- Why is there a need to make changes to the Public Service Pension Plan?
- How big is the problem?
- What changes are being made to the pension plan?
- How many employees will be captured in the five year transition period?
- How much money will government be paying on behalf of taxpayers in order to fix the plan?
- Will accrued pension benefits be protected?
- If I work longer can I still receive the same pension as I would now?
- When will these changes come into effect?
- Why are contribution rates increasing?
- Will there be any changes for retirees?
- Will this agreement truly fix the pension plan?
- What are the details around joint trusteeship and when will this come into effect?
- If the plan starts doing better, will our previous plan benefits be reinstated (i.e. indexation)?
- How will this really affect the province’s net debt if you’re borrowing money? Aren’t you just trading one form of debt for another?
- Will there be any changes to the group benefits plan?
- What is the impact of contribution increases on my take home pay?
1. Why is there a need to make changes to the Public Service Pension Plan?
There is a need for pension reform to ensure the plan is sustainable for retirees, current and future employees, and taxpayers, and to address the significant growing unfunded liability of the plan. The Public Service Pension Plan (PSPP) has an unfunded liability that represents a significant portion of the province’s net debt. Since 1997, taxpayers have provided special payments of $4.7 billion (of which $1.6 billion went into the PSPP). This funding was over and above employers’ matching contributions. This administration has provided $3.6 billion in special payments to the plans since 2003-04 but the funded status is much lower than other plans in Atlantic Canada and the rest of the country.
2. How big is the problem?
Unfunded liabilities, including unfunded pension liabilities and other post-employment benefits, are projected to account for 74 per cent of the province’s net debt as of March 31, 2015. The Public Service Pension Plan represents 58 per cent of the pension liability.
3. What changes are being made to the pension plan?
Changes outlined in the Agreement on Public Service Pension Plan Reform
| Plan conditions | Current PSPP | Agreement for reformed PSPP |
|---|---|---|
| Contribution rates | First $3,500 of earnings – 8.6%
$3,501 to Year’s Maximum Pensionable Earnings (YMPE) – 6.8% Above YMPE – 8.6% |
First $3,500 of earnings – 10.75%
$3,501 to YMPE – 8.95% Above YMPE – 11.85% |
| Normal retirement | Age 65 with minimum five years of service | No change |
| Early retirement with unreduced pension | Age 60 with minimum five years of service/
Age 55 with minimum 30 years of service |
Age 60 with minimum 10 years of service
Age 58 with minimum 30 years of service Five year transition under the old rules for current employees and deferred members |
| Early retirement with a reduced pension | Age (minimum 55) plus years of service equal to 85
Age 50 with 30 years of service Age 55 with five years of service |
Age 53 with 30 years of service
Age 55 with five years of service Age 58 with a combination of age and years of service equaling 88 Five-year transition under the old rules for current employees and former employees with deferred pensions |
| Pension calculation formula | Best five year average earnings | Future service: Best six year average earnings
Past service: The greater of frozen best five year average or best six year average Indexing on future service suspended (no impact on current retirees) |
| Other post-employment benefits (OPEBs), for example, health insurance | Pension eligibility with a minimum five years of service | Pension eligibility with a minimum of 10 years of service, with a five-year transition for current employees
Former employees with deferred pensions or employees on salary continuance will need to retire within the five-year transition period to be eligible for OPEBs. Employees terminated after changes are in effect will have to be pension eligible and retire at the time of termination in order to qualify for OPEBs. |
- Employees and former employees with deferred pensions who will meet the current early unreduced retirement provisions or have at least 30 years of service at the end of the five years will be grandparented under the current early retirement rules. There will be a five year window for current employees and former employees with deferred pensions to meet the old early reduced retirement rules.
- Indexation on future service is suspended (no impact on current retirees).
- More information can be found at Other Post-Employment Benefits (OPEB).
4. How many employees will be captured in the five year transition period?
As of December 31, 2013, there are more than 5,500 employees captured in the five year transition period. There are about 1,500 additional employees eligible to retire now.
5. How much money will government be paying on behalf of taxpayers in order to fix the plan?
Government will pay $2.685 billion, amortized over 30 years, to address the unfunded liability of the plan plus match employee contribution increases in an amount of $42 million annually. In return, stakeholders have agreed to plan changes and contribution rate increases that will have a present value of $1.128 billion. Combined GNL and employee action should eliminate the $4 billion unfunded liability within 30 years. This agreement allows for government and stakeholders to negotiate a joint trusteeship agreement, meaning the government no longer assumes 100 per cent of the risk of future deficits; rather future deficits and surpluses will be shared equally between government sponsor and members sponsor.
6. Will accrued pension benefits be protected?
Yes, as previously committed, accrued pension benefits will be protected for current employees. Past service is frozen at best five year average earnings. Indexing on past service will also be preserved.
7. If I work longer can I still receive the same pension as I would now?
Yes, but the amount will vary depending on individual circumstances.
Under the new plan, the age for early retirement for employees with an unreduced pension is 58 with 30 years of service or 60 with a minimum of 10 years of service. However, there is a transition period of five years for existing employees. If at the end of the transition period, existing employees meet the old rules of 55/30, and 60/5, or have 30 years of service at the end of the transition period, they can retire early as per the old rules.
8. When will these changes come into effect?
PSPP changes and other post-employment benefit changes will be effective January 1, 2015. For existing employees, there will be a transition period of five years for the early retirement changes following the passing of the legislative changes. New employees will be under the new plan as of the passing of legislation.
9. Why are contribution rates increasing?
Contribution rates have not increased since 2002. If they did not increase, further benefit reductions would have been necessary.
10. Will there be any changes for retirees?
No, as previously committed, pensions for retirees, including indexing, will not change.
Annually as part of a rate review, premiums and or benefits for all group insurance plan members may change (including active employees and retirees).
Joint trusteeship will be tasked to protect accrued pension benefits.
11. Will this agreement truly fix the pension plan?
Based on modeling completed by pension experts, there is a high probability that the plan will be 100 per cent funded in 30 years. An agreement to joint trusteeship will ensure that any future unfunded liability is shared equally and that the plan’s funded status is reviewed on a regular basis to ensure it remains sustainable.
12. What are the details around joint trusteeship and when will this come into effect?
Joint trusteeship means that both government and plan members will be responsible for the sustainability of the plan and will share equally in surpluses and deficits. More information can be found at Joint Sponsorship Agreement.
13. If the plan starts doing better, will our previous plan benefits be reinstated (i.e. indexation)?
Under a joint trusteeship, the board will determine what, if any, changes may be made to the plan in future. This will be based on the funded status of the plan and it will be reviewed on a regular basis.
14. How will this really affect the province’s net debt if you’re borrowing money? Aren’t you just trading one form of debt for another?
This initiative establishes a plan which will see the elimination of the PSPP unfunded liability over the next 30 years. This is an improvement to the province’s fiscal situation and a firm commitment to eliminating a significant portion of the province’s net debt.
The $2.685 billion will be a promissory note to the Pooled Pension Fund specifically assigned for the benefit of the PSPP. There will be no increase in net debt as a result of this.
15. Will there be any changes to the group benefits plan?
There will be a five-year transition for existing employees, former employees with deferred pensions and employees on salary continuance with deferred pensions. More information can be found at Other Post-Employment Benefits (OPEB).
16. What is the impact of contribution increases on my take home pay?
When contribution rate increases become effective, employees’ bi-weekly take home pay will decrease on average by:
- Salary of $40,000 – $24
- Salary of $60,000 – $35
- Salary of $70,000 – $43
- Salary of $135,000 – $89
After tax, assuming a person claiming only basic personal amount; other credits and deductions may significantly change these numbers.