Your Inflation Questions
What factors are considered when determining the inflation adjustment?
The adjustment rate depends on three factors:
1. The changes in the cost of living in a given year, as measured by CPI
We use the Consumer Price Index (CPI) because it's prescribed by the terms of the plan and it's the most widely-used indicator of price changes in Canada. The CPI represents a weighted basket of goods and services typically purchased by Canadian households each month.
2. The plan's funding status
We use inflation protection as a lever to keep the plan sustainable. When the plan has a funding shortfall, smaller cost-of-living adjustments help to bring the plan back into balance. When there's a funding surplus, inflation levels may be partially or fully restored.
3. When you earned your pension credit
There are three levels of inflation protection and they're based on when you earned pension credit: before 2010, during 2010 to 2013, and after 2013.
|When you earned your pension credit||Inflation protection level||What it means after you retire|
|Before 2010||100%||This portion of your pension will keep pace with annual increases in the CPI.|
|During 2010-2013||50% to 100%||This portion of your pension will receive at least 50% and up to 100% of the annual increase in the CPI, depending on the plan's funded status.|
|After 2013||0% to 100%||This portion of your pension will receive from zero to 100% of the annual increase in the CPI, depending on the plan's funded status.|
How is the annual adjustment calculated?
We take the following steps to determine the annual cost-of-living adjustment.
Step 1: Calculate inflation factor
We compare the average monthly CPI for the 12 months ending in September to the 12-month average a year earlier. We then divide the two averages to get the inflation factor.
Here's how the factor was determined for the 2019 baseline cost-of-living adjustment.
132.7 Average monthly CPI for 12 months ending in September 2018
÷ 129.9 Average monthly CPI for 12 months ending in September 2017
= 1.022 Inflation factor
Step 2: Convert factor to a percentage
To communicate the size of the adjustment, we convert the factor to a percentage. Here's how the factor is expressed as a percentage, using the 2019 inflation adjustment.
(2019 inflation factor – 1) X 100 = Percentage increase in 2019
(1.022 – 1) X 100 = 2.2%
Step 3: Convert percentage to reflect conditional inflation protection for service after 2009
For pension credit earned after 2009, inflation protection is conditional based on the plan's funding status. For pension credit earned during 2010 to 2013, it can range from 50% to 100% of the inflation rate. For pension credit earned after 2013, it can range from 0% to 100%. For 2019, the conditional inflation level is 100% for both periods.
2019 rate X Conditional inflation percentage for post-2009 service = Percentage adjustment in 2019 for post-2009 service
2.2% X 100% = 2.2%
What is conditional inflation protection?
The inflation protection that some retirees receive on a portion of their pension is conditional on the plan's ability to provide it.
Pension credit earned before 2010 is fully protected against inflation, while pension credit earned after 2009 includes conditional, or variable, inflation protection.
Does inflation protection get banked for future years? As an example, the inflation increase retirees received on January 1, 2018 was 100%. Does that mean the service I earned in 2018 will always receive the full inflation adjustment during my retirement?
No, inflation protection doesn’t get banked. On a regular basis we check our financial health to ensure we can pay pensions for your lifetime and beyond. Some years will be better than others. Our plan sponsors, Ontario Teachers Federation and the Ontario government, adjust inflation protection in times of funding surpluses and shortfalls. Changes in inflation protection levels can only be made when valuation reports are filed with the regulators.
The sponsors have also used surpluses to “boost” pensions for retirees who may have had a year where they received an adjustment less than 100% of the Consumer Price Index (CPI) to the level they would have been at had full inflation protection been provided. In a nutshell, income tax laws prohibits us from repaying you the difference, but with the boost your next cost-of-living increase is calculated on a higher base pension.
What happens if I retire in 2018?
If you retire from teaching in 2018, your adjustment will be prorated. You'll receive the adjustment for the time you were on pension in 2018.
Why do adjustments vary from reported inflation rates?
Many pensioners wonder why their annual adjustment seldom matches the rate of inflation reported in the media. Sometimes it'll be higher and sometimes it'll be lower. That's because the media compares the CPI for the current month to the same month a year earlier. We compare the average monthly CPI for the 12-month period ending in September to the 12-month average a year earlier, effectively smoothing the adjustment from year to year.
Is there a limit on annual increases?
Increases are capped at 8%. If inflation is greater than 8%, the excess amount is carried forward to a year in which inflation is less than 8%.
What happens if inflation falls below zero?
The same type of limit applies for pension adjustments in the case of "negative" inflation (or deflation) as with positive inflation.
If inflation is less than 0%, pensions remain at their current levels and the percentage below zero is carried forward to a year in which inflation is positive.
How much has my pension changed over the years?
Sign in to your Ontario Teachers' account to see how much your pension has changed over the years as a result of annual inflation adjustments.
What are all the historical inflation rates ever used?