Board Communique: March 16, 2018

Learn how your plan is changing

The most important changes in 50 years are being made to your pension plan. These changes are equitable and modernize the plan.

The Public Service Pension Plan (plan) partners—the BC General Employees’ Union and the provincial government—reached an agreement on changes in late January. We, the Public Service Pension Board of Trustees (board), have adopted these changes. Further, as a result of the recent valuation, we are also improving pension benefits.

What is happening?

The plan is changing on April 1, 2018, for pensionable service earned on or after that date. Pension benefits earned for pensionable service before April 1, 2018, are retained.

As a result of the plan’s positive valuation and surplus, the board is also improving pension benefits for pensionable service accrued between April 1, 2006 and March 31, 2018, inclusive—effective October 1, 2019.

Who is affected by the changes?

Changes affect active, inactive and retired members, as well as employers. (See “Understand what the plan changes mean for you” below.)

Changes do not apply to judges, masters and members of the legislative assembly.

Changes effective April 1, 2018, do not apply to public safety employees (including correctional employees and full-time BC Ambulance Service paramedics in the Canadian Union of Public Employees Local 873). The board anticipates these changes will take effect for this group in the future.

Changes effective October 1, 2019 also apply to public safety employees (including correctional employees and full-time BC Ambulance Service paramedics in the Canadian Union of Public Employees Local 873).

Why is the plan changing?

The plan is changing for three reasons:

1. The changes are equitable and better ensure members receive an appropriate benefit for their contributions, regardless of retirement age chosen, earnings or employment.
2. The changes modernize the plan, which needs to adapt to reflect demographic shifts.
3. The changes follow the plan’s recent valuation results. In December 2017, we reported that the plan is fully funded, with a $1.9 billion surplus.

The board has decided to use a portion of surplus funds to improve the lifetime pension for members with pensionable service between April 1, 2006 and March 31, 2018, inclusive, effective October 1, 2019.

How is the plan changing? (See “Understand what the plan changes mean for you.”)

If you are an active member, for pensionable service earned on or after April 1, 2018:

• Members will contribute a flat 8.35 per cent of salary. Employers will contribute a flat 9.85 per cent of salary.
• You will earn a 1.85 per cent flat accrual rate.
• The rule of 85 (unreduced early retirement if your age plus years of contributory service equal at least 85) will be removed; however, the rule of 85 will still apply to service accrued before April 1, 2018, and service accrued after March 31, 2018, will be used to calculate eligibility for the rule of 85 for your pre-April 1, 2018 service. See example below.
• You will receive an unreduced pension after 35 years of contributory service.
• If you start your pension before age 60 with more than two but less than 35 years of contributory service, your pension will be reduced by 6.2 per cent for every year between the date you start your pension and age 60. See example below.
• If you start your pension before age 65, and you have fewer than two years of contributory service, your pension will be reduced by 6.2 per cent for every year between the date you start your pension and age 65.
• For all pensionable service accrued before April 1, 2018, the bridge benefit will apply. The bridge benefit is a temporary benefit paid to retired members up to age 65 or death, whichever comes first. For service accrued on or after April 1, 2018, the bridge benefit will not apply (see example below).

As a result of the plan’s valuation and surplus, the board is also improving pension benefits for pensionable service accrued between April 1, 2006 and March 31, 2018, inclusive.

If you are an active, inactive or retired member, for pensionable service earned between April 1, 2006 and March 31, 2018, inclusive, the following change is effective going forward (i.e., no retroactive payments), on October 1, 2019.

• You will earn a 1.65 per cent accrual rate, up from 1.35 per cent, on pensionable salary up to the year’s maximum pensionable earnings (YMPE). This will improve most lifetime pensions.
• The bridge benefit accrual rate will reduce from 0.65 to 0.35 per cent.

The effect of plan changes on your pension will depend on your age on October 1, 2019 and what portion of your total pensionable service is earned during three time periods:

• Before April 1, 2006
• Between April 1, 2006 and March 31, 2018, inclusive
• On and after April 1, 2018

When are changes happening?

The changes to pensionable service earned on or after April 1, 2018, described above are effective April 1, 2018.

The changes to pensionable service earned between April 1, 2006 and March 31, 2018, inclusive, described above are effective October 1, 2019.

Here are the changes to the lifetime pension formula:

The plan will have up to three formulas when calculating your pension benefit.

¹ Pensionable service is how many full-time equivalent years a member contributes to the plan.
² YMPE (year’s maximum pensionable earnings) is the maximum salary limit for contributions to the Canada Pension Plan. YMPE is set annually by Canada Revenue Agency.
³ HAS (highest average salary) is the average of the highest five years of full-time equivalent earnings from a member’s entire time contributing to the plan.

Understand what the plan changes mean for you

What do I need to do as an active or inactive member?

Get informed. You can learn more on the plan website and watch for updates and member examples as they become available.

I plan to retire at age 60 or later. What do the changes mean for me?

For the vast majority of members 60 or older, your lifetime pension will be higher because the accrual rate is increasing. The reduction rule will not affect you if you retire at age 60 or later. As with the old rules, you will still qualify for an unreduced pension if, at the date of your retirement, you have two or more years of contributory service.

How does the rule of 85 work with the changes?

Effective April 1, 2018, the rule of 85 (unreduced early retirement if your age plus years of contributory service equal at least 85) will be removed; however, the rule of 85 will still apply to service accrued before April 1, 2018, and service accrued after March 31, 2018, will be used to calculate eligibility for the rule of 85 for your pre-April 1, 2018 service.

For example, if you started your pension on April 1, 2028, and the following apply, you meet the rule of 85:

• you are 55 years of age on April 1, 2028,
• you have 20 years of service before April 1, 2018, and
• you have 10 years of service on or after April 1, 2018.

In this case, the pension for your 20 years of service before April 1, 2018, is unreduced. That is, there is no reduction to the pension you earned under the old rules for service before April 1, 2018 because your age and years of contributory service total 85. There is only a reduction on your pension earned for your 10 years of post-March 31, 2018 service under the new rules because you are starting your pension before age 60 and do not meet the requirement of 35 years of contributory service at that time.

What is the effect of the new flat accrual rate?

Refer to the lifetime pension formulas above.

Explore the example to better understand how plan design changes may affect you and your pension benefit. Let’s assume:

• you started work on April 1, 2001, and start your pension on April 1, 2024 at age 59,
• your highest average salary is $62,000 and the 2023 YMPE is $55,900,
• your age plus contributory service would be 82 (59 + 23), so your pension based on your pensionable service before April 1, 2018, would be reduced by 3 per cent per year before age 60 (for a total reduction of 3 per cent); and
• you would have less than 35 years of contributory service, so your pension based on your pensionable service earned on or after April 1, 2018 would be reduced by 6.2 per cent for each year before age 60 (for a total reduction of 6.2 per cent).

Your annual pension would be calculated as follows:

For pensionable service earned before April 1, 2006
Unreduced lifetime pension for this period
{[1.35% × 55,900⁴]+ [2.0% × (62,000 – 55,900⁴)]} × 5 years of service = 4,383
Reduction of lifetime pension for this period (what you receive)
4,383 reduced by 3% due to early retirement = 4,252
Unreduced bridge benefit for this period
(0.65% × 55,900⁴) × 5 years of service = 1,817
Reduction of bridge benefit for this period (what you receive)
1,817 reduced by 3% due to early retirement = 1,762

For pensionable service earned between April 1, 2006 and March 31, 2018, inclusive
Unreduced lifetime pension for this period
{[1.65% × 55,900⁴] + [2.0% × (62,000 – 55,900⁴)]} × 12 years of service = 12,532
Reduction of lifetime pension for this period (what you receive)
12,532 reduced by 3% due to early retirement = 12,156
Unreduced bridge benefit for this period
(0.35% × 55,900⁴) × 12 years of service = 2,348
Reduction of bridge benefit for this period (what you receive)
2,348 reduced by 3% due to early retirement = 2,278

⁴ 2018 Year’s maximum pensionable earnings; this figure changes every year and will be different in 2023.

For pensionable service earned on and after April 1, 2018
Unreduced lifetime pension for this period
(1.85% x 62,000) x 6 years of service = 6,882
Reduction of lifetime pension for this period (what you receive)
6,882 reduced by 6.2% due to early retirement = 6,455

No bridge benefit for pensionable service earned on and after April 1, 2018
Total annual lifetime pension
= 22,863
Total annual bridge pension (payable to age 65 or death, whichever comes first)
= 4,040

I’m an inactive member and considering taking a commuted value payment. What is the impact?

If you take a commuted value payment before October 1, 2019, you will not receive the past service enhancement.

What do I need to do as a retired member?

If you have pensionable service between April 1, 2006 and March 31, 2018, inclusive, your pension will be improved going forward, effective October 1, 2019. No retroactive payments will be issued. This change affects more than 20,000 retired members and will take considerable time to implement. We will notify you as soon as possible when pension amendments are completed. Any commuted value paid from the plan before October 1, 2019, will not recognize this enhancement, even if you accrued service during the enhancement period.

If you started your pension before April 1, 2006, the changes will not affect you. Rest assured the plan is fully funded and continues to be sustainable. As of the most recent valuation, the inflation adjustment account is healthy and strong.

What do I need to do as an employer?

Changes to plan design will simplify your reporting. Your payroll system will need to be updated before April 1, 2018. More information will be provided in the Employer Instruction Manual and Employer Newsletter in the coming months. Please note, you may experience slightly higher or lower costs depending on the salaries of your employees. For details, see the Employer Bulletin sent to you on March 9, 2018.

Note: Additional examples will be on the website in coming weeks.