The Co-ordination of the Public Service Pension Plan with the Canada Pension Plan or Quebec Pension Plan

Introduction

When the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP) were introduced on January 1, 1966, the federal government, like most Canadian employers offering a pension plan for their employees, decided to co-ordinate the new CPP/QPP with the Public Service Pension Plan (PSPP). It did this so that its employees would not have to set aside a greater proportion of their salary for retirement savings.

This document provides an overview of the co-ordination of the PSPP with the CPP/QPP by describing its impact on:

• the contribution rates paid by a PSPP member to each separate plan, notably the PSPP and the CPP/QPP;
• the PSPP pension at age 65 when the CPP/QPP retirement pension is normally paid;
• an early PSPP pension; and
• an early or delayed CPP/QPP retirement pension.

A list of useful links and helpful telephone numbers has been included at the end of this document to provide sources of more detailed information on pension issues.

Part I—Contributions

When you are appointed to a position in the Public Service for an indeterminate period, or once you have worked in the Public Service for six consecutive months, you and your employer, the federal government, begin to make contributions to the PSPP. 

In addition, you and the federal government, like all Canadian workers and employers, must also contribute to the Canada Pension Plan (CPP), if you work outside Quebec, or the Quebec Pension Plan (QPP), if you work in Quebec.

Under the CPP/QPP, you will pay contributions on your annual earnings between a set minimum and a set maximum level:

• the minimum level, known as the Year's Basic Exemption (YBE), is set at $3,500;
• the maximum level is set every year by the CPP/QPP and is known as the Year's Maximum Pensionable Earnings (YMPE). In 2006, it is set at $42,100.

Since the PSPP is co‑ordinated with the CPP/QPP, employees contribute to the PSPP as of January 1, 2006 at two rates:

• 4.3 per cent on the portion of salary up to the maximum covered by the CPP/QPP (YMPE); and
• 7.8 per cent on the portion of salary above the maximum covered by the CPP/QPP (YMPE).

The following graph illustrates the contributions you make to each plan in 2006.

Display full size graphic 

PART II—Your PSPP Pension

The co-ordination of the PSPP with the CPP/QPP affects not only your contributions but also your benefits. You contribute less to the PSPP pension plan on earnings up to the maximum covered by the CPP/QPP ($42,100 for 2006) and your PSPP pension is reduced to partially recognize benefits payable from the CPP/QPP. This means that PSPP benefits are reduced automatically by a standard formula once you reach age 65 (which is the normal age of eligibility for CPP/QPP), or if you are entitled to draw CPP/QPP disability benefits at any age.

PSPP pension before age 65

You are entitled to a PSPP pension (immediate annuity), if you retire:

• at or after age 60 with two (2) or more years of pensionable service; or
• at or after age 55 with 30 or more years of pensionable service.

A PSPP pension is calculated according to the following basic pension formula:

Table 1-PSPP pension before age 65

PSPP pension at age 65

Normally, at age 65, you become eligible to receive a lifetime CPP/QPP retirement pension. Accordingly, the month following your 65th birthday, your PSPP pension will be recalculated (reduced) to take into account that, during your public service employment, you were making lower PSPP contributions on the part of your salary covered by the CPP/QPP.
Note however that, if you are receiving a PSPP pension and you are entitled to receive a CPP/QPP disability benefit before age 65, your PSPP pension will be reduced as of the date of your entitlement to the CPP/QPP disability benefit.

The reduction in your PSPP pension is based on the following:

• the number of years of pensionable service to your credit under the PSPP; and
• the average maximum pensionable earnings (AMPE)¹ under the CPP/QPP for the year of your retirement.

At age 65 (or earlier if you begin to receive a CPP/QPP disability benefit), your PSPP pension reduction is calculated using the following method:

Once the amount of the reduction is calculated, it is then deducted from the PSPP pension you had before age 65. (See Table 1 for calculation.)

Table 2—PSPP pension at age 65

Following our example, when Leslie attains age 65, his PSPP pension will be calculated as follows: 

While your PSPP pension is reduced at age 65, you are eligible for a CPP/QPP retirement pension at this time. Please note that your CPP/QPP retirement pension at age 65 may be more or less than the reduction of your PSPP pension, since the provisions of each plan (PSPP and CPP/QPP) are different and the amount of a benefit is calculated independently under each plan. For example, the maximum contributory period, the age of eligibility for retirement benefits, and the average earnings used in determining the pension are different under the plans. This is similar to what occurs in other employer‑sponsored pension plans.