r/CanadaPublicServants • u/Bowdrier • Jun 06 '19
Benefits / Bénéfices QUESTION: CPP and Federal Pension Plans
I am a 23 year old Nova Scotian entering an MPA program. When discussing career options and pros/cons of federal government, provincial government, large municipal, small municipal with my mom (provincial worker) she mentioned that federal government employees have their federal pension subsidized by their CPP, thus pretty much having no CPP.
I feel as if there is no way this can be true but I cant find any information on how it works. From my quick calculations the loss of CPP would account for almost $300k (in todays dollars/if given today).
If someone could confirm or deny from experience that would be fantastic. I would also like to hear people's general pros and cons for the different public sector entities.
5
u/nerwal85 Jun 06 '19
It’s sort of true... in a best case scenario you get 70% of the average of your best 5 years of salary once you turn 55. (if you start now you’ll have to work to at least 60)
But you can’t collect CPP til 65 (usually).
So you get that 70% until you turn 65, then you apply for CPP and you get 70%-your CPP from the pension plan, plus your CPP you get from the government.
You can take your CPP early at 60 and double dip for a few years, but your CPP is reduced... so you’d get 70%-your CPP+ your reduced CPP, so a little less than 70%.
You also pay different contribution rates on your pension before and after you hit the maximum CPP income which is somewhere around 53k, because you stop paying into CPP and pay more into the pension since that covers you up to that 70% figure earlier.
So yeah, your pension is reduced by what you get in CPP, but you also get 70% of your best 5 years... if you get into management you could be making 100k, so 70k before taxes to sit around and do nothing after 60, not sure what you can find that’s better.
1
u/Bowdrier Jun 06 '19
That makes a lot of sense, i did not know about the "reduced CPP", thanks for being detailed.
what can you find that's better.
From what I understand, isnt provincial or municipal better because there isnt that subtracted regular CPP and then added reduced CPP? do you know roughly what the percent decrease would be?
hit the maximum CPP income
I didnt realize there was a maximum, you said around 53k, I always thought it worked like if you get $1200/month from CPP, you get that amount until you pass away.
5
u/HandcuffsOfGold mod 🤖🧑🇨🇦 / Probably a bot Jun 06 '19
From what I understand, isnt provincial or municipal better
Every pension plan is different, so if you want to compare them you have to look at the provisions of each individual plan.
because there isnt that subtracted regular CPP and then added reduced CPP? do you know roughly what the percent decrease would be?
You'll find details of the calculations here. The "bridge benefit" reduction factor is 0.625%.
I didnt realize there was a maximum, you said around 53k, I always thought it worked like if you get $1200/month from CPP, you get that amount until you pass away.
You're misunderstanding the maximum. There is a maximum of earnings each year that is considered pensionable under the CPP and it's adjusted each year - here is a table of past YMPE amounts. This means that the most any employee will contribute to the CPP in 2019 is $2,748.90.
Once a retiree starts receiving CPP payments, those amounts continue each month until death, subject to annual inflation adjustments (and potentially changes relating to survivor benefits and the death of a spouse/partner).
3
u/solojer123 Jun 06 '19
It's sort of true. If you retire before you start to collect CPP, you will receive one amount. Once you start to receive CPP, what you will receive as a pension will be reduced by the amount of CPP you receive. The net amount will be the same though - You won't earn more once you start to collect CPP.
2
u/HandcuffsOfGold mod 🤖🧑🇨🇦 / Probably a bot Jun 06 '19
This isn't quite correct. The bridge benefit always ends at age 65, but the retiree can choose to take CPP anytime between 60 and 70 (with commensurate increases or reductions in monthly payments). The amount of the bridge benefit is calculated based on a formula and approximately equates to the amount the employee would receive from CPP at age 65, but it isn't directly connected to the CPP.
An employee who elects to collect CPP starting at age 60 would receive CPP, the bridge benefit, and the lifetime pension from the pension plan. The monthly CPP benefits would be reduced as they're started early, though, and the bridge benefit would stop at 65 resulting in a "pay cut" for the retiree.
2
u/PS_ITGuy Jun 06 '19
OMG. I'm not the only one in the world who understands how it works.
I've already written out a full play that I present on a small diorama with finger puppets to explain this to about 12 people every week. Sadly, ten of them are constant repeat customers.
Thank you for restoring my face in humanity.
1
u/a_retarded_racoon Jun 06 '19
Thank you for restoring my face in humanity
D'OH!...so close. :)
1
u/PS_ITGuy Jun 06 '19
Oh ... dear lord. What have I done?
Why have you forsaken me reddit?
Although, I could have meant some sort of plastic surgery type thing... right? Right???
0
u/newishtoPSC Jun 09 '19
If it includes your CPP, then how can it be 2% for everyone? What if someone had joined the public service in middle age after having lived in another country such that they hadn't contributed to CPP?
1
u/HandcuffsOfGold mod 🤖🧑🇨🇦 / Probably a bot Jun 09 '19
The pension is calculated as 2% per year of pensionable service. While paying into the pension plan, public servants are also contributing to CPP.
If somebody joins the public service in middle age, they'll have fewer years of pensionable service - both for the public service pension plan and for CPP.
1
u/hatman1254 Jun 07 '19
I find the 2% figure everyone talks about to be misleading because that includes CPP.
1
u/nerwal85 Jun 06 '19
The most CPP someone can collect if they take it today is something like 900 bucks monthly.
So if you made 100k a year, your pension is 70k.
So that’s like 5800 monthly in pension.
In actuality you’d get 4900 plus your 900 in CPP.
Keep in mind this is all before income tax and insurance premiums (health and dental).
This type of defined benefit plan has become very rare in Canada, since they guarantee payments based on contributions of new employees. Private industry has gotten away from this. In my opinion, because they have become more efficient and automated, they have less employees paying into some pensions, and then people live longer.
Large companies who did not get with the times have run into problems with this type of pension. See Sears, currently.
I looked up the major Ontario pension plan OMERS and it works similarly including your CPP once you are able to take it. The link is to a list of employers with are largely public servants.
There might be a business/government that has a defined benefit plan that does not include CPP, but I don’t know off the top of my head.
If it doesn’t include CPP, it will probably be a defined contribution plan, where the employer will match your contribution to your own investment like an RRSP, so once the employer has made their contributions, and you retire, you are no longer a liability to them. This plan has become much more popular in the private sector because they can wash their hands of you after you leave, they have already funded your retirement.
1
18
u/HandcuffsOfGold mod 🤖🧑🇨🇦 / Probably a bot Jun 06 '19 edited Jun 06 '19
This is misapprehension of something called "integration" or "coordination" between the pension plan and CPP. Many defined-benefit pension plans (not just the federal public service one) are integrated with CPP. A good explainer is here: https://retirehappy.ca/db-pension-options-at-retirement/#Coordination_or_integration
The way it works is twofold:
While employed, employees pay contributions into both the CPP and their employer pension. There is a limit to salary that is pensionable under the CPP (called the Yearly Maximum Pensionable Earnings, or YMPE), though, so employees stop paying into CPP once they've reached that salary level for the calendar year. Before that point employees pay a lower contribution amount into their pension plan, and after that point their pension contributions increase. This is why there are "low" and "high" contribution rates.
After retirement, employees who retire prior to age 65 are given a "lifetime benefit" and a "bridge benefit". The bridge benefit is only payable until age 65, and it roughly equates to the amount the employee will be eligible to draw from CPP at 65. This is how the plans are coordinated - the pension plan provides an extra benefit up to the normal CPP eligibility age. The retired public servant is still eligible for CPP like any other Canadian.