Commonly Used Pension Terms
- Accrued pension/benefit – the amount of annual or monthly pension earned by a plan member based on pension service and average salary rate up to a given date.
- Average salary – this is the average of your highest sequential 60 months of salary based on your annual full-time salary rate, not including overtime or bonuses. The average salary is used in the pension formula.
- Commuted value – the amount of an immediate lump sum payment in today’s dollars estimated to be equal in value to a future series of pension payments.
- Deferred pension – the accrued pension determined at the time of termination of employment, which is payable at age 65 (normal retirement age).
- Defined benefit plan – a plan that uses a formula that takes into account your pension service in the Plan and average salary to determine the amount of your retirement pension.
- Divestment – under Ontario’s Pension Benefits Act, there are special rules applied to the pension entitlements of Plan members in the event of a divestment. These special rules apply when:
- the former employer transfers, or "divests", all or part of an operation to another employer, and
- affected employees become employed by the new employer, and
- the new employer contributes to a different registered pension plan, and
- the affected employees become members of the new employer’s pension plan.
- Division of pension – where the spouse of a member, as a result of a separation or divorce, is entitled under the terms of an agreement or court order to claim a share of the pension value earned by the member during the period of marriage or common-law relationship.
- Early age-reduced pension – a pension that is payable as early as age 55 and does not qualify as an early unreduced pension. The pension benefit is reduced by 5% for each year you are under 65 and pro-rated for partial years.
- Eligible child (child) – under the current provisions of the OPSEU Pension Plan, an eligible child is:
- dependent on the member or the member’s spouse and under the age of 18, or is 18 or older and is in continuous full-time attendance at a secondary school or postsecondary institution for up to five years immediately following secondary school,
- dependent on the member or the member’s spouse for financial support by reason of a severe and prolonged mental or physical disability on the date of the member’s death and continuing thereafter until the earlier of the date the child dies or is no longer disabled.
- Eligible spouse (spouse) – for pension purposes a spouse is someone a member is married to or has been living with in a common-law relationship for at least three years, or a shorter period if they are in a relationship of some permanence and are the parents of a child. For the spouse to qualify for a benefit, the member and spouse must not be separated at the time a determination is being made (i.e. at date of retirement, or date of death if the member dies before retirement). If you and your common law spouse are not the parents of a child, you must be living together continuously for three years before they qualify for a survivor benefit.
- Immediate pension – a pension which takes effect on the first of the month following the month of termination from the Plan and is payable each month by the 26th. Under the current provisions of the OPSEU Pension Plan, an immediate pension is payable at age 65, or at any time between age 55 and 65 subject to an early age reduction. If the member qualifies for Factor 90 or 60/20, no early age reduction is applied.
- Locked-in – a legislative requirement that vested benefits under the pension plan must be used to provide a lifetime retirement income and are not available as immediate cash except in limited circumstances.
- Pension formula – the pension formula used to calculate your pension amount at age 65 is:
2% x best sequential five-year average annual salary rate x years of pension service
0.655% x the lesser of your best sequential five-year average annual salary rate or the YMPE averaged over the final five years x your pension service (to a maximum of 35 years)
- Pension service – the total period of time during which a member contributes to the pension fund or has contributions made on their behalf.
- Plan sponsors – the Government of Ontario and OPSEU. Each appoints five trustees to the OPTrust Board that oversees the OPSEU Pension Trust.
- Public Service Pension Plan (PSPP) – is administered by the Ontario Pension Board.
- Re-employed – a re-employed retiree is a retired member who is working for (becomes an employee of) an employer who contributes to the OPSEU Pension Plan.
- Residual balance – upon your death or the death of your survivors, whichever occurs later, a residual balance may be payable if the total of your contributions plus interest at your retirement date exceeds the total payments paid to you and your survivors. This residual balance is payable as a lump sum cash payment, less withholding tax, to your designated beneficiary(s), or to your estate if you do not have a beneficiary.
- Termination – in the OPSEU Pension Plan “termination” of plan membership means that you stop making contributions to the pension plan because your employment has ended. Employment could end because of retirement, layoff, dismissal, resignation or death.
- Year’s Maximum Pensionable Earnings (YMPE) – this is the maximum earnings from employment on which CPP contributions and benefits are calculated. The CPP earnings maximum is changed every year according to a formula based on average industrial wage levels.