BCPA Pension Backgrounder

1. Why does the pension provided by the Bank decrease at age 65?
• The Bank pension is integrated with the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP). Part of your contributions while you were at the Bank went to fund the CPP / QPP and part of your total pension income is paid by one of these funds after you reach age 65. The CPP / QPP pension is assumed to start at age 65. Up until now, the Bank’s pension has been reduced when you reach 65 by about the same amount that you should normally receive from the CPP / QPP if you start receiving it at age 65. The two pensions that you receive after age 65 added together should, until now, have given you about the same amount of money as you received from the Bank before you reach age 65. With the improvements in life-time pension, you will now receive slightly more total pension income after age 65.


2. What are the life-time pension and the bridge pension?
• The life-time pension is the amount that you can expect to receive from the Bank for the rest of your life (plus indexation of course). The bridge pension is the amount that you receive until you reach age 65. It is roughly equivalent to the CPP / QPP pension that you are expected to receive starting at age 65.


3. Why did the Bank not just increase everyone’s pension regardless of age?
• The Bank’s benefit formula of 2% per year is already at the maximum permitted by income tax law. Therefore the Bank can not increase the amount it pays prior to age 65. There is some scope for the Bank to increase the life-time pension if it also reduces the bridge pension by a similar amount so that the two pensions add up to the same total amount. At age 65 when the bridge pension stops, you will be left with a higher life-time pension. Since you will receive the same CPP / QPP pension, your total pension income will be higher as a result of the Bank’s announced improvements.


4. Could the Bank have increased the life-time pension by a larger amount?
• Yes, as far as tax law is concerned, the Bank could increase the life-time pension by the full amount of the bridge pension, as long as it reduced the bridge pension to zero. That would mean that there would be no decrease in Bank pension at age 65 and the CPP / QPP pension would be additional income. The BCPA Executive Committee thinks that the increase to the life-time pension should have been much larger than that offered by the Bank to forestall further discussion about the surplus.


5. Would a larger increase to the life-time pension be the best solution to the pension surplus issue?
• The surplus results from the fact that contributions into the fund have been higher than they should have been. The most logical solution would be for the Bank to distribute a portion of the surplus to itself and to all members based on their contributions plus interest ~ In other words pay back the overpayment on a proportional basis. A larger increase to the life-time pension, based on YMPE limits, will benefit most those whose average salaries were at or below the YMPE. This may well be a worthwhile solution from the perspective of helping people with lower pension incomes, but it does not completely resolve the overpayment problem.


6. Why is the improvement formula so complicated?
• The mechanics are probably a bit more complicated than they need to be. All you need to know is that your pension will be higher when you reach age 65 by 0.2% of your average salary over your last (or best) 5 years, up to the amount of the YMPE , for each year of service after 1966. This amount is indexed from the time you leave the Bank.


7. What happens if I start to receive CPP / QPP before age 65?
• To start receiving CPP / QPP, you must apply about 6 months before you want to receive it. You may start receiving CPP / QPP as early as age 60. However, the amount of your CPP/QPP pension will be reduced by 0.5% for each month that you start to receive your CPP / QPP pension before your 65^th birthday (maximum reduction of 6.0% per year). If you decide to start receiving CPP / QPP early, your decision will have no effect on the Bank’s pension. You will continue to receive the Bank’s bridge pension until age 65. You should be aware that your decision to receive a reduced CPP / QPP prior to age 65 will leave you with a lower combined Bank life-time pension and CPP / QPP pension after age 65. Individuals may wish to contact a professional tax and or financial planner regarding their decision to take CPP/QPP before age 65. You can obtain more information on the two government pension plans by clicking on CPP or QPP.