Future of Government Pensions (PS, CF & RCMP) & CF pension "double-dip"

[dapaterson]

The unfunded gap is a legacy issue that will slowly disappear over time.  Current contributions, both employer and employee, are taken and invested in the markets by a third party body.

Costs of administration are prorated between the legacy accounts and the market investments.

The PSSA annual reports are available on the Treasury Board website and provide significant information on the administrtation of the plan.  If only the CFSA reports were also published on the web...

 

[Pusser]

Federal pensions are based on the average of your best five consecutive years of earnings.  However, you are limited to 35 years of pensionable service.  If you were to include years of part-time service, the benefit for those part-time years are pro-rated based on the proportion of the year you worked.  In other words, you've got thirty five calendar years to accumulate service; but if you only work partial years within those 35 years, your benefits for those partial years are pro-rated.

So: Assume you work 15 years in the primary reserve, averaging 1/3 of a year of work in each year (and never exceeding 180 days).  Then you work 25 years in the public service.  (To keep things simple, we'll assume no overlap between the two).

Under the current system, the reserve service, pensionable under part I.1 of the CFSA, does not count against the 35 year limit for all federal plans.  So the individual would receive a pension under part I.1, plus a PSSA pension of 25 years x 2% per year = 50% of their best five in the public service.  The full 25 years in the public service would be counted for PSSA purposes.

If they were able to transfer their part-time pension to the PSSA, they'd get: 15 x 1/3 = 5 years full-time equivalent credit from their reserve time, and then 20 years from the PSSA - since at that point, 15 + 20 = 35 year limit.  They would accrue no further pension benefits for the final five years of their public service career, and would end up with a 50% PSSA pension and zero CFSA pension.

I'm confused.  If 15 years of part-time service is only equivalent to five years of full time service in terms of benefits, then why would it still be equal to 15 years of pensionable/contribution time?

For instance, I was in the Reserve for almost three years.  When the calculation was done, I was granted approximately one year of equivalency for my CFSA benefits.  As far as I know, this means is that I only have to do 34 years of Regular Force service in order to collect my maximum pension.  (i.e. since I joined the Regular Force at age 20, I max out my pension at 54).  As I understand it, once I hit that point sometime after my 54th birthday, I simply stop contributing to the CFSA until I reach CRA (55).  As I see it, this is a nice bonus - extra money in my last year of service that I can invest, however I choose, yet maximum CFSA benefits upon retirement.  Why wouldn't this work the same way for someone transferring Reserve service into the PSSA?

 

[dapaterson]

I'm confused.  If 15 years of part-time service is only equivalent to five years of full time service in terms of benefits, then why would it still be equal to 15 years of pensionable/contribution time?

For instance, I was in the Reserve for almost three years.  When the calculation was done, I was granted approximately one year of equivalency for my CFSA benefits.  As far as I know, this means is that I only have to do 34 years of Regular Force service in order to collect my maximum pension.  (i.e. since I joined the Regular Force at age 20, I max out my pension at 54).  As I understand it, once I hit that point sometime after my 54th birthday, I simply stop contributing to the CFSA until I reach CRA (55).  As I see it, this is a nice bonus - extra money in my last year of service that I can invest, however I choose, yet maximum CFSA benefits upon retirement.  Why wouldn't this work the same way for someone transferring Reserve service into the PSSA?

The rules have changed since 2007. Now, once you enter the CFSA part I (Reg F plan), all prior service is retroactively counted as in the plan. So, in my case, I enrolled in the Reserves in 1989; once the new rules came into force I was enrolled in Part I of the CFSA (due to extended full-time service) and my enrolment date is 1989 - despite the fact that I started full-time service only in 1998.

Years of pensionable service do not have to be full time.  A year with part-time service has its value pro-rated for the purpose of calculating the pension benefit, but still counts as a year towards the 35 year limit.

(And don't get me started on simultaneous service in two plans at the same time, and how one calendar year can equal two years of pensionable service)

 

[McG]

The message in all of this is that there is a problem that needs to be fixed.  A PS who is Class A reserve should be able to aggregate both together, but not as one full time year and one part time year.  The PS/PRes contributor should have contributions recognized as being the same year with two sets of pay added together for when it comes time to calculate the best five consecutive years. Maybe this option could also be offered to RCMP who serve as CIC.

Periods of Class A service without overlapping PS employment should be delt through a mechanism that compresses these into a full time equivalent years ... perhapse the same mechanism that does this for the Reg F/full-time PRes pension.

 

[dapaterson]

McG: not so easy to do - these are distinct Acts, and changes of the nature you're proposing would require re-writing them (indeed, probably require their amalgamation into a single federal superannuation act). The terms of the acts are similar, but not identical, so there would be challenges in drafting a single consolidated act.  There would be individuals with legacy entitlements that would be grandfathered for another 50 to 60 years.  And I suspect any such effort would see lessened benefits for CAF members (that is, they'd be subject to similar terms to the Public Service, unlike the early retirement provisiosn under the CFSA).

You mention "the same mechanism as for the Reg F/ Full time PRes pension".  That's the mechanism that counts a calendar year as a pensionable year regardless of the number of days worked.  You also propose rolling together class A and PS pay; but there are two different military pension regimes a class A member can belong to, with two very different sets of rules. Again, this risks significant additional complexity.

I don't really see the problem here.  The individual in the news will receive a pension for their part-time years; they can elect when to start drawing it any time after age 50.  They will receive another pension for their full-time years (military and civilian), and will be able to contribute longer to that plan and build a bigger pension.  Adding additional complexity to a system that's already excessively complex only makes it more difficult and expensive to manage, and more difficult for people to understand. I suspect this individual did not do a comprehensive wargame to understand the implications of what they're asking for; in the long term, I suspect it would lower their retirement income.

(Side note: I am always amazed by how few military members take the time to understand their pension arrangements.  The combination with CPP/QPP that reduces the annuity at age 65 and other items are not well understood; people seem to assume that everything occurs magically and requires no effort on their part)

 

[Brasidas]

(Side note: I am always amazed by how few military members take the time to understand their pension arrangements.  The combination with CPP/QPP that reduces the annuity at age 65 and other items are not well understood; people seem to assume that everything occurs magically and requires no effort on their part)

For the reservist portion of those military members who don't understand the pension, how much of the reserve is actually going to collect a pension? Of those who do, how meaningful will it be to them? Its a hobby that happens to put money in the bank account. While RRSPs are something they might spend time thinking about, unless they're serial class B I don't see much point in them giving it much consideration.

The proportion of reservists that get to ten years is miniscule, and the timelag between when they put money into the pot and when they take it out is huge. A reservist who joins in 2005 at 18, releases as Sgt in 2015 at 28, with some 2 years class B time and 8 years of class A gets some peanuts at 50. I've met one mythological beast who's been in since 88 (still a Cpl), who will actually get something substantial. But by and large? Pay the internet and/or cellphone bill.