A: Annual increases to pensions in pay are calculated by comparing the average Consumer Price Index (CPI) for the 12-month period ending in September to the previous 12-month average (the CPI Ratio). This approach smooths out short-term volatility and is similar to the approaches used by many large pension plans. The current high levels of inflation will be factored into future increases to pensions as they flow into the averaging period.
The level of inflation protection provided to members is a plan sponsor decision. When the plan has a funding shortfall, smaller cost-of-living increases help to bring the plan back into balance. When there is a funding surplus, inflation levels may be partially or fully restored.
Pension credit earned before 2010 is 100% protected against inflation. Annual cost-of-living increases for pension credit earned after 2009 are conditional and depend on three factors:
1. Changes in the cost of living, as measured by the CPI Ratio as defined above.
2. The plan’s funding status, which is used to gauge how much of the CPI Ratio the plan can afford to provide.
3. When you earned your pension credit.
Inflation Protection Levels
Earned before 2010
Earned during 2010-2013
50% to 100%
Earned after 2013
0% to 100%
*Percentage of the CPI Ratio.
The current 100% inflation level will remain in effect at least until the next funding valuation is filed with the regulators. A funding valuation must be filed at least once every three years.
IMPACT ON YOUR PENSION
To see how inflation increases affect your annual pension, register or sign in to your online member account.