Board Communique: March 19, 2018

Upcoming improvements to your Teachers’ Pension Plan


A strong 2017 valuation will lead to a trio of improvements coming to the Teachers’ Pension Plan (plan). These improvements will be positive for all plan members.

We are proud to announce that a strong 2017 valuation will lead to a trio of improvements coming to the Teachers’ Pension Plan (plan). These improvements, which will be positive for all plan members, will strengthen your pension and help protect non-guaranteed cost-of-living adjustments.

At least once every three years, an actuary performs a regular review of the plan’s finances, called an actuarial valuation.

When a valuation shows a surplus (which means there is more money in the plan than is needed to pay the pensions of current and future retired members), the board acts on specific instructions outlined in the Joint Trust Agreement, the foundational agreement between the Province of British Columbia and the BC Teachers’ Federation, the plan partners.

1. Increase in the rate your pension grows

Your pension accrual rate will increase from 1.85 per cent to 1.90 per cent effective January 1, 2019. The increased accrual rate applies to all your service from January 1, 2018, onward—but only if you are an active member on or after January 1, 2019. If you stop working and begin your pension in 2018 you will not be eligible for the new accrual rate, even for service earned in 2018.

What is the pension accrual rate?

Your pension accrual rate is a variable used to calculate your lifetime pension for service on and after January 1, 2018. The other variables are years of pensionable service and your highest average salary, calculated over your highest five years of earnings.

What this means for you

The increase in the accrual rate means your lifetime pension for post-2017 service will increase by about 2.7 per cent.

2. Default (normal form) pension is improved

On January 1, 2019, your default (normal form) pension is changing from single life no guarantee to single life 10-year guarantee. This will apply to all your service if you are an active member on or after January 1, 2019. If you stop working and begin your pension in 2018, you will not be eligible for the new default (normal form) pension.

If you are an inactive member, you will not be eligible for the new default (normal form) pension unless you become active with a plan employer on or after January 1, 2019.

What is the default (normal form) pension?

The default (normal form) pension is the basic pension on which every member’s pension is established.

As a plan member, you will get your guaranteed basic pension for life, regardless of any other decisions you make about your pension. However, selecting a pension option allows you to use your pension to protect family members, other loved ones or even the community.

For example, you can choose a pension option that protects you and your spouse for both your lifetimes (known as a joint life option) or one that transfers to a beneficiary for a set length of time if you die soon after your retirement (known as a guarantee).

Choosing a joint life option or a 15-year guarantee means your monthly payment amount will be lower than the current default (normal form) pension, single life no guarantee, because more people are being protected and the duration of the pension could extend beyond your lifetime.

What this means for you

The change means if you select the new default (normal form) pension option and you die earlier than 10 years after you start your pension, your beneficiary(ies) will receive the value of the remainder of that 10-year period at no additional cost to you. This is an improvement over the current default (normal form) pension, which does not continue to a spouse, beneficiary or your estate after you die.

Your cost to purchase a joint life or guarantee option, if you select either, will be reduced starting in 2019.

Because of this change, if you are an active member on or after January 1, 2019, your pension will be higher than it would have been before the improvements were made.

Regardless of the pension option chosen, your pension will always be there for your lifetime.

3. More money to pay cost-of-living adjustments into the future

On July 1, 2019, a percentage of contributions currently going to the basic account will be diverted to help strengthen the inflation adjustment account (IAA); the total diverted will be 0.10 per cent of salary (0.05 per cent each from you and your employer).

What is the inflation adjustment account?

While the basic account is used to fund your lifetime pension, the money in the IAA is used specifically to fund cost-of-living adjustments for retired members; its funds come from your contributions, employer contributions and returns on investments.

Diverting funds to the IAA does not affect the basic account; the basic account is always protected.

What this means for you

Diverting contributions to the IAA will help strengthen inflation protection for current and future retired members.


Member scenarios

The following table uses real-life situations to demonstrate how the changes to the pension plan may affect your bottom line. Although the names are made up, the members’ ages, salary, experience and marital status are typical of many teachers.

 

Member scenario: Pat
In June 2018, Pat is 59 and has 32.6 years of service. Pat’s highest average annual salary is $79,200 and Pat works 10 months of the year.

Pat selected a 100 per cent joint life option. Pat has a spouse, Terry, who is 60. This means, if Pat dies first, 100 per cent of Pat’s basic lifetime pension will go to Terry for the remainder of Terry’s life.

Age

If member retires in June 2018 with the stated pension option ($/month)

If member retires in June 2019 with the stated pension option ($/month)

Total difference to basic lifetime pension with the stated pension option ($/month)

Before age 65 $4,020.25 (includes bridge benefit of $1,024.80) $4,148.74 (includes bridge benefit of $1,024.80) Increase of $128.49
($26.98 due to the upcoming improvements; $101.51 due to working an extra year)

65 and over $2,995.45 $3,123.94 Increase of $128.49
($26.98 due to the upcoming improvements; $101.51 due to working an extra year)

 

 

Member scenario: Anh
In June 2018, Anh is 59 and has 33 years of service. Anh’s highest average annual salary is $114,000 and Anh works 12 months of the year.

Anh has selected a 60 per cent joint life 10-year guarantee option. Anh has a spouse, Margaret, who is 55. This means, if Anh dies within 10 years of retiring, Margaret receives Anh’s full basic lifetime pension for the remainder of the 10 years. After that, Margaret receives 60 per cent of Anh’s basic lifetime pension for the remainder of Margaret’s life.

Age

If member retires in June 2018 with the stated pension option ($/month)

If member retires in June 2019 with the stated pension option ($/month)

Total difference to basic lifetime pension with the stated pension option ($/month)

Before age 65 $5,861.29 (includes bridge benefit of $1,040.81) $6,046.90 (includes bridge benefit of $1,040.81)

Increase of $185.61
($41.86 due to the upcoming improvements; $143.75 due to working an extra year)


65 and over $4,820.48 $5,006.09

Increase of $185.61
($41.86 due to the upcoming improvements; $143.75 due to working an extra year)

 

 

Member scenario: Sharik
In June 2018, Sharik is 57 and has 33 years of service. Sharik’s highest average annual salary is $79,200 and Sharik works 10 months of the year.

Sharik has selected a 10 per cent joint life 15-year guarantee option. Sharik has a spouse, Dana, who is 56. This means, if Sharik dies within 15 years of retiring, Dana receives Sharik’s full basic lifetime pension for the remainder of the 15 years. After that, Dana receives 10 per cent of Sharik’s basic lifetime pension for the remainder of Dana’s life.

Age

If member retires in June 2018 with the stated pension option ($/month)

If member retires in June 2019 with the stated pension option ($/month)

Total difference to basic lifetime pension with the stated pension option ($/month)

Before age 65 $4,269.57 (includes bridge benefit of $1,037.61) $4,396.43 (includes bridge benefit of $1,037.61) Increase of $126.86
($24.60 due to the upcoming improvements; $102.26 due to working an extra year)

65 and over $2,995.45 $3,123.94 Increase of $126.86
($24.60 due to the upcoming improvements; $102.26 due to working an extra year)

 

 

Member scenario: Stanislav
In June 2018, Stanislav is 60 and has 25.6 years of service. Stanislav’s highest average annual salary is $79,200 and Stanislav works 10 months of the year.

Stanislav has selected a single life 10-year guarantee option. Stanislav does not have a spouse. This means, if Stanislav dies within 10 years of retiring, 100 per cent of Stanislav’s basic lifetime pension goes to the beneficiary(ies) of Stanislav’s choice until the end of the 10-year period.

Age

If member retires in June 2018 with the stated pension option ($/month)

If member retires in June 2019 with the stated pension option ($/month)

Total difference to basic lifetime pension with the stated pension option ($/month)

Before age 65 $3,353.53 (includes bridge benefit of $800.63) $3,500.65 (includes bridge benefit of $800.63) Increase of $147.12
($24.14 due to the upcoming improvements; $122.98 due to working an extra year)

65 and over $2,552.90 $2,700.02 Increase of $147.12
($24.14 due to the rule changes; $122.98 due to working an extra year)

 

 

Member scenario: Jo
In June 2018, Jo is 61 and has 34.5 years of service. Jo’s highest average annual salary is $159,600 and Jo works 12 months of the year.

Jo has selected a single life 5-year guarantee option. Jo does not have a spouse. This means, if Jo dies within 5 years of retiring, 100 per cent of Jo’s basic lifetime pension goes to the beneficiary(ies) of Jo’s choice until the end of the 5-year period.

Age

If member retires in June 2018 with the stated pension option ($/month)

If member retires in June 2019 with the stated pension option ($/month)

Total difference to basic lifetime pension with the stated pension option ($/month)

Before age 65 $9,152.49 (includes bridge benefit of $1,088.85) $9,471.39 (includes bridge benefit of $1,088.85)

Increase of $318.90
($74.13 due to the upcoming improvements; $244.77 due to working an extra year)


65 and over $8,063.64 $8,382.54 Increase of $318.90
($74.13 due to the upcoming improvements; $244.77 due to working an extra year)

 

 

Member scenario: Bao
In June 2018, Bao is 56 and has 30 years of service. Bao’s highest average annual salary is $88,000 and Bao works 10 months of the year.

Bao has selected an 80 per cent joint life 10-year guarantee option. Bao has a spouse, Bindy, who is 56. This means, if Bao dies within 10 years of retiring, Bindy receives Bao’s full basic lifetime pension for the remainder of the 10 years. After that, Bindy receives 80 per cent of Bao’s basic lifetime pension for the remainder of Bindy’s life.

Age

If member retires in June 2018 with the stated pension option ($/month)

If member retires in June 2019 with the stated pension option ($/month)

Total difference to basic lifetime pension with the stated pension option ($/month)

Before age 65 $3,657.42 (includes bridge benefit of $828.55)

$4,024.30 (includes bridge of $885.05)
*Bao’s bridge benefit increases because Bao’s reduction factor is reduced as Bao approaches age 60 and a combined age-plus-years of service total of 90

Increase of $366.88
($21.57 due to the upcoming improvements; $345.31 due to working an extra year)

65 and over $2,828.86 $3,139.25

Increase of $310.19

($21.57 due to the upcoming improvements; $288.82 due to working an extra year)


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Member scenarios

Curious about the numbers? These member scenarios may help:

Member scenario: Pat (age 59 with 32.6 years of service)

Member scenario: Anh (age 59 with 33 years of service)

Member scenario: Sharik (age 57 with 33 years of service

Member scenario: Stanislav (age 60 with 25.6 years of service)

Member scenario: Jo (age 61 with 34.5 years of service)

Member scenario: Bao (age 56 with 30 years of service)