Canadian Armed Forces Pensions
Video / August 1, 2024
Transcript
Good day everyone. Welcome today to my Transition Seminar pension presentation. Please note that this recording is specific for the My Transition Group and it covers both Regular and Reserve Force members.
Today we will do a few topics. We will see where you can find the information online about your pension. We will talk about the benefit calculation. We'll see how we calculate the Regular Force pension and the Reserve Force pension. We'll talk about the benefit entitlements and options. We'll cover the deductions that will continue from your pension payment and the one that will cease. Then we'll talk about indexing. We'll see how your monthly pension will be increased each year based on the cost of living. We'll cover the survivor benefits and we'll see how the survivors get paid at time of death. Group insurance benefits, we'll talk about the health, the dental and the life insurance and we'll cover also the re-enrollment after release.
So let's start with the pension and benefit website. This is the link for your website. The website has a purpose to provide you with general information about your pension plan. Whether you're a Reserve Force member or a Regular Force member, you will have specific information based on the population you pertain to. Also, on the website you will have access to all the pension forms. However, any topic you're dealing with, you will be receiving a package with the specific forms that you need to complete. Worst comes to worst, please contact us at the Government of Canada Pension Center, we'll be more than happy to help you and provide you with the counselling. Also on the website, you will have access to the My CAF Pension which is the new tool, personalized tool where you can access your pension information. The tool is up to date with your current career, with your service and your salaries. This way you can estimate your pension. You can compare up to five codes and estimate your future entitlements. Know that the website is accessible from home using any type of device. However, the My CAF pension you need to be using a DWAN because it's secure information. You don't want your personal information being freelanced on the website.
Let's talk about the basic benefit calculation. How do we calculate your pension? Please note that your basic benefit calculation will include both your lifetime pension and your bridge benefit. The bridge benefit is a portion that is paid, included in your monthly pension to bridge you, to update you up to age 65 when your regular CPP or QPP will kick in.
So let's talk about the regular pension plan calculation. So the formula is 2% which includes both your lifetime plus your bridge times your pensionable service and the pensionable service is seen in terms of years and days. We do pro rate up to half a day. If you do have some reserve part time service, it will be adjusted for the reserve service as there is a proration to be done based on the number of days you are working. In terms of the highest average salary, we use the five best consecutive years. 99% of the time it will be the last five as a career usually goes by increasing. Here's 2 scenarios:
2 individuals releasing at the same time, both making the same average salary of $90,000. The first one has what we call a full pension, which is the maximum of 35 years of pensionable service. The second individual has the 25 years a requirement to release with no penalty.
You can see on the monthly gross pension, obviously the more pensionable service you have, the better pension you will get. The highest average salary you are making, the better pension you will get. Note that these calculations are monthly gross. At the pension center we do not speak net, however on the My CAF pension tool, you can estimate your net pension, include all the deductions that you wish to continue and you will have an estimate of your net pension, which is the best tool, the best way for you to plan your release.
If you're releasing under the reserve pension plan, the formula will be different. The same 2% will apply which includes your lifetime plus your bridge times your updated pensionable earnings for your full career. So basically we will use all the earnings you made while a reservist, pensionable earnings where you were contributing to your pension, and we will update them to today's reality. We call this the wage measure. This way your old salaries reflect a little bit higher income based on today's reality.
2 scenarios, two corporals releasing at the same time, both with 20 years of service. The first scenario has two days per week of work. The second scenario has three days per week of work. Obviously you can see that the earnings are higher. That means you're contributing more to your pension. This means that you will get a higher pension.
However, please note that as soon as a reservist rolls over into the Regular Force Pension Plan, we will be using the Reg Force formula and not the Reserve Force. Keep in mind that the best way to review your pension is to use the My CAF Pension tool. This way you have the best estimate of your income and you can better plan your retirement.
The Bridge Benefit. As I mentioned earlier, the bridge is a portion that is paid temporarily to bridge you to offset you until age 65 or the bridge could stop before age 65 only if you are collecting your CPP Canada Pension Plan or your QPP Quebec Pension Plan for disability reasons.
How does the coordination work? So let's say someone releases and they're collecting their retirement pension. They're getting their full 2%, which includes their lifetime plus their bridge. The bridge is there to be paid to you from the day you start collecting your pension up to age 65. This way you maintain a decent income until 65, once you start collecting your regular CPP or your regular QPP. However, it doesn't mean that your bridge will necessarily be equal to your CPP/QPP because there are two different pension plans. Each of them will pay you based on their contributions.
If you consider someone who never worked before the Canadian Armed Forces, who always contributed to their pension the same years that they contribute to their CPP/QPP, both bridge and CPP/QPP should be fairly close. This is what we call the perfect coordination. The best way to plan that coordination is to access the My CAF pension to see your bridge amount. This way you'll know in advance how much bridge will cease at age 65. At the same time, contact Service Canada for your CPP. If you are collecting QPP, contact Retraite Quebec and they will provide you with the estimate of your CPP or QPP at age 65. This way you know the amount that will cease, and you will know the amount that will kick in at 65, and then you can plan that coordination.
In 1987, CPP and QPP decided to create more flexibility to Canadians. So as of 1987, someone could collect their CPP or QPP as early as age 60, we call this an early CPP/QPP, or they could defer their CPP/QPP up to age 70, we call the deferred CPP/ QPP. Keep in mind that these changes in 1987 had no impact into the Canadian Armed Forces Pension Plan because they're two separate legislations, which means taking your early CPP/QPP or deferring your CPP/QPP has no impact on your bridge.
Let's look at the early CPP/QPP scenario. You are retiring, you're releasing, you're getting your monthly pension, which is your lifetime plus your bridge. Your bridge will continue up to age 65. That's the plan. You decide to collect your early CPP/QPP as early as age 60. You can see that the bridge benefit will continue up to age 65. No impact. This means that you are accessing more money between 60 and 65 because you are getting your lifetime plus your bridge. And on top of this, you are collecting your early CPP/QPP. Keep in mind that anything you collect before the prescribed time will be reduced. On the other side, if you are releasing and you are collecting your lifetime and your bridge, your bridge will cease at 65 as per the Canadian Armed Forces legislation.
You decide to defer your CPP or your QPP to the latest which is age 70. The bridge will still cease at age 65, so therefore you can see a shortfall between 65 and 70. However, your CPP/QPP will be increased because you're deferring it for a later time. So, through these two scenarios, you see that whenever you decide to collect your CPP/QPP between 60 and 70, your bridge will still cease at 65.
The only time that bridge will cease before 65 is only for one reason. As mentioned earlier, if you are collecting CPP or QPP for disability reason then this is your obligation to let the Government of Canada Pension Center know, this way, we will cease your bridge at that time. Otherwise, you will be facing bridge overpayment.
Now let's talk more about pension entitlements and options.
As soon as you have over two years of pensionable service, you are vested into the pension plan, which means you will be entitled to a pension. If you release before age 50, you have the option to take your transfer value. A transfer value is a lump sum payment. Basically, the transfer value reflects the present value of your future deferred annuity.
The deferred annuity is a monthly pension payable at 60 without a reduction. The transfer value objective is to pay you today the money you require to invest in the market. This way you should receive something similar as your deferred annuity payable at 60.
However, this will depend on the investment rates and how you are managing your funds because taking a transfer value means that you are cutting ties with a pension plan. So, you are on your own, you are taking your payout, you are investing it in the market.
You could receive a higher amount than the deferred annuity that the Government of Canada would have paid you. Also, you could receive a lesser amount. So, the burden of the investments is on your shoulders and there are no more guarantees. You are on your own. And because you are cutting ties with the pension plan, this means that there is no indexing, there is no survivor benefits, there's no health or dental coverages. If you wish to keep your supplementary death benefit, which is the life insurance, it will be under commercial rate which means it's more expensive. Also keep in mind that you have one year from ceasing to make this option.
After the one year, the default option will be your deferred annuity payable at 60 on a monthly unreduced. Taking a transfer value has also an income tax impact. Not the whole value will be paid to you directly. A portion of that transfer value is considered the amount within tax limit and that portion will need to be transferred to a locked in vehicle. It could be a locked in RRSP, a registered pension plan or to purchase a life annuity and it will be locked in under the provision of the province where you live. The other portion is considered the amount in excess of the tax limit and that portion will be paid to you directly and as an income. It will be taxed at source.
If you have some RRSP room, you can put a portion of that amount into your RRSPs. So, this was the lump sum option.
Now let's talk about the monthly pension. The best monthly pension is the immediate annuity. It is the best one because it's paid immediately at release and its unreduced monthly pension. However, to be entitled to that immediate annuity, you need to meet some criteria.
The most common criteria for the Canadian Armed Forces is the 25 years or more of CF service, which reflects the Canadian Force service. When I mentioned 25 or more years, that means 25 years of full time. That's why it says on my slide 9131 days. Some of you could still be entitled to the old provision which was the 20 years. You should be aware of your entitlements. If you are unsure, you can contact us at the Government of Canada Pension Center.
Also, you could access the immediate annuity through another criteria which is the age and the pensionable service. Minimum 55 years of age with at least 30 years of pensionable service. Ultimately speaking, once you hit age 60 and you release, you will be entitled to immediate annuity, unreduced pension.
These are the regular release. You would also have the disability release under the Reserve Pension Plan Part 1.1 at any age if you have two or more years of pensionable service.You could release without a reduction under the Reg Force Pension Plan the Part 1 full time. If you have at least 10 years or more of pensionable service at any age, you could release with no reduction. The difference between the Reserve and the Reg Force will be the definition of the disability. Keep in mind that the Government of Canada Pension Center does not determine the disability release. This is dealt at DND level. If you wish to release earlier with the monthly pension, you could collect your annual allowance which is a monthly reduced pension. This monthly reduced pension is payable as early as age 50. You need to have at least two or more years of pensionable service so you need to be vested into the pension plan. Because you are collecting your pension before the prescribed time, you will be reduced on your calculation.
These are the formula to calculate your reduction. So based on your age and pensionable service, one of the formulas will be used. Let's do a scenario. Let's think of someone who's age 56 with 20 years of pensionable service. Because this person is not at least age 60, they are at least age 55 and don't have the 30 years of pensionable service and they don't meet the criteria for the 25 years of CF service. If this person decides to collect their monthly pension, it will be an annual allowance, monthly reduced. Because this person has less than 25 years of service, we will be using the first formula.
First, we will calculate their monthly unreduced pension. Let's say that amount is $3000 a month. Applying the monthly reduced formula, the first one 5% times 60 minus their current age which is 56. This is a 20% reduction. Of the $3000 monthly pension, their monthly pension will be $2400 and it's a reduction for life. They're losing $600 a month for life. However, they are collecting their pension 4 years earlier, so you have to do that comparison and a better plan.
If you are not entitled to an unreduced pension at release, you always have the deferred annuity as an entitlement, which is the monthly unreduced pension payable at 60. So you are releasing before age 60 and instead of collecting your pension with a monthly reduction, you are deferring up to age 60 and it will be paid to you without reduction. So if we go back to our previous scenario, a member who's aged 56 with 20 years, their monthly unreduced is $3000, however payable at age 60. So, they are releasing, they will manage to live working somewhere else or through their other means of income and they will get their monthly $3000 payable as of age 60.
Keep in mind that when you opt for the deferred annuity, at any time you can change your mind and take your monthly pension reduced as early as age 50. So, example, you decide to take your pension at age 56. The same formula that we saw earlier will follow you, however, now we will do 60 - 58, which is your current age at time of your option. That's a 10% reduction, which is better than a 20% reduction that we saw earlier. You have this slide that summarizes all the entitlements and the options available to you based on your age and years of service. If you are unsure of your entitlement and options, please give us a call at the Pension center. A pension expert will help you go through your options.
In terms of release process, you have to contact the Pension Center. If you know your date of release, we ask you to contact the Pension Center six months prior to your release. This way you have enough time to make a proper decision, have access to your release package, complete all your forms and send them back to us. You also need to request your release from your department, and they suggest also a six months prior if possible.
Your pension payments. Your first monthly pension payment will be done within 45 days of your release date as long as we receive all the required forms completed. If not, it will be 45 days from the reception of the last form. After this, your monthly pension will be paid at the end of each month, direct deposit. From your monthly pension you will see that some deductions will continue.
Income tax. If you have payments for your service buyback or your leave without pay that you did not finish paying, it will be deducted from your monthly pension until they're paid off. Any debt due to the Crown will also be collected from your monthly pension.
Optionals. It is your choice to keep the public service health care plan. It is your choice to keep the pensioner's dental services plan. It is your choice to keep the supplementary death benefit, which is life insurance and pay those monthly premiums. Any extra income tax you wish to deduct, please let us know, we can do that for you. Also, any deductions for SISIP products will continue from your monthly pension. Please contact SISIP to see their life insurance products they offer you post release.Keep in mind that if you are retiring in Quebec or Ontario, you will be facing a sales tax for your insurance monthly premiums. Other deductions will cease from your monthly pension now that you are retired and you are collecting your monthly pension. This means that you are not contributing to your Canadian Armed Forces pension anymore. You will not be paying into disability insurance from your Canadian Forces pension. You will not be paying it to Employment Insurance or CPP Canada Pension Plan.
Indexing. This is a monthly increase to your pension. This way you keep up with the cost of living. It's an annual cost of living increase based on the CPI, the consumer price index. Each year statistics Canada will determine the CPI and we at the Government of Canada Pension Center will be applying that CPI into your pension. It is effective every January 1st. First increase is prorated based on the full month of release.
The system will be accumulating compounding indexing each year. However, it will be applicable to your monthly pension payable at age 60 or if you release for disability it will be applicable the following January. Any other scenario you need to meet the 85 factor which is age plus pensionable service equal to 85. Keep in mind that indexing cannot be payable before age 55 and before meeting 30 years of pensionable service. Also keep in mind that indexing cannot be delayed after age 60.
Supplementary death benefit. The SDB. This is similar to a term life insurance. Basically, the value of your supplementary death benefit is 2 times your pensionable salary. An example, someone making $80,000, their SDB will be valued at $160,000. They will be paying $0.10 per month for each $1000 of coverage. In this scenario, if you are covered for $160,000, your monthly premiums will be $16.00.
This life insurance will continue automatically. If you are eligible to a monthly pension immediately within 30 days of release, you will keep the coverage for two times your salary, keeping the same premiums as the last day of work up to age 61. As of age 61, your monthly premiums and coverage will start to be decreased by 10%. By age 70, everyone should reach the paid-up amount of $5000 and it remains free of charge until time of death. Basically, it is a decreasing life insurance.
Regular force members and reserve force on Class C will be participating into this life insurance. To continue this life insurance post release, you must have been a participant for a minimum of five years continuous at time of release. Keep in mind that this amount when payable it won't be taxed as an income. However, based on the provinces where you live, you could face probate fees, which is not the main tax on life insurance. To designate or amend your current beneficiary, the form that needs to be completed is the CFFC 2196. On this form you can designate your estate. We will make the cheque payable to your estate and your will will take over. You can designate one and only one person aged 18 or over at time of designation, or you could designate one of these institutions: a charity, religious or educational institution. If we have never received a designation form from you and you are entitled to this supplementary death benefit, the benefit will be automatically paid to the estate.
At time of death there also could be survivor benefits. Who are considered as survivors? It will be your spouse or your common law partner. At time of death proof will be required. If they are recognized as your survivors, they will get a monthly pension payable for life. They will get 50% of your monthly benefit. However, for them to be considered survivor for pension purposes, the relationship with you must start prior to age 60 and also you must remain in a relationship with this person until time of death.
The legislation mentions that if you are divorced from your ex-spouse, that means divorce happened before time of death, that means your ex-spouse is not entitled to survivor pension. If you are separated from your common law spouse that means separation from common law happened before your time of death there won't be any survivor pension. There is also potential of situation where you could have two survivors where a member was previously married to spouse #1, they separated without divorcing, the member started a common law relationship with spouse #2 and the member passed. At time of death, the member had two eligible survivors. With both the relationships started before age 60 and with both the relationship continued until time of death. In this case, the monthly surviving pension will have to be apportioned between the two spouses.
Children are also entitled to survivor pension. For a pension purpose a child is considered a child up to age 18 or up to age 25 if full time student. Under the Regular Force Pension Plan, each child will be getting 10% of the members benefit maximum payable 40% among the children. Under the Reserve Force Pension Plan, each child will get 12.5% of the member's benefit maximum payable 25% between the children.
If you have children entitled to a survivor pension and there is no spouse or partner collecting survivor pension, in this case, the child allowance will be doubled. These are the only eligible survivors for a monthly pension: a spouse or a common law, children under 18 or between 18 and age 25, if full time students.
In the scenario that you don't have eligible survivors as per the previous definition, there could be a minimum benefit. The minimum benefit is a lump sum payment that is payable when no eligible survivors for a monthly pension. This amount will be paid to your designated beneficiary of the SDB, the supplementary death benefit on the CFFC Form 2196.
If you were not a participant to the SDB or you omitted to complete the CFFC 2196, the minimum benefit, if any, will be paid out to the estate. And because it reflects the residual of your pension plan, it will be taxable as an income.
How do we determine if there is any minimum benefit to be paid? The law says the minimum benefit is the greater of your return of contribution plus interest or five years of unreduced pension, less any pension amount already paid out to you or your eligible survivors. Once we do this comparison, we will determine if there is any residual to be paid out.
Let's talk about the public service healthcare plan.
In order to continue this coverage post release, you need at least six years of pensionable service. Your family, meaning spouse or common law, and children up to age 21 (or 25 if full time student) will continue to be covered with you. The monthly premiums will depend if you are keeping an individual coverage, or a family and it will also depend on the level of coverage you are keeping.
The only difference between the level 1, the level 2 and the Level 3 is the daily hospital provision, meaning how much the insurance company will be giving the hospital each day. This way you get upgraded benefits in terms of hospital room provision. So, level one will get you up to $90.00 extra to have a better room. Level two $170, Level three $250 per day for a better room at the hospital. Keep in mind that having Level 3 does not necessarily mean you will get a private room. It will depend on the availability and the cost of that private room.
If we receive your application form within 60 days of your date of release, there won't be any waiting period. Your health care coverage will be seamless. If we receive your application form more than 60 days from date of release, you will be facing a three month waiting period in order for your coverage to kick in. Keep in mind that you can change levels, add or remove dependence also with the waiting period.
The Pensioner’s Dental Services Plan, your family, spouse, common law and children up to age 21 (or 25 if full time student) will continue to be covered. Dental coverage must be kept for at least three full calendar years. Once cancelled, you cannot reapply to your dental coverage. Your monthly premiums will depend on the coverage and how many people are covered with you.
Depending if you are keeping individual coverage, family (individual + one), family (individual +2 or more dependents). Same thing, if we receive your application form within 60 days of date of release, there won't be any waiting period, your coverage will be seamless. If we receive your application form more than 60 days from date of release, there will be a waiting period of two months applicable.
Re-enrollment. Once a Canadian Armed Forces member releases and collecting a monthly pension, they become an annuitant. Keep in mind that you cannot collect a monthly pension and contribute to your Canadian Armed Forces pension plan at the same time. You can review these scenarios and you can see the impact on your monthly pension should you re-enroll.
Other topics that could apply to some of you. I invite you to visit our website or contact the Government of Canada Pension Centre for more information on leave without pay or service buyback, disability after retirement, pension transfers with public service and RCMP (only applicable for Part 1 members), pension division in case of divorce or separation (only applicable for Part 1 members), optional survivor benefit (only applicable to Part 1 members).
You do have a list of contact information if you wish to contact them for more details. SISIP financial for financial insurance services, Service Canada for CPP or old age security information, Quebec Pension Plan for QPP, Public Service Health Care Plan, Pensioners’ Dental Services Plan, Veterans Affairs Canada and National Association of Federal Retirees. And finally at the Government of Canada Pension Center, we're here to help you.
Please contact us through the website or directly over the phone. We will be happy to answer you.
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My Transition Guide
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