Union News - October 2022
When to retire? The CRA website has all the information you need to determine when you are eligible for a pension and how much it will be. It is recommended reading for anyone, not just those preparing to retire. Once you have made the decision to retire, however, exactly what day you retire on can be an important consideration.
December versus January. Upon turning 65, employees who are receiving a Public Service Superannuation (PSSA) benefit, or who are entitled to Canada Pension Plan/Quebec Pension Plan (CPP/QPP) disability benefits, will have their superannuation benefits reduced by the following pre-determined formula, prescribed by law:
.00625 x number of years of contributory service x average maximum
pensionable earnings, or average salary, whichever is lower
If you are considering a retirement date of early in the year, it may be worthwhile to roll the date back to December 30th. Since your first day of retirement is the first day after you resign, your retirement date would be December 31st. This suggestion can reduce the effects of CPP/QPP integration (detailed above), which is calculated at age 65.
For example, if you retire on January 1st, 2023, the reduction formula adds another year to the “number of years of contributory service”, increasing the amount of the reduction. Had you left your employment on December 30th, 2022, the reduction would be less, as your number of years of contributory service would be one year less. In dollar terms, that means that, assuming you retire after age 65, you could be getting a higher pension, indexed to the cost of living, for the rest of your life.
One of the misconceptions for employees considering retirement early in the year is that they think that earned, but unused, vacation pay or compensatory time owed will be paid immediately. They are intending to ensure the payments are taxed in the lower income year. However, with a retirement date of December 30th, there is little (if any) chance that your lump sum payments will be paid in the current year. More likely, these amounts would be paid, and therefore taxable, in the new year.
Indexation. The PSSA pension plan provides indexation based on the Consumer Price Index (CPI), calculated on complete months of retirement. For example, if you resign June 29th 2022, you get indexation (6/12ths of the annual indexation), starting on January 1st, 2023, for the 6 out of 12 months that you were retired in 2022. Had your last day of work been June 30th 2022, your actual retirement date would be July 1st and you would get 5/12ths of indexation on January 1st 2023. You only receive indexation on complete months of retirement, hence the suggestion to have your last day at work one day before the end of the month. If we assume indexation of 2% on a pension income of $30,000, indexation for a full year would be an increase of $600/year or $50/month. Using this example, with a resignation date of June 29th, 2002 (one day before month end), a retiree would see an increase in pension of $300/year or $25/month (6 out of 12 months) the following year. Had the resignation date selected been June 30th, the increase in pension for indexation would have been $250/year or $20.84/month (5 out of 12 months). A modest increase of $4.16 per month, but for the rest of your life.
Monday versus Friday. Retire on a Monday versus Friday, as you have now picked up an extra 3 days of pensionable service but have only had to work one extra day. This is even more effective if the Monday is a statutory holiday. In that case, working on the Tuesday, rather than leaving on Friday, ensures that you’ll earn 4 extra days of pensionable service.
First 10 working days of the month. If you work the first 10 days of the month you are entitled to your annual leave (pro-rated of course), as well as your bilingual bonus for that month. Leave can be taken or paid out, at your discretion.
Wait for a pay increase. Let’s recognize that this will have little impact on your pension income as your pensionable earnings are averaged over 5 years. On the other hand, your supplementary death benefit would reflect the increased pay scale. The question is though, does it make sense to defer your pension until such time as your salary increases? But that is a question that is best answered individually.
Taken one by one, these potential increases to your pension may seem small, but with time and indexation, they could add up to a significant increase.
Melanee Jessup
President, Local 00015 Kitchener
Communications Committee