Every January, after you retire, a cost-of-living increase will be applied to your pension. This will help protect your purchasing power in retirement.

Increases are based on changes in the Consumer Price Index (CPI), the most widely used measure of inflation in Canada. The CPI, calculated by Statistics Canada, measures the percentage change, over time, of a weighted basket of goods and services purchased by a typical consumer. The all-index CPI we use measures 600 items, including food, shelter, clothing, furniture, transportation, gas, home energy and recreation.

How is the CPI applied?
There are two components to inflation protection:

1. The portion of your pension credit earned until the end of 2009 is 100% protected against increases in the cost of living, as measured by the CPI.
   
   
2. The level of inflation protection provided for the portion of your pension credit earned after 2009 will depend on the funded status of the plan. Annual cost-of-living increases for pension credit earned after 2009 will be between 50% and 100% of the change in CPI, depending on the funded status of the plan.
   

A reduced level of inflation protection will remain in effect until a financial assessment, called a funding valuation, shows there are sufficient funds to provide full inflation protection again.

The Ontario government and designated employers that participate in the plan will continue to share pension costs. They will make extra contributions equal to the total cost of inflation increases that retirees forgo. For example, if the pension plan paid $500,000 less in inflation payments, the government and designated employers would contribute an extra $500,000 to the fund.

2012 adjustment
The Ontario Teachers' Federation (OTF) and Ontario government, which jointly sponsor the pension plan, invoked conditional inflation protection, along with other measures, to help address the 2011 funding shortfall.

Beginning with the 2012 inflation adjustment, pensioners who retired after 2009 will receive 60% of the annual cost-of-living increase on the portion of their pension credit earned after 2009. This means pensioners who retired after 2009 will receive slightly smaller cost-of-living increases for the next three years (approximately $2 a month less for a typical pensioner). The level of inflation protection provided for credit earned after 2009 will be re-assessed the next time the plan files a funding valuation, which can be no later than 2014.

For more details, read:
Funding problems persist
Top plan funding Q&As