Managing Inflation Impact on Pension Increase
Inflation affects your pension increase through three key factors: Base Inflation Adjustment, Plan Funding Status, and Periods of Pension Credit Earned. Understand the varying levels of inflation protection based on when you worked and earned pension credit. Discover strategies for navigating inflation changes to secure your retirement finances.
Download Presentation
Please find below an Image/Link to download the presentation.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author.If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.
You are allowed to download the files provided on this website for personal or commercial use, subject to the condition that they are used lawfully. All files are the property of their respective owners.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author.
E N D
Presentation Transcript
Inflation and Your Pension
2 T H R E E F A C T O R S Three Factors Affect Annual Increase 1 Base inflation adjustment 2 Plan s funding status 3 When you worked & earned pension credit
3 T H R E E F A C T O R S 1 Base Inflation Adjustment Reflects annual increase in cost of living Increase measured by changes in Consumer Price Index (CPI) To calculate base adjustment, we compare average monthly CPI for 12 months ending in September to 12-month average a year earlier This effectively averages monthly CPI increases
4 T H R E E F A C T O R S 2 Plan s Funding Status Determines how much of the base inflation adjustment the pension plan can afford to pay A funding valuation may project shortfall of assets to meet the projected pension costs To address shortfall, OTF and government could provide less than 100% inflation protection for pension credit earned after 2009 Inflation protection levels can be partially or fully restored when funding status improves
5 T H R E E F A C T O R S 3 When You Worked & Earned Pension Credit To determine your annual pension increase, we look at three periods of pension credit (actual teaching time): 1. Before 2010 2. During 2010-2013 3. After 2013 Each period has a different level of inflation protection
6 T H R E E P E R I O D S O F P E N S I O N C R E D I T Pension Credit Earned Before 2010 100% inflation protection What does this mean when you retire? This portion of your pension keeps pace with annual CPI increases
7 T H R E E P E R I O D S O F P E N S I O N C R E D I T Pension Credit Earned During 2010-2013 50% to 100% inflation protection What does this mean when you retire? This portion of your pension receives at least 50% and up to 100% of annual CPI increase
8 T H R E E P E R I O D S O F P E N S I O N C R E D I T Pension Credit Earned After 2013 0% to 100% inflation protection What does this mean when you retire? This portion of your pension receives from zero to 100% of annual CPI increase
9 T H R E E P E R I O D S O F P E N S I O N C R E D I T Summary When you earned your pension credit Inflation protection level What it means when you retire This portion of your pension will keep pace with annual increases in the Consumer Price Index (CPI). Earned before 2010 100% This portion of your pension will receive at least 50% and up to 100% of the annual increase in the CPI. Earned during 2010-2013 50% to 100% This portion of your pension will receive from zero to 100% of the annual increase in the CPI. Earned after 2013 0% to 100%
10 E X A M P L E S Assumptions Louise, Jason & Chloe are at different stages of their careers Each will retire with a $50,000 annual pension after 25 years of full-time teaching The plan determines the annual base inflation adjustment is 2% OTF and government set the level of inflation protection for the year at: 90% for pension credit earned during 2010 to 2013, and 90% for pension credit earned after 2013
11 E X A M P L E S Assumptions Based on 2% inflation, annual pension increase will include: 2% for pension credit earned before 2010 (100% of 2%); 1.8% for pension credit earned during 2010 to 2013 (90% of 2%); and 1.8% for pension credit earned after 2013 (90% of 2%). Let s look at how this affects Louise, Jason and Chloe.
12 E X A M P L E S Louise: Late-Career Teacher The big picture: 75% of Louise s pension will be fully protected against inflation throughout her retirement Remaining 25% will be conditionally protected When Louise earned her pension credit How we calculate the increase: Pension X inflation level X % of credit Her pension increase Inflation level 75% earned before 2010 100% of CPI = 2.0% $50,000 X 2.0% X 75% $ 750 15% earned during 2010-2013 Set at 90% of CPI = 1.8% $50,000 X 1.8% X 15% $ 135 10% earned after 2013 Set at 90% of CPI = 1.8% $50,000 X 1.8% X 10% $ 90 Total Pension Increase $ 975
13 E X A M P L E S Jason: Mid-Career Teacher The big picture: 45% of Jason s pension will be fully protected against inflation throughout his retirement Remaining 55% will be conditionally protected When Jason earned his pension credit How we calculate the increase: Pension X inflation level X % of credit His pension increase Inflation level 45% earned before 2010 100% of CPI = 2.0% $50,000 X 2.0% X 45% $ 450 15% earned during 2010-2013 Set at 90% of CPI = 1.8% $50,000 X 1.8% X 15% $ 135 40% earned after 2013 Set at 90% of CPI = 1.8% $50,000 X 1.8% X 40% $ 360 Total Pension Increase $ 945
14 E X A M P L E S Chloe: Early-Career Teacher The big picture: 100% of Chloe s pension will be conditionally protected against inflation throughout her retirement When Chloe earned her pension credit How we calculate the increase: Pension X inflation level X % of credit Her pension increase Inflation level 0% earned before 2010 N/A N/A N/A 12% earned during 2010-2013 Set at 90% of CPI = 1.8% $50,000 X 1.8% X 12% $ 108 88% earned after 2013 Set at 90% of CPI = 1.8% $50,000 X 1.8% X 88% $ 792 Total Pension Increase $ 900
15 W R A P U P Top 4 Things to Remember 1 Annual inflation increases are determined each year after you retire 2 You don t bank or accumulate a particular level of inflation protection while you work
16 W R A P U P Top 4 Things to Remember 3 Throughout your retirement, you will receive: 100% inflation protection for any pension credit earned before 2010, and a variable amount of inflation protection for any pension credit earned after 2009. The amount will vary each year, depending on the plan s ability to pay for it. 4 Annual inflation increases are added to your existing pension amount this new amount becomes your new lifetime pension
M O R E I N F O R M AT I O N Visit the pension plan s website at www.otpp.com/funding Talk to your affiliate pension representative
