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:
2 per cent
|
X
|
number of years of pensionable service
|
X
|
your average salary for the
five consecutive years of
your highest-paid service
|
Table 1-PSPP pension before age 65
Leslie retires on May 19, 2006 at age 60 with 25 years of PSPP
pensionable service and a "best-five" average of $60,000.
Applying the formula to Leslie's situation, we find:
2 per cent |
X |
25 |
X |
60,000 |
= |
$30,000 |
Thus, Leslie's PSPP pension at age 60 will amount to $30,000.
|
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:
0.7 per cent
|
X
|
the number of years of your pensionable service
|
X
|
the lesser of:
the AMPE for the year of
your retirement
OR
your average salary for the
five consecutive years of
your highest-paid service
|
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.)
PSPP pension
before age 65
|
–
|
PSPP reduction
at age 65
|
=
|
PSPP pension
at age 65
|
Table 2—PSPP pension at age 65
Following our example, when Leslie attains age 65, his PSPP pension
will be calculated as follows:
0.7 percent |
X |
25 |
X |
$40,540* |
= |
$7,094 |
* Leslie's "best-five" average salary is $60,000. The AMPE is $40,540 for 2006.
Since the AMPE is the lower of the two numbers, the AMPE is used for the
purposes of this calculation.
Leslie's PSPP reduction at age 65 will equal $7,094.
Therefore, Leslie's PSPP pension at age 65 is $22,906.
$30,000
(PSPP pension before age 65) |
- |
$7,094
(PSPP reduction at age 65) |
= |
$22,906
(PSPP pension at age 65) |
|
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.
|