Pension Life - Summer 2020
COLA cap and COVID-19 updates
You may have questions about your pension in light of the COVID-19 pandemic and its impact on the financial markets. Your pension is a defined benefit pension and is secure. The amount of your pension payment is not dependent on the performance of the financial markets.
In addition, there is other positive news for our retired members. First, as a result of the August 31, 2018, actuarial valuation, the cost-of-living adjustment (COLA) cap has been lifted. Second, for those members who use the College Pension Plan’s (plan’s) health coverage, extended health care (EHC) and dental premiums have been temporarily reduced since retired members have largely been unable to access these services during the COVID-19 pandemic.
Removal of COLA cap
How do COLAs work?
Plan rules allow the College Pension Board of Trustees (board) to grant an annual COLA. While not guaranteed, COLAs help maintain the purchasing power of your pension by increasing your monthly payment. Once granted, COLAs become part of your basic pension and, if applicable, your bridge benefit and temporary annuity for as long as you receive them.
COLAs come into effect January 1 each year and are based on the annual change in the average Canadian consumer price index (CPI) in the 12 months up to and including October 31 of the preceding year. The last COLA granted was 1.9 per cent, effective January 1, 2020. This matched the annual change in CPI.
What has not changed?
The COLA benefit is not guaranteed, although once you receive a COLA, it becomes part of your guaranteed lifetime benefit. The board regularly reviews the inflation adjustment account (IAA), the account from which COLAs are paid, and, if required at a future date, will restore a cap on COLAs to protect their sustainability.
What has changed?
Previously, the amount of the COLA granted each year was subject to a cap. As a result of the August 31, 2018, actuarial valuation, the board is pleased to announce that the cap on the COLA has been lifted.
This is good news. How did this happen?
The valuation showed an actuarial surplus of more than $300 million. The board transferred the majority of this surplus to the IAA. With the additional funds, it is expected that the IAA now has enough money available to pay COLAs on all earned and future pension benefits based on the full rate of inflation.
What other changes happened as a result of the valuation?
Apart from strengthening the funding for COLAs, the board transferred money to a new rate stabilization account. This account will help prevent future rate increases for active members in the case of a future funding shortfall.
In addition, contribution rate changes for active members tied to contractual pay increases have been eliminated.
Active member contribution rates remain unchanged.
Results of the August 31, 2021, valuation will be announced in 2022.
EHC and dental premiums
For members participating in the plan’s optional EHC and dental coverage through Green Shield Canada (GSC), there will be a temporary 8 per cent reduction to EHC premiums and a 75 per cent reduction to dental coverage premiums. These temporary premium reductions will be automatically applied to your July, August and September 2020 pension payments.