Inflation Protection Scenarios

Louise, Jason and Chloe are at different stages in their careers. Each will be affected differently by the plan's inflation provision after they retire. For simplicity, we assume each retires with a $50,000 annual pension after 25 years of full-time teaching. Here's how their annual inflation adjustment will be calculated:

  1. We determine the base inflation adjustment. In the examples below, we assume the annual inflation adjustment is 2% (CPI).
  2. OTF and the Ontario government set the level of inflation protection for the year, based on the plan's funding status. Let's assume the sponsors agree to provide smaller inflation increases to keep the plan sustainable. In these examples, we assume the plan will provide the following inflation increases:
    • 90% for pension credit earned during 2010 to 2013; and
    • 90% for pension credit earned after 2013.

    Pension credit earned before 2010 is 100% protected against inflation.

    Using our example of 2% inflation, the annual pension increase for retirees will include:

    • 2% for any pension credit earned before 2010;
    • 1.8% for any pension credit earned during 2010 to 2013 (90% of 2%); and
    • 1.8% for any pension credit earned after 2013 (90% of 2%).
  3. Now that we know the base inflation adjustment and the level of inflation protection to be provided, we can calculate the annual increase for our three members – Louise, Jason and Chloe – based on when they earned their pension credit.

Note: The figures used in the following examples are provided for illustrative purposes only. We won't know the actual inflation adjustment these teachers will receive for post-2009 credit until the increase is determined each year after they retire.

Louise: Our late-career teacher

Louise earned 75% of her pension credit before 2010, 15% during 2010 to 2013 and 10% after 2013. That means 75% of her pension will be fully protected against inflation throughout her retirement and the remaining 25% will be conditionally protected. Here's how her annual pension increase will be calculated.

When Louise earned
her pension credit
Inflation
level: % of CPI
How we calculate the increase:* Her pension increase
When Louise earned her pension credit 75% earned before 2010 Inflation level: % of CPI 100%=2.0% How we calculate the increase:* $50,000 X 2.0% X 75% Her pension increase $750
When Louise earned her pension credit 15% earned during 2010-2013 Inflation level: % of CPI 90%=1.8% How we calculate the increase:* $50,000 X 1.8% X 15% Her pension increase $135
When Louise earned her pension credit 10% earned after 2013 Inflation level: % of CPI 90%=1.8% How we calculate the increase:* $50,000 X 1.8% X 10% Her pension increase $90
Total pension increase: $975
*Pension X inflation level X % of credit

Jason: Our mid-career teacher

Jason earned 45% of his pension credit before 2010, 15% during 2010 to 2013 and 40% after 2013. That means 45% of his pension will be fully protected against inflation throughout his retirement and the remaining 55% will be conditionally protected. Here's how his annual pension increase will be calculated.

When Jason earned
his pension credit
Inflation level: % of CPI How we calculate the increase:* His pension increase
When Jason earned his pension credit 45% earned before 2010 Inflation level: % of CPI 100%=2.0% How we calculate the increase:* $50,000 X 2.0% X 45% His pension increase $450
When Jason earned his pension credit 15% earned during 2010-2013 Inflation level: % of CPI 90%=1.8% How we calculate the increase:* $50,000 X 1.8% X 15% His pension increase $135
When Jason earned his pension credit 40% earned after 2013 Inflation level: % of CPI 90%=1.8% How we calculate the increase:* $50,000 X 1.8% X 40% His pension increase $360
Total pension increase: $945
*Pension X inflation level X % of credit

Chloe: Our early-career teacher

Chloe earned 12% of her pension credit during 2010 to 2013 and 88% after 2013. That means 100% of her pension will be conditionally protected against inflation after she retires. Here's how her annual pension increase will be calculated.

When Chloe earned
her pension credit
Inflation
level:
% of CPI
How we calculate
the increase:*
Her
pension
increase
When Chloe earned her pension credit 0% earned before 2010 Inflation level: % of CPI N/A How we calculate the increase:* N/A Her pension increase N/A
When Chloe earned her pension credit 12% earned during 2010-2013 Inflation level: % of CPI 90%=1.8% How we calculate the increase:* $50,000 X 1.8% X 12% Her pension increase $108
When Chloe earned her pension credit 88% earned after 2013 Inflation level: % of CPI 90%=1.8% How we calculate the increase:* $50,000 X 1.8% X 88% Her pension increase $792
Total pension increase: $900
*Pension X inflation level X % of credit