Pension News

The Ontario Teachers' Pension Plan cancels reciprocal agreement

The Ontario Teachers' Pension Plan has served notice on the B.C. Teachers' Pension Plan, the Alberta Teachers' Retirement Fund, and the Province of Quebec that it is cancelling the Interprovincial Reciprocal Transfer Agreement effective July 31, 1998, even though the agreement was just signed in January 1995. Ontario is seeking a common assumptions agreement, which would cost the B.C. (and Alberta) plan a great deal of money, as Ontario uses assumptions that are significantly different from the B.C. plan.

What does this mean to teachers with service in Ontario? If you wish to have this service recognized in B.C., you must submit to Ontario an application to transfer on or before July 31, 1998. Under the current system, failure to do so will mean no ability to use the service toward your B.C. pension.

Do not delay! If you have service, apply to transfer it now. Let your colleagues know about this in case they do not read this article. The window of opportunity is very small. 

Members of the B.C. Teachers' Pension Board will work with the Superannuation Commission to try to make transfers possible without the reciprocal agreement in place, but in all likelihood, such transfers would provide less money to the teacher than the current arrangement. The Superannuation Commission has requested a delay on the cancellation of the agreement to further explore the issues.

Should the situation change, you will be advised through Teacher.

-Karen Harper 

Pension news SD 65

Did you work as a TOC in School District 65 prior to June 30, 1997?

According to the Pension (Teachers) Act and the employer's manual, school boards are required to advise teachers on call and part-time teachers of less than 50%, of the option of participating in the Teachers' Pension Plan at the time of hiring. Our board did not begin the practice until September 1997.

The board has acknowledged its oversight and, as a consequence, has sent letters to some members, going back only to September 1, 1995.

Members who provided TOC service and members who were part-time teachers of less than 50% prior to June 30, 1995, wishing recognition for pension service should contact, Carolyn Prellwitz, president, CDTA, (250) 748-2251, F: (250) 748-5243, lp65@bctf.ca

Factor 88? Age 64?

Reminder: SIP-Long Term

Teachers who have reached the age of 64 or the factor 88, age plus contributory service with the teachers or municipal pension plan, may voluntarily withdraw from the BCTF Salary Indemnity Plan: Long Term. If you have reached age 65 or factor 90, you are no longer eligible for long-term benefits and should withdraw.

If you fit one of the above criteria and wish to withdraw from the long-term part of the plan, write or fax (604) 871-2287 the BCTF Income Security Department for withdrawal application forms.

PART 1 OF 2 

Retirement income problems

The federal government has been chipping away at the income of seniors, the latest proposals being the Seniors' Benefit in lieu of the Old Age Security (OAS) and Guaranteed Income Supplements (GIS), changes to the Canada Pension Plan (CPP), and changes to the Income Tax Act. The Seniors' Benefit is still a proposal, but it is expected to come into effect in 2001.

Seniors'-Benefit summary 

• All persons who were age 60 or over as of December 31, 1995, will have the choice of remaining with the current OAS or opting for the new system.

• For those under age 60 as of that date, the OAS and GIS will cease to exist in 2001.

• The amount of the Seniors' Benefit will be based on the income of singles or on the combined income of spouses--a means test based on income and living arrangements.

• The benefit will be non-taxable.

• In addition to the means test, there will be a clawback. The clawback structure is complex, but to give an idea, single seniors with an annual income, other than the Seniors' Benefit, of up to $12,250 or couples with a family income of up to $16,120 will suffer a clawback of 50% of the benefit, i.e., $0.50 for every dollar of outside income.

Both groups with outside income of $25,922 to $78,000 will suffer a clawback of 20% of the benefit. The benefit is completely clawed back at an income of $52,000 for singles and $78,000 for couples.

Compare that with the current clawback of 15% of the OAS starting at $53,215 and ending at $85,000, based on each person's income.

Since the clawback is based on family income, if one spouse has a sufficiently large retirement income, neither spouse will receive the benefit.

Although the Seniors' Benefit is non-taxable all other income is taxable. With the combination of the clawback and the income tax, the tax rate will be much higher.

All persons who have the option of staying with the present system or going to the new should study which option is better for them. Younger persons who will come under the new system should also understand the effect on their retirement incomes and plan accordingly.

The 1997 changes to the Canada Pension Plan will not affect any persons now receiving the CPP. However, future CPP recipients will see a slight decrease in the retirement and survivor pension and in the death benefit.

Also in the year 2001 the $1,000 pension income tax credit and the age 65 tax credit will be eliminated.

The foregoing gives you an idea of the changes facing us over the next few years. The detail will have to await the actual legislation as Mr. Martin has given an indication that he may be willing to modify some of his earlier decisions. If you think there should be changes, make your views known to him as soon as possible.

History 

Up to 1952, one had to pass a means test to receive the old-age pension, as it was known then. Only persons with a low income could receive the pension, and many proud seniors of that time would not apply for the pension.

In 1952, the government did away with the means-tested pension system of the depression years and introduced the universal Old Age Security program that would pay all Canadians age 70 and over--regardless of income--a pension of $40 per month.

At the same time, the method of financing public pensions was changed. Prior to 1952, public pensions were financed jointly by the province and the federal government out of general tax revenues.

As of 1952, OAS would be financed entirely by the federal government, with the revenues being raised through earmarked taxes: 2% sales tax (raised to 3% by 1971), 2% tax on corporate profits (raised to 3% by 1971), 2% surtax on personal income taxes to a maximum of $60 a year (increased to 4%, and $240 annual maximum by 1971).

All who would collect OAS in the future paid for it. The pensions of those already receiving OAS were also paid from the fund. Accordingly, in the early years, OAS had limited impact on general tax revenues, but, at the same time, the OAS account was prevented from developing a large balance to generate investment earnings it would need to pay future costs. In other words, it was a pay-as-you-go system that depended on future generations to pickup any shortfall.

Between 1952 and the mid-'70s, a number of changes were made:

• OAS payments were increased from $40 to $100 (currently $407.15)

• the age was lowered from 70 to 65

• RRSPs were introduced

• CPP and QPP were established in 1966 on a pay-as-you-go basis

• Guaranteed Income Supplements, Spouses' Allowances and the $1,000 pension income tax exemption were introduced.

In the mid-'70s, a series of cutbacks began:

• Visible taxes for OAS were replaced by a hidden tax. The government could then divert funds not immediately required for paying OAS. This practice eventually led to the belief that people who received OAS had made no contribution toward the benefit. This "free-loader" belief made it easier to attack the universal aspect of the program.

• In 1973, increases to OAS were limited to the rate of inflation.

• In the mid-'80s, the income-averaging provision of the Income Tax Act was repealed, and the amount of severance pay that could be rolled into an RRSP was limited.

• In 1989, the fully indexed personal-income-tax structure, with rates varying from 6% to 34% of taxable income, was replaced by a structure with rates varying from 17% for low incomes to 26% for middle incomes and to 29% for upper incomes. To those must be added the provincial tax rates.

• The $1,000 pension income deduction and the age 65 deduction were converted to tax credits, and from 1994 the age tax credit is clawed back.

• In 1989, the deduction of employee CPP contributions was changed to a tax credit; therefore only 17% of the contribution rather than 100% is deductible.

• In 1989, the clawback on OAS began.

Recent changes 

• The Senior's Benefit will replace the OAS and the GIS as of 2001.
• The age-65 tax credit and the pension income-tax credit will be removed in 2001.

• The contribution rate for the CPP has been increased, and the retirement benefit, the death benefit, and the survivor/disability benefit have been reduced.

• To these should also be added the change in age from age 71 to age 69 for conversion of RRSPs, the freezing of the RRSP limits, and the clawback on some veterans' benefits.

Excerpts from a speech by Bruce Watson, president of the Canadian Retired Teachers' Association, to the November 7, 1997, Representative Assembly.

Note: Part 2, the Canadian Retired Teachers' Association position, will be printed in the April issue of Teacher.