The Alberta Teachers’ Association

The four pillars of retirement income

While deciding to retire can be very difficult for teachers as they near the end of their careers, they have the comfort of knowing that they will have a number of income sources when they choose to leave the classroom. In today’s society, there are four income sources, often referred to as the four pillars of income in retirement: Old Age Security, the Canada Pension Plan, the workplace pension plan and voluntary savings or continued employment.

Old Age Security

All Canadians who meet the Canadian legal status and residence requirements are eligible for Old Age Security (OAS) at the age of 65. While the OAS is the Government of Canada’s largest pension program, it represents a small portion of a teacher’s total retirement income. The maximum monthly benefit currently paid to a Canadian citizen is $578.53 per month. OAS is inflation protected and adjusted on a quarterly basis. OAS payments begin to be clawed back when a retiree’s annual gross income is greater than $73,756, and no OAS payment is paid when total income reaches $119,615.

Canada Pension Plan

The Canada Pension Plan (CPP), unlike OAS, is paid to Canadian citizens who have contributed to the plan through their working years. All contributing Canadian citizens are eligible to receive monthly CPP payments, with no penalty, at age 65. The maximum monthly payment that can be received from the plan is $1,092.50.

Teachers (and other Canadian citizens) can access their monthly CPP pension as early as age 60 if they choose. If a teacher chooses this option, there is a 0.6 per cent reduction for each month that the teacher elects to receive her CPP before age 65. Thus, a teacher who decides to take her CPP the same month as her 60th birthday will have her monthly benefit reduced by 36 per cent. Alternatively, if a teacher chooses to defer her pension at age 65, her pension will increase by 0.7 per cent for each month after her 65th birthday.

Workplace pension plan

The third pillar, and largest source of income for most retired teachers, is the pension they receive from the Alberta Teachers’ Pension Plan. Alberta teachers have worked for many years to attain a defined benefit pension that is both guaranteed and based on a defined formula. Teachers will be eligible for an unreduced pension at age 65 but can retire earlier if they attain an 85 index (age plus years of service), but no sooner than age 55.

A teacher who retires with 30 years of service can receive approximately 50 per cent of her pre-retirement income. This number may be less if the pension is shared with a spouse or pension partner. Teachers who choose to teach past age 65 or beyond the 85 index will receive a greater pension when they retire. Teachers can continue to contribute to their pension to the end of the calendar year in which they turn 71.

A great benefit of the teachers’ pension plan, and one that teachers and government have paid for, is the cost of living adjustment (COLA). Teacher pensions are adjusted each Jan. 1 using the Alberta Consumer Price Index (ACPI). All pre-1992 service is adjusted by 60 per cent of the index and all post-1992 service is adjusted by 70 per cent.

Teacher pensions are also guaranteed in that they are payable to the pensioner and their pension partner until the last death. There may be a reduction to the pension depending on the option selected at the time of pension application. The pension also comes with guarantees of 5, 10 and 15 years for the named beneficiaries. The guarantee starts at the time the pension goes into pay and not at the time of death. (See www.atrf.com to view the seven available pension options.)

Voluntary savings or continued employment

The last pillar of retirement income is individual savings or continued employment. In most cases, the two primary financial vehicles for savings are registered retirement savings plans (RSPs) or tax-free savings accounts (TFSAs). RSP contributions are limited by the Income Tax Act and provide a tax benefit in the working years but are taxable after the funds are withdrawn. A TFSA, on the other hand, receives no tax benefit up front, but remains tax free as it grows and funds are withdrawn.

The benefit from the teachers’ pension plan does take up room from your RSP tax deductions, but teachers generally have some ability to contribute to their RSPs. TFSAs are not linked to RRSP room or the pension plan benefit.

Many teachers choose to work in another field after their retirement for financial or personal reasons. Should retired teachers continue to work for a public or separate school board in Alberta, they should remember that any contract work beyond 0.6 FTE during a school year will result in a dollar-for-dollar reduction from their monthly pension payment. Retired teachers can continue to substitute from day to day with no reduction to their pension.

Together, the retirement income plans (OAS and CPP) and the teachers’ pension plan will replace 65 to 70 per cent of a teacher’s pre-retirement income. Personal savings and other employment are the variables that can increase that retirement income at age 65.

Chris Gibbon is an executive staff officer in the Teacher Welfare program area of the Alberta Teachers’ Association.