Overview of the Amendment to the Coordination Formula of the Public Service (PS), Canadian Forces (CF) and RCMP pension plans with the Canada Pension Plan (CPP) or the Quebec Pension Plan (QPP)

What is the coordination provision?

  • Contributions to the three public sector pension plans are taken at a reduced rate on the portion of your salary up to the Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) yearly maximum earnings ($43,700 in 2007);
  • Your pension is reduced by a standard formula at age 65 when you normally qualify for unreduced CPP or QPP (or earlier in case of disability).

What is the improvement?

  • Starting , the reduction factor used to calculate your pension at age 65 will be lowered from the current 0.7%  to 0.625% by 2012. For plan members reaching age 65 in 2008 or later, the pension reduction at age 65 (or earlier in case of disability) will be smaller commencing in 2008. The year you reach age 65 will determine the reduction factor applied to your pension. It is important to remember that the average maximum pensionable earnings under the CPP/QPP (or your average salary if it is lower) and the years of service at the retirement date are also factors used in the calculation of the reduction at age 65.
Reduction factor applied to your pension when you reach age 65
You reach age 65 2007 or earlier 2008 2009 2010 2011 2012 or later
Your year of birth 1942 or earlier 1943 1944 1945 1946 1947 or later
Reduction factor
(in all 3 pension plans)
0.700% 0.685% 0.670% 0.655% 0.640% 0.625%

What is the impact?

  • If you are a member of one of the above-mentioned three federal public sector pension plans who  will turn 65 in 2008 or later, the amendment to the coordination formula means that the reduction factor used at age 65 will be smaller.  Even though your public sector pension will still be reduced at age 65 due to the coordination with the CPP or QPP, the reduction will not be as great.
  • A greater benefit will generate an increased pension adjustment (PA), which is an annual amount calculated by your plan administrator based on pension benefits earned. This PA determines the amount of contributions you can make to a registered retirement savings plan (RRSP). As the PA value increases, the amount you can contribute to your RRSP will decrease.
  • Under the Income Tax Act rules for registered pension plans, your plan administrator has to calculate a Past Service Pension Adjustment (PSPA) when benefits relating to accrued pensionable service are improved.
  • The PSPA will be reported on a T215 slip issued to you in 2008. This PSPA will reduce your RRSP deduction limit for 2009
  • If you have made excess contributions in an RRSP, you may have to withdraw some of your RRSP contributions. This excess RRSP amount may be taxable. For more information, please contact the:

Call Centre - Superannuation Sector (PWGSC)
Monday to Thursday : 8:00 a.m. to 4:00 p.m. (your local time)
Friday: 8:00 a.m. to 5:00 p.m. (Atlantic time)
1-888- 670-5454
For more information about tax implications,
please visit the Canada Revenue Agency  (CRA) Web site at: www.cra.gc.ca/pension/ps-pension/
or call your tax office at: 1-800-959-8281


Frequently Asked Questions

Tax Implications due to the Improvement of Benefits under the Three Major Public Sector Pension Plans

ISSUE

Since 1966, the Public Service (PS), the Canadian Forces (CF) and the Royal Canadian Mounted Police (RCMP) pension plans have been coordinated with the Canada Pension Plan (CPP) or the Quebec Pension Plan (QPP). 

Changes to the PS, the CF and the RCMP pension plans were announced on . Questions and answers were posted with that announcement. To obtain information concerning the changes to the co-ordination of the three public sector pension plans with the Canada Pension Plan (CPP) or the Quebec Pension Plan (QPP), please refer to questions 14 to 20 of these Frequently Asked Questions.  In June 2006, the amendments to the coordination formula of the Plans were approved to improve the benefits payable by the pension plans, however these improvements may affect the amount plan members can contribute to a Registered Retirement Savings Plan (RRSP).

These Frequently Asked Questions will be sent along with an Information Notice to Heads of Human Resources and Participating Separate Employers and posted on the Treasury Board Secretariat Web site and the Pensions and Benefits Web portal.

1. Will this amendment to the coordination formula affect all plan members?

No.  This amendment will affect only plan members who turn age 65 in 2008 or later.

2. What is the financial impact of this amendment on my pension at age 65?

At age 65, public service plan members also qualify for CPP or QPP retirement benefits.  Because of the coordination between the public service plan and the CPP and QPP, benefits under the public service plan are reduced at age 65.  In June 2006, amendments to the coordination formula of the plans were approved to improve the benefits payable by the pension plans.

As a result of this new amendment, your pension will still be reduced at age 65 (due to the coordination with CPP/QPP) but by a smaller amount than it would have been under the existing reduction factor (0.7%).  

The following will give you examples of the pension reduction at age 65 with 30 years of pensionable service and a retirement date of 2007.

Pension scenarios at age 65
"Best-five year"
average salary
Immediate Annuity
(2% X 30yrs X salary)
Age 65 in 2007
or earlier

(0.7% reduction)
Age 65 in 2012
or later

(0.625% reduction)
Change in reduction
$35,000 (below the average maximum pensionable earnings under the CPP/QPPP)* $21,000 $7,350 $6,562 (-) $788
$60,000 $36,000 $8,707 $7,774* (-) $933
$90,000 $54,000 $8,707 $7,774* (-) $933
3. Why is the financial impact different from one individual to another?

There are many factors to consider when calculating your pension reduction at age 65. Because this change will be phased in from 2008 to 2012, the year you will reach age 65 will determine the reduction factor applied to your pension. The average maximum pensionable earnings under the CPP/QPP (or your average salary if it is lower)and your years of service at the retirement date are also factors used in the calculation of the pension reduction at age 65.

4. What are the tax implications due to the improvement?

A greater benefit will generate an increased Pension Adjustment (PA) which is an amount calculated by your pension administrator based on pension benefits earned. This PA is used in determining the amount of contributions you can make to a registered retirement savings plan (RRSP). As the PA value increases, the amount you can contribute to your RRSP decreases. Furthermore, your plan administrator has to calculate a Past Service Pension Adjustment (PSPA) when benefits relating to a previous period of pensionable service are improved. The PSPA represents the amount by which the original PA values have increased.

For more information about tax implications, please visit the Canada Revenue Agency (CRA) Web site at: www.cra.gc.ca or call your tax office at: 1-800-959-8281.

5. Where and when can I obtain information concerning my 2009 RRSP deduction limit?

Information about your RRSP deduction limit will be indicated on your 2008 Notice of Assessment that the Canada Revenue Agency will issue to you in 2009. You can also get information about your RRSP deduction limit online at www.cra.gc.ca/myaccount or by calling the income tax office at 1-800-959-8281.  As well, you can use the automated Tax Information Phone Service (TIPS) at 1-800-267-6999 available from mid-September to April 30.

6. How is my pension adjustment (PA) amount determined?

The amount is based on pensionable earnings for the previous calendar year. Amounts such as overtime are not pensionable and therefore not included in the determination of a PA.

7. Where can I get information about my Past Service Pension Adjustment (PSPA)?

Your pension plan administrator will calculate a PSPA amount for all pension plan members who will reach age 65 after 2007.  You will receive a T215 slip, Past Service Pension Adjustment (PSPA) Exempt from Certification, with your PSPA amount shown in Box 2.  If you want to know how your PSPA is calculated, contact your plan administrator.

8. Will all plan members receive the T215 slip?

No. The following individuals will not receive a T215 slip:

  • you are reaching age 65 prior to 2008;
  • you are a new employee with less than six months of employment and you are not contributing to the plan;
  • your PSPA is less than $50; or
  • you have already had PA's reported at the maximum (high earnings) for all the applicable years (1990-2007).
9. Can you give me examples of the PSPA amount I can expect?

The PSPA amount will vary depending on your pensionable earnings and when you reach age 65. Because of the amendment to the coordination formula, the PAs reported since 1990 must be revised and the difference will be reported in 2008 as a Past Service Pension Adjustment (PSPA). The following examples will give you estimated PSPA amounts based on pensionable earnings from 1990 to 2007, the year in which you will reach age 65 and on the assumption that you contributed to the pension plan since 1990.

Estimated PSPA amounts (reduction to your RRSP contribution room)

NOTE:

  • The PSPA amount will be reported one time for the benefit improvement taking effect in 2008. This PSPA will reduce your RRSP deduction limit for 2009 and for subsequent years.
  • Your PSPA will not be greater than $4,469 and will be less if:
    • you have years where your pensionable earnings were less than the CPP/QPP yearly maximum earnings; or
    • there are years between 1990 and 2007 during which you were not accruing pensionable service at all or you were accruing pensionable service, but at a less than full-time rate; or
    • you have already received PAs at the maximum rate (high earnings) for certain years.
Current Pensionable earnings Age 65 in 2008 Age 65 in 2009 Age 65 in 2010 Age 65 in 2011 Age 65 in 2012 and after
$30,000 $729 $1458 $2187 $2916 $3645
$60,000 $894 $1788 $2682 $3575 $4469 (max.)
$90,000 $894 $1788 $2682 $3575 $4469 (max.)

For more information about tax implications,
please visit the Canada Revenue Agency  (CRA) Web site at: www.cra.gc.ca/ps-pension/
or call your tax office at: 1-800-959-8281

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