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Police and Firefighter Retirement Seminar

Police and Firefighter Retirement Seminar. Reg. T.M. Municipal Pension Board of Trustees. Agenda. Administration Basics of the Municipal Pension Plan Pension formula Special Agreement contributions Pension options Other factors that affect your pension Increasing pensionable service

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Police and Firefighter Retirement Seminar

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  1. Police and Firefighter Retirement Seminar Reg. T.M. Municipal Pension Board of Trustees

  2. Agenda • Administration • Basics of the Municipal Pension Plan • Pension formula • Special Agreement contributions • Pension options • Other factors that affect your pension • Increasing pensionable service • Retirement process • After retirement 2

  3. Municipal Pension Plan Governed by: • Municipal Pension Plan Joint Trust Agreement • Municipal Pension Plan Rules • Municipal Pension Board of Trustees, composed of employer and employee representatives Administered by: • The BC Pension Corporation 3

  4. Web Services Visit our website for plan information mpp.pensionsbc.ca Access My Account for: • a copy of your Member’s Benefit Statement • online pension estimator • online purchase cost estimator • view your account information 4

  5. Basics • The Municipal Pension Plan is a defined benefit plan. • Your personal contributions do not affect your final benefit • A formula determines your pension benefit: • Age • Salary • Pensionable service 5

  6. Basics Age • Normal retirement age 60 • Earliest retirement age 50 Salary • Highest Average Salary (HAS) Service • Contributory service determines eligibility and reductions • Pensionable service determines benefits ($) 6

  7. Unreduced Pension Reduced Pension • Age 50 to 55 and your age plus contributory service totals 80 or more • Age 55 or older with two years or more of contributory service • pension is subject to a reduction if either of the above tests are not met 7

  8. Example of Rule of 80 Age 51 years 2 months Service 28 years 10 months Total 79 years 12 months = 80 = Unreduced pension 8

  9. 3% Reduction Factor • Terminate at age 45 to 50, with 10 years or more of contributory service • Terminate at age 50 or later and vested • Calculated from lesser of 80 or age 55 • Maximum reduction is 15% Otherwise, the reduction is 5% per year to a maximum of 25% 9

  10. Example of a Reduced Pension • Terminated employment May 31, 2007 at age 54with 23 years of contributory service • Immediate pension • Reduction in pension: 23 + 53 = 76 80 - 76 = 4 55 - 53 = 2 Lesser is 2 Reduction is 3% x 2 = 6% A $3,000 pension is reduced to $2,820 (without SA) 10

  11. Age and Service Affect Your Pension  80 70% 11

  12. Pension Formula A. Pension Formula to age 65 = $ B.Minus Bridge Benefit at age 65 = $ Your monthly unreduced lifetime pension (A - B) from age 65 $ = 12

  13. Pension Formula Your basic monthly pension is calculated in two steps: A. The Pension Formula 5-year Highest Average Salary (monthly) Years of Pensionable Service 2%(0.02) x x = $ Minus ... 13

  14. Pension Formula B. The Bridge Benefit Lesser of 5-year Highest Average Salary or YMPE (monthly) Years of Pensionable Service 0.7%(0.007) x x = $ YMPE = Year’s Maximum Pensionable Earnings. Used in the determination of your Canada Pension Plan, and is updated annually to reflect the national average industrial wage. The YMPE for 2007 is $43,700 ($3,642 monthly). 14

  15. Calculating Highest Average Salary Pensionable Service 7.00 12.00 12.00 12.00 12.00 5.00 60.00 months Avg. Salary $6,567 $6,565 $6,591 $6,636 $5,609 $5,562 $6,310 Salary $45,966 $78,783 $79,086 $79,639 $67,314 $27,812 $378,600 Year 2008 2007 2006 2005 2004 2003 HAS = 378,600 / 60 = $6,310 per month 15

  16. Pension Formula Example Plan member and spouse are both 54 Retirement date December 31 Pension effective date January 1 Pensionable service 28 years Contributory service 29 years HAS $6,310 16

  17. Pension Formula Example Basic monthly pension to age 65 2% x $6,310 x 28 = $3,537 Minus the bridge benefit 0.7% x $3,642 (YMPE) x 28 = $714 For a lifetime pension after age 65 of $2,823 per month Age: 54 Age + Contributory Service = 83 NO REDUCTION 17

  18. Special Agreement Contributions • What are they? • How are they treated at retirement? 18

  19. Special Agreement Contributions • Simple calculations allow you to estimate the increase to your pension that special agreement contributions will make 19

  20. Special Agreement Contributions Subtract your age in years and months from your retirement date 2007 12 Retirement date (Dec 2007) 1953 12 Date of birth (Dec 1953) 54 0 Age - 20

  21. Value of a Single Life Pension of $1 per monthfrom SA contributions Age 50 51 52 53 54 55 56 57 58 59 60 Factor 212.5 209.2 205.7 202.2 198.6 194.9 191.2 187.3 183.3 179.3 175.1 21

  22. Special Agreement Contributions Divide your SA contributions plus interest by the rate: Example Special agreement contributions $55,012 Interest on SA contributions + $125,118 Total $180,130 $180,130  198.6 = $907 extra per month for life with a single life pension. 22

  23. Special Agreement Contributions Add this dollar figure to the single life pension amount calculated using the defined benefit formula. The total is then converted to the various pension options. 23

  24. Pension Options • Single life no guarantee • Single life guaranteed 5, 10 or 15 years • 100% joint life • 60% joint life guaranteed 10 years • Temporary annuity – can only be taken as part of one of the above options—seek financial advice before electing 24

  25. Option Basic Pension Bridge Benefit Survivor’s Pension Monthly Pension Option Temp. Annuity Pension to age 65 Pension after 65 Single life pension no guarantee 1 $2,823 $714 $3,537 $2,823 Single life pension guaranteed 5 years 2 $2,817 $714 $3,531 $2,817 Single life pension guaranteed 10 years 3 $2,799 $714 $3,513 $2,799 Single life pension guaranteed 15 years 4 $2,763 $714 $3,477 $2,763 100% joint life pension 5 $2,439 $714 $3,153 $2,439 $2,439 100% joint life + temporary annuity $2,231 $714 $490 $3,435 $2,231 $2,231 6 60% joint life guaranteed 10 years 7 $2,569 $714 $3,283 $2,569 $1,541 Single life guaranteed 5 yrs. + temp. annuity 8 $2,577 $714 $490 $3,781 $2,577 Sample Pension OptionsNot Including Special Agreement Balance (Entitled to pension and transfer of Special Agreement balance - $180,130) 25

  26. Option Basic Pension Bridge Benefit Survivor’s Pension Monthly Pension Option Temp. Annuity Pension to age 65 Pension after 65 Single life pension no guarantee 1 $3,730 $714 $4,,444 $3,730 Single life pension guaranteed 5 years 2 $3,723 $714 $4,437 $3,723 Single life pension guaranteed 10 years 3 $3,699 $714 $4,413 $3,699 Single life pension guaranteed 15 years 4 $3,652 $714 $4,366 $3,652 100% joint life pension 5 $3,223 $714 $3,937 $3,223 $3,223 100% joint life + temporary annuity $3,015 $714 $490 $4,219 $3,015 $3,015 6 60% joint life guaranteed 10 years 7 $3,395 $714 $4,109 $3,395 $2,037 Single life guaranteed 5 yrs. + temp. annuity 8 $3,483 $714 $490 $4,687 $3,483 Sample Pension OptionsIncluding Special Agreement Balance 26

  27. Gross Retirement Income by Age Retirement 60 65 Canada Pension Plan Canada Pension Plan Bridge Benefit Old Age Security Lifetime Pension 27

  28. Gross Retirement Income by Age – With Temporary Annuity – Retirement 60 65 Canada Pension Plan Temporary Annuity Canada Pension Plan Bridge Benefit Old Age Security Lifetime Pension (reduced forever by temporary annuity) 28

  29. What should I think about when selecting my Pension Option? 29

  30. Life Tables Canadian Life BC Life MPP Life Age 50 55 60 Male 78.26 78.91 79.81 Female 82.94 83.40 84.06 Male 79.23 79.89 80.75 Female 83.70 84.14 84.77 Male 81.97 82.50 83.18 Female 86.37 86.66 87.05 30

  31. Other Factors That Affect Your Pension • Whether you have a spouse or former spouse with an entitlement to part of your pension • When you elect to commence your pension • Increasing pensionable service by purchasing service 31

  32. Definition of Spouse • The person you are legally married to and, for the two-year period immediately before the relevant time (e.g., retirement or death), were not living separate from; or, if this does not apply, • The person, of the same or opposite sex, who has lived with you in a marriage-like relationship for the two-year period immediately before the relevant time. 32

  33. Marital Breakdown • We are required to administer a pension in accordance with any separation agreement, court order or application for division of pension • We can split the pension benefits at the source 33

  34. Deferred Pension • Vested plan members can leave work before age 50 and defer their pensions to age 50 or older • Seek professional advice if you plan to defer your pension beyond earliest eligibility • Your highest average salary is indexed at the same rate as the indexing granted to pensioners each January 34

  35. Your Pension – Take It At 50 or Defer to Age 55? If you terminate employment at age 50 Monthly pension income at 50 $3,000 Total payments from age 50 to 55 $180,000 Unreduced pension deferred to 55 $3,500 Increase to pension $500 Make-up time ($180,000 ÷ $500) = 360 months, or 30 years Age at break-even point 85 35

  36. Disability Pension Provisions • If you are not eligible for LTD benefits, you may be eligible for a disability pension provided you: • terminate employment • are under age 55 • have at least two years of contributory service, and • are unable to fill any position your employer can reasonably offer • There is a two-year limit from the date of last contribution or service credit to apply 36

  37. Death Before Retirement Vested with no spouse: commuted value (CV) payment to nominated beneficiary or estate Vested with spouse: • If member dies before 50, immediate pension or CV • If member dies at 50 or older, immediate pension paid. SA portion can be taken as a pension or CV. Not vested: contributions plus interest paid to spouse, nominated beneficiary or estate 37

  38. Purchasing Service • Rules for calculating most purchase types have been simplified • Online purchase estimator available at mpp.pensionsbc.ca • Your employer must complete your purchase application 38

  39. Purchasing Service • Increases your pension benefit and may reduce any early retirement reduction • May increase the subsidy for health benefits • You can pay by cheque or RRSP transfer, as determined by CRA • Purchases must be made within applicable time lines 39

  40. Purchasing Service – Types • Arrears – should have contributed, but did not • Leave of absence – partial or unpaid leave • Non-contributory – did not contribute • Reinstate a refund – repay funds withdrawn from the plan, plus interest 40

  41. Purchasing Service – Cost For most purchases, the costing method is the same (arrears, leaves, non-contributory) CurrentMonthly Full-time Salary Current Employer and Employee Contribution Rates Number of Months to be Purchased x x 41

  42. Purchasing Service – Deadlines • You must be an active Municipal Pension Plan member to purchase service. • There is a five year window of opportunity to purchase service. 42

  43. Is It Worth Purchasing Service? • Cost-benefit analysis • Divide cost by the increase to pension to get number of months to break even • Tools: • Purchase estimator • Pension estimator 43

  44. Purchase Cost/Benefit Example • Estimated cost to purchase three months of service is $2,700 (based on current monthly salary of $6,000) • Approximate increase to pension $30 per month to age 65, reducing to $24 per month at age 65 • $2700 ÷$30 = 90 months, or 7.5 years to regain the cost 44

  45. Child-rearing time – Contributory Service credit • You may be able to count time at home raising a child as contributory service for eligibility for an unreduced pension • You can apply for a maximum of five years in total • Pensionable service must be credited before and after the child-rearing period • There is no cost for child-rearing credit 45

  46. Portability Portability means carrying certain pension rights from one pension plan to another. May include: • Public Sector Transfer Agreement • Reciprocal agreements with some pension plans in Canada You must have left your contributions on deposit with the prior plan, or reinstated service. Some agreements have application deadlines. Shortfalls in service are common with many reciprocal agreements. 46

  47. Planning For Retirement • About a year before you plan to retire, estimate your pension online at mpp.pensionsbc.ca, or • Request a Retirement Planning Package from us (also available online at mpp.pensionsbc.ca) 47

  48. Preparing To Retire • Complete an Estimate Request form (available online) and return it to us • Request a Pension Estimate by telephone • We will send you a Retirement Application Package 48

  49. Applying To Retire When actually retiring: • Complete and return the Retirement Application Package • Enclose clear copies of proof of age documents 49

  50. Pension Effective Date Your pension is effective the latest of: • first day of the month following eligibility • first day of the month following your final paid day • first day of the month of application 50

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