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Calculating your Pension  |  Age 65 - What happens to my pension?


Calculating your Pension

The following is an example of how a pension is calculated and what happens at age 65. For this example, John is retiring at age 58 with 32 years of pensionable service. His highest average salary (HAS) is $55,000. Also is an explanation of the components of the pension formula.


2.0%  X $55,000* X 32.000 years** = $35,200

John's annual pension at age 58 is:  $35,200
 

LESS at age 65:


0.7% X $40,000*** X 32.000 years** = $8,960

John's annual pension at age 65 is:  $35,200 - $8,960 = $26,240

 

*  Highest Average Salary (HAS)

**  Pensionable Service

***  Average year's maximum pensionable earnings (YMPE)

 

What happens to my pension at age 65?

While you are contributing to the Teachers’ Pension Plan you pay contributions at two rates: a lower rate on your salary up to the Year’s Maximum Pensionable Earnings (YMPE) and a higher rate on your salary above that. Similarly, your pension is calculated at two rates: 1.3% on your average salary up to the YMPE and 2% on your average salary above the YMPE. This is your lifetime pension, i.e. it is paid from the point of your retirement for as long as you live. In addition, however, the pension plan pays you a bridge benefit. As the name suggests, this is intended to bridge the period from retirement to age 65 when most people elect to start drawing their Canada Pension Plan (CPP) benefit. When you turn 65, the bridge benefit of your teacher’s pension ceases to be paid.

The CPP benefit is normally drawn starting at age 65, however, you may elect to start receiving a reduced CPP benefit as early as age 60. This early withdrawal means that the CPP benefit is reduced dependent on the age at which you commence receiving it. There are the two possible scenarios regarding your teacher’s pension and CPP benefit based on when you decide to draw your CPP benefit.
 

SCENARIO # 1


If you elect to start receiving CPP benefits prior to age 65, this is what you should receive each month:

- Lifetime portion of your teacher’s pension
PLUS
- Bridge benefit of your teacher’s pension (until age 65)
PLUS
- CPP benefit from the Canada Pension Plan (if you elect to draw CPP early)

Under this scenario, you are drawing your CPP benefit prior to age 65. This early withdrawal of CPP benefits means that the benefit will be permanently reduced. This means that when you reach age 65 and the bridge benefit of your teacher’s pension ceases, you will notice a decrease in the overall amount of the pension income you receive each month. You will now receive only the lifetime portion of your teacher’s pension and the CPP benefit.
 

SCENARIO # 2


If you elect to start receiving the CPP benefits at age 65, this is what you should receive each month upon reaching age 65:

- Lifetime portion of your teacher’s pension
PLUS
- CPP benefit from the Canada Pension Plan

Under this scenario, you are waiting until age 65 to draw your CPP benefit. At this time the bridge benefit of your teacher’s pension will cease and you will begin drawing Canada Pension Plan benefits. This means there should be little or no change in your total pension income after age 65.