over time. For more detailed information on the Canada Pension Plan, we suggest you contact CPP.
CPP provides three main types of benefits: retirement pensions, disability pensions, and survivor benefits.
CPP Retirement Pension
At age 65, the retirement pension from CPP is a monthly benefit based on how much, and for how long, a person contributed to CPP over his or her working life. The pension is designed to replace about 25% of the earnings on which a person contributed. CPP sets a maximum monthly benefit.
A CPP retirement pension may also be paid as early as age 60 if the contributor has stopped working. If a person takes his or her CPP pension before age 65, it is reduced by 6% for each year the contributor is under age 65. Similarly, if the person elects to start taking CPP later than age 65, the amount of retirement pension is adjusted upwards by 6% for each year after the age of 65.
CPP Disability Pension
This is a monthly benefit consisting of both flat-rate and earnings-related components. The earnings-related component is equal to 75% of the CPP retirement entitlement, calculated as if the contributor became 65 years of age in the month when the disability pension became payable. At age 65, the total disability benefit is changed to the regular CPP retirement entitlement. For information on disability provisions, contact CPP.
CPP Survivor Pension
In the event of a contributor’s death, his or her eligible spouse is entitled to a survivor’s pension from CPP. For information on qualifications for this benefit, please contact CPP.
Your OPTrust pension is calculated as follows:
|2%||×||your best five-year average annual salary||×||your credit|
Minus the reduction for CPP integration at age 65:
|0.655%||×||the lesser of:
your best five-year average annual salary,
your final five-year average Year’s Maximum Pensionable Earnings (YMPE) set under CPP
You can begin taking your CPP pension as early as age 60 at a reduced rate, as we mentioned earlier. Regardless of when you start collecting CPP, your OPTrust pension is integrated with CPP when you reach age 65.
So, if you take CPP early, you will receive the reduced CPP pension plus a 2% OPTrust pension until age 65. At age 65, your CPP pension remains reduced, and your OPTrust pension is reduced for integration. While there will be a reduction in your combined income from the OPTrust and CPP pensions at age 65, some of this reduction may be offset by Old Age Security or seniors’ benefits.
Some people prefer to receive this extra money earlier by taking early CPP, even though their total pension payments (OPTrust and CPP combined) will then be lower at age 65. Others prefer to delay receiving CPP until age 65, which results in more uniformity in total payments over time, and a higher combined income after age 65, as we will see in the following example.
Example of Luis's OPTrust pension plus CPP
Let’s assume Luis retires at age 57 with an unreduced OPTrust pension under the OPSEU Pension Plan’s Factor 90 option. Luis knows he is eligible for unreduced CPP benefits at age 65, but he is considering taking CPP early, starting at age 60. In this case, his lifetime CPP pension would be reduced by 30% (6% for each year he is under age 65).
The example on the following pages shows how Luis’s combined monthly pension income and his lifetime pension income are affected by:
- the integration of his OPTrust pension, and
- the possibility of taking an early reduced pension from CPP.
In calculating Luis’s lifetime income, we have assumed he will live to age 75. The examples do not show the effect of annual inflation-related increases to Luis’s OPTrust and CPP benefits.
Example 1: Luis’s OPTrust Pension + CPP at age 65
Luis’s OPTrust pension at age 57: Based on his average salary and years of credit, Luis is eligible for a monthly OPTrust pension of $2,000. When he turns 65, the OPTrust pension will be integrated with CPP and his OPTrust pension will be reduced to $1,442 per month.
Luis’s CPP pension: If Luis takes CPP at age 65, he will receive a monthly benefit of $700.
Luis’s OPTrust pension + CPP at age 65
From age 57 to 65 (OPTrust pension)
OPTrust pension payments of
$2,000 per month x 8 years
Total pension income, age 57 to 65
$2,000 per month x 8 years
From age 65 to 75
OPTrust pension payments of $1,442 (after CPP integration) per month x 10 years
CPP pension of $700 per month x 10 years
= $ 84,000
Total pension income from age 65 to 75 $2,142 per month x 10 years
LUIS'S TOTAL LIFETIME PENSION FROM AGE 57 TO 75
In this example, Luis will start to receive his full CPP benefit at the same time as his OPTrust pension is integrated. As a result, his total pension income will remain relatively stable. In fact, because the OPTrust reduction for CPP is less than his total CPP benefit, Luis's monthly pension income will increase from $2,000 to $2,142.
Example 2: Luis’s OPTrust Pension + Reduced CPP at age 60
Luis’s OPTrust pension: As in example 1, Luis is eligible for a monthly OPTrust pension of $2,000 until age 65. When he turns 65, his OPTrust pension will be reduced for CPP integration to $1,442. Luis’s OPTrust pension will still be reduced for CPP integration at age 65, even if he decides to take CPP early.
Luis’s CPP pension: If Luis takes CPP early at age 60, his monthly CPP benefit will be reduced by 30% (6% x 5 years) to $490 for his lifetime.
Luis’s OPTrust pension + reduced CPP at age 60
From age 57 to 60
OPTrust pension of $2,000 per month x 3 years
= $ 72,000
Total pension income from age 57 to 60 $2,000 per month x 3 years
= $ 72,000
From age 60 to 65
OPTrust pension of $2,000 per month x 5 years
CPP pension of $490 per month x 5 years
= $ 29,400
Total pension income from age 60 to 65 $2,490 per month x 5 years
From age 65 to 75
OPTrust pension payments of $1,442 per month (after CPP integration) x 10 years
CPP payments of $490 per month x 10 years
= $ 58,800
Total pension income from age 65 to 75 $1,932 per month x 10 years
LUIS’S TOTAL LIFETIME PENSION FROM AGE 57 TO 75
In this example Luis will start to receive his reduced CPP benefit before his OPTrust pension is reduced for CPP integration. As a result, his total pension income will increase between the ages of 60 and 65. However, when Luis turns 65, his OPTrust pension will be reduced for CPP integration, while his CPP payments will continue at the reduced level. Consequently, his monthly pension income after age 65 will be lower than if he had started CPP at 65.
FIGURE 1: LUIS’S MONTHLY PENSION: OPTRUST + CPP AT AGE 65
|Age||OPTrust pension||CPP pension||Total|
FIGURE 2: LUIS’S MONTHLY PENSION: OPTRUST + REDUCED CPP AT AGE 60
|Age||OPTrust pension||CPP pension||Total|
There are a number of factors you should take into consideration in deciding when to start receiving CPP. These may include your life expectancy, your financial plans and your financial needs in your retirement.
In Luis’s example, if he lives to be much older than 75, taking CPP early would mean a lower total income over his lifetime. That is why some people who expect to live into their eighties or nineties choose not to start CPP until age 65. OPTrust actuaries calculate that a female plan member retiring at 60 will live to approximately age 84, on average, while a male plan member retiring at 60 will live to an average age of 79.
On the other hand, some people take CPP early to help with costs such as their children’s education, mortgage payments or travel. Others may take CPP early because they expect their financial needs to decrease after age 65. It is a good idea to consider a range of financial, family, health and other factors in making the best choice for you.
In addition to CPP, you may be entitled to a monthly retirement benefit from Old Age Security (OAS). It is payable monthly and indexed quarterly. Your pension from the OPSEU Pension Trust is not adjusted due to OAS payments.
OAS payments are separate from OPTrust and CPP payments. OAS starts at age 65 and cannot be taken any earlier. In the third quarter of 2011, maximum OAS monthly basic benefit payments were $527.
If you have an eligible spouse and die after retirement, your spouse will receive a 60% survivor pension from the OPSEU Pension Plan.*
This survivor pension will be reduced for CPP integration on the date you would have turned 65. For example, if you are receiving an OPTrust pension and die before age 65, your spouse’s initial survivor pension will equal 60% of your current monthly pension. Starting with the month following what would have been your 65th birthday, the survivor pension will be re-calculated based on 60% of your CPP integrated pension amount.
Your surviving spouse may also be eligible for a survivor pension from CPP, if he or she meets CPP’s criteria. However, this will not affect the amount of the OPTrust survivor pension or the date on which it is integrated with CPP.
To illustrate how OPTrust survivor pensions are calculated when the pension is integrated with CPP, let’s use the example of Luis (see above). In the example, Luis retires at age 57 with a monthly OPTrust pension of $2,000. When he turns 65, his OPTrust pension will be reduced to $1,442 per month to reflect CPP integration.
If Luis dies at age 62, his eligible spouse would be eligible for a survivor pension of $1,200 per month (60% x $2,000). On the month after Luis would have turned 65, his spouse’s survivor pension will be reduced to $865, (or 60% of his CPP integrated pension of $1,442).
CPP integration: When you reach age 65, your OPTrust pension is reduced for CPP integration because you are now eligible to collect a CPP pension. During your membership in the OPSEU Pension Plan, your contributions to the Plan were reduced because you also made contributions to the CPP on the portion of your salary that is between the Year’s Basic Exemption (YBE) and the Year’s Maximum Pensionable Earnings (YMPE).
Since its inception in 1966, CPP has kept a record for each person who pays into the plan. This information is provided through the Canada Revenue Agency. Once a year, you can request a Statement of Contributions which includes your Record of Earnings. CPP typically sends you a statement every three or four years.
To apply for CPP, you must complete a CPP application form and mail it at least six months in advance of when you want your pension to begin.
Also remember that CPP benefits and eligibility rules differ from those of OPTrust.
To contact CPP:
The federal government offers a Canada-wide toll-free information line on CPP:
1-800-277-9914 or the Service Canada website.
To locate the nearest Service Canada office look in the blue pages of your phone book under Pensions.