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Individual
Pension Plan (IPP) Benefits
Normal
Retirement Benefits
Benefit
Formula:
The
benefits under IPPs are based on a 2% earnings formula. All
benefits for a non-connected person can be based on the best 3-year
average indexed earnings. For a connected person, while
benefits for pre-1991 pensionable service (if eligible) can be based
on best average 3-year indexed earnings, the benefits for post-1990
pensionable service cannot be based on best 3-year average indexed
earnings. Post-1990 benefits for a connected person must be
based on "indexed earnings" for each year.
The
following examples use a calculation date of January 1, 2003 when
the maximum pension limit was 1,722.22. To find the current maximum
pension limit take one ninth (1/9) of the Money Purchase Limit (MP
Limit) found on the
CRA website.
Example
(Non-Connected Member):
A
non-connected member retires at age 65 from an IPP as at January 1,
2003 with the following personal information:
Pensionable
service (total): 27 years 6 months
Best
3-year average indexed earnings: $80,000
His
pension benefits would be calculated as follows:
For
each year of pensionable service, the member will receive $80,000
x 2% or $1,600.00 of annual pension. For a total pensionable
service of 27.5 years, the member would receive $44,000.00 ($1,600.00
x 27.5) of annual pension.
Please
note that the pension amount can not exceed the Income Tax
Act's Maximum Pension Limit. For example, if the member
had best 3-year average indexed earnings of $100,000.00 instead of
$80,000.00, the member's annual pension per year of pensionable service
would be limited to the current maximum pension limit of $1,722.22
instead of $2,000.00 (which is 2% of $100,000.00). The member's
annual pension would be $47,361.05 ($1,722.22 times 27.5 years of
pensionable service).
Example
(Connected Member):
A
connected member retiring at age 65 has an IPP as at January 1, 2003
with the following personal information:
Pensionable
service: Pre-1991 - 15 years 3 months (fully pensionable, not 2/3
pensionable)
Post-1990 - 12 years
Best
3-year average indexed earnings: $125,000
Pensionable
earnings for post-1990 pensionable service:
| Year |
Earnings |
| 1991 |
$50,000 |
| 1992 |
$60,000 |
| 1993 |
$60,000 |
| 1994 |
$65,000 |
| 1995 |
$65,000 |
| 1996 |
$70,000 |
| 1997 |
$70,000 |
| 1998 |
$125,000 |
| 1999 |
$100,000 |
| 2000 |
$80,000 |
| 2001 |
$80,000 |
| 2002 |
$80,000 |
The
annual pension amount is calculated as follows:
For
pre-1991 service, the benefit is 2% of best 3-year average indexed
earnings per year of service, i.e. $125,000 x 2% = $2,500.00.
However, this amount is in excess of the current Maximum
Pension Limit of $1,722.22 of annual pension per year of pensionable
service. The unit pension is capped at $1,722.22 to arrive
at an annual pension of $26,263.86 ($1,722.22 per year x 15.25 years)
for pre-1991 pensionable service.
| Year |
Earnings |
Wage
Index Increase |
Indexed
Earnings |
Accrued
Annual Pension (2%) |
| 1991 |
$50,000 |
29.81% |
$64,907 |
$1,298.14 |
| 1992 |
$60,000 |
23.81% |
$74,285 |
$1,485.69 |
| 1993 |
$60,000 |
19.35% |
$71,609 |
$1,432.18 |
| 1994 |
$65,000 |
15.87% |
$75,315 |
$1,506.30 |
| 1995 |
$65,000 |
14.30% |
$74,295 |
$1,485.90 |
| 1996 |
$70,000 |
12.63% |
$78,844 |
$1,576.88 |
| 1997 |
$70,000 |
11.34% |
$77,935 |
$1,558.70 |
| 1998 |
$125,000 |
8.36% |
$135,448 |
$1,722.22* |
| 1999 |
$100,000 |
6.95% |
$106,946 |
$1,722.22* |
| 2000 |
$80,000 |
5.90% |
$84,721 |
$1,694.42 |
| 2001 |
$80,000 |
3.93% |
$83,144 |
$1,662.88 |
| 2002 |
$80,000 |
1.90% |
$81,523 |
$1,630.47 |
| Total |
|
|
|
$18,776.00 |
* Limited
to the current Maximum Pension Limit of $1,722.22 of annual pension
per year of pensionable service because 2% of Indexed Earnings exceed
the Maximum Pension Limit.
The
total pension amount is therefore $45,039.86 per annum ($26,263.86
for pre-1991 and $18,776.00 for post-1990) or equivalently $3,753.32
per month. This is payable under the normal form of pension.
Early Retirement Benefits
The
IPP member can retire as early as age 50. The benefit at early
retirement would be the pension that is actuarially
equivalent to the pension payable at normal retirement age (65).
At the discretion of the Company, the early retirement reduction
factor can be eliminated or reduced to provide an enhanced early
retirement pension that is higher than the actuarial equivalent
amount. A bridge benefit may also be provided for the pre-65
period. Please note that the cost for these enhancements in
excess of any surplus that exists in the plan at the time of early
retirement may require terminal funding from the Company.
Full
unreduced pension can be paid at age 60 or even earlier if certain
service or age plus service conditions are satisfied. The
minimum required reduction under income tax legislation for early
retirement is ¼% per month (3% per year) that the early retirement
date precedes the earliest of:
- age
60 [55],
- 30
[25] years of service,
- age
plus service equals 80 [75] years, and
- date
of total and permanent disability (non-connected person only).
Please
note that the figures in [square brackets] are for public safety
occupations only.
Benefit
Options
The
benefit options available on termination, retirement or termination
of the pension plan are as follows:
Normal
Form Of Pension
The
normal form is a pension payable as follows:
a)
Life annuity guaranteed 15 years if member does not have a spouse;
or
b) Joint survivor annuity with 2/3 continuation to surviving spouse
with a 5-year guarantee if member has a spouse.
The
pension is indexed at the increases in the Consumer Price Index
(CPI) less 1% after commencement. At the discretion of the
employer, this may be enhanced to full CPI. This improvement
may trigger additional funding by the employer.
At retirement the member is allowed to have an irrevocable election
on the form of pension. For example, the IPP member can elect
a joint-survivor 100% (instead of 2/3) at a reduced amount.
Death Benefits
The
value of pre-retirement death benefits is equal to the commuted value of the member's accrued pension
payable at age 65. Please note that under most pension legislation
the primary beneficiary for death benefits is the spouse, unless
a spousal waiver form is signed to allow designation of other beneficiaries.
Post-retirement
death benefits depend on the pension option elected by the member
at retirement. For example, if it is a life annuity with a
guarantee period, the remaining guarantee period will be paid to
the designated beneficiary or estate. If it is a joint-survivor
annuity, pension at a pre-selected continuation percentage at retirement
will be continued to be paid to the spouse, if then living, for
the spouse's remaining lifetime.
Termination
Benefits
The
member can elect either a deferred pension commencing at normal
retirement date (age 65) equal to the amount of accrued pension
or a lump sum equal to the commuted value of the member's accrued pension
payable at age 65.
Surplus
Ownership
The
standard Westcoast Actuaries Inc. Individual Pension Plan (IPP)
stipulates that the member owns all the surplus under the plan.
The residual assets after the last death will be paid to the beneficiary
or estate of the last survivor (the pensioner or the surviving spouse).
Therefore, the IPP is more or less on a "consumption" basis like
an RRSP. All assets in the plan will eventually be paid to
the member (pensioner), the surviving spouse or the beneficiary
or estate of the last survivor so there is no loss or forfeiture
in the value of the pension.
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