Page Content
Separating myth from truth regarding the Alberta Teachers’ pension plan
Since 1939, Alberta teachers have been contributing to the Alberta Teachers’ pension plan so they can have the same or similar quality of life that they enjoyed during their teaching careers. Teachers can be proud that they earn and pay for their entire pension contributions, as more than 13 per cent their salary is deducted for their teacher pension, and the remaining portion is actually deferred income paid on their behalf by the Alberta government. Below are some commonly asked questions or myths from teachers who are members of the pension plan.
1. I heard that, if the Alberta Teachers’ Retirement Fund has a negative year, I could lose my pension.
FALSE
Teachers in Alberta are very fortunate to be members of a defined benefit pension plan, which provides benefits that are both known and predictable. The pension is based on a formula of pre-retirement salary multiplied by years of service. The risk in the defined benefit pension is shared between the other plan sponsor (Alberta government) and all plan members. While contribution rates to the plan may fluctuate, your pension upon retirement is secure.
2. I heard that my pension is guaranteed for only 15 years.
FALSE
Upon retirement, teachers receive pension benefits for the duration of their lives. After death, for those teachers who chose the joint option, pension benefits continue to be paid to their named pension partner until that person’s death. An optional 5-, 10- or 15-year guarantee applies to single life pensions and the length of time that has passed since the first pension payment. If the teacher with the 15-year guarantee lives for 11 years after her pension is first paid, the beneficiary will receive the remaining four years of pension payments.
3. Teachers die within 15 years after retirement.
FALSE
Teachers tend to outlive the general public, and they or their pension partners collect pensions for more than 30 years, on average.
4. When I reach age 65 or an index of 85 (age plus years of service), I get a full pension like every other teacher in the province.
TRUE and FALSE
You do get an unreduced pension but it’s not necessarily the same as every other teacher’s. The longer you teach, the more your pension will be, because the formula used to calculate pension benefits is based on pre-retirement salary multiplied by years of service. For the average teacher with four years of university, each year of full-time service adds pension benefits of approximately $1,500 per year. When teachers retire before age 65 or before reaching an index of 85, their pensions will be reduced by two per cent for each year they are below the 85 index, to a maximum of 20 per cent. Conversely, when teachers turn 65 or have an index of 85 and are at least 55, they receive an unreduced pension.
5. I am only 55 years old and want to quit teaching, but I am nowhere near my required 85 index. My financial planner suggests that I quit teaching and wait until I am 60 to apply for my pension because my index will then be the required 85. I am going to have an unreduced pension, right?
FALSE
Once you resign and are age 55 or older, your pension starts paying as of a month after your resignation. By delaying the application for your pension, you will have a large sum of money waiting for you upon application, as your pension is paid retroactively to the month after your resignation. You will also have to pay income tax on that amount.
6. I am a young mom. My husband and I want to have at least three children and spend a year at home with each of them. I have heard that I can buy back service from an employer-approved leave.
TRUE
Teachers on an employer-approved leave can purchase the service from the time they were on the leave. The teacher, upon returning to work, should contact the Alberta Teachers’ Retirement Fund to determine the cost of purchasing service. You can purchase the service in cash, by using an RRSP or a combination of the two. Be sure to purchase the service sooner rather than later as the cost will rise every year.
7. I am a substitute teacher and I feel like I am treated like a second-class citizen. How come I can’t purchase a pension?
FALSE
Substitute teachers can, in fact, purchase service in 186 day blocks and the cost is even shared by the Alberta government. Anything less than 186 day blocks is paid solely by the teacher. Contact the Alberta Teachers’ Retirement Fund to determine the cost of purchasing service.
8. I am on disability benefits and as I am earning only 70 per cent of pre-disability income, I am going to be broke in a few months. I have utility bills to pay, children who need to be fed and clothed, and a mortgage payment. I have no idea what to do. I wish I didn’t have that big pension deduction coming off my cheque. Is it true that, while I am on disability, I stop paying into the pension plan and still earn pensionable service?
TRUE
Although you are earning 70 per cent of your pre-disability income, you don’t have to worry about your pension contribution. A teacher on extended disability continues to earn or accrue pensionable service but no longer has to pay into the pension plan. The cost is absorbed by the plan.
9. I heard that my pension will be approximately 70 per cent of my pre-retirement income after 30 years of teaching service. It sounds too good to be true. Is it?
FALSE
While a single teacher with 42 years of service may make 70 per cent of her pre-retirement income upon retirement, most teachers will retire with 30 years of service and will receive a teacher pension that is approximately 50 per cent of their pre-retirement income. Teachers with a pension partner will receive less than 50 per cent of their pre-retirement income, as the pension pays until the final death. The age of your pension partner will also affect the amount of your pension. If you include your Canada Pension Plan and Old Age Security at age 65 along with your teacher pension, then you will be close to 70 per cent of your pre-retirement income.
10. My husband and I are already looking for some good part-time jobs after we retire from teaching. We have been advised that our two teacher pensions combined will be about $90,000 dollars annually. While we can live on that today, there is absolutely no way we can live on that 25 years from now. My colleague advised me that I don’t have to worry about my pension being locked in at that amount as we receive a cost-of-living allowance each year. Is this true?
TRUE
Getting those part-time jobs will not be as necessary as you think. Twenty-five years from now, you and your husband will not have to live on $90,000 per year. Retired teachers receive an annual cost-of-living adjustment based on the Alberta Consumer Price Index. You actually paid for this cost-of-living allowance in your earning years.
