How is your pension calculated?
As a new member of the PSPP, you should understand how we calculate your pension. That's why we’ve outlined our full Plan formula below. Since our Plan is integrated with the Canada Pension Plan (CPP), you’ll notice that there are two formulas – one before age 65, which includes the early retirement bridge benefit, and one that shows the lifetime pension you’ll receive from age 65 (after your bridge benefit ends).
There are two key factors in determining how much pension you’ll receive – your average salary and years of service in the Plan.
If you retire before you reach age 65 (the normal retirement age), your pension will be calculated using the formula below.
Your PSPP basic pension (which includes bridge benefit) is payable up to age 65, when the bridge benefit ends.
| 2% of your average annual salary | × | Your pension credit | = | Your PSPP basic pension |
Example 1 - Normal retirement at age 65
Tracy is 65 years old with an average annual salary of $95, 000. With 25 years of pension credit, here is how their pension would be calculated:
| Scenario | Calculation | Totals |
|---|---|---|
| Age: 65 Average annual salary: $95,000 Pension credit: 25 years Average YMPE: $66,666.67 |
2.0% multiplied by $95,000 multiplied by 25 years MINUS (0.7% multiplied by $66,666.67) multiplied by 25 years |
$47,500.00 $11,666.67 |
| Annual lifetime pension | $35,833.33 |
CPP integration: Your basic pension includes the lifetime pension plus a bridge benefit. The bridge benefit is intended to supplement your income until age 65, when you can start collecting an unreduced CPP pension.
Bridge benefit
| 0.7% of the average YMPE or your average annual salary, whichever is less | × | Your pension credit (to a maximum of 35 years) |
Your lifetime pension: Your lifetime pension is payable from age 65, when the bridge benefit ends.
| Your PSPP basic pension | − | Bridge benefit, which ends at age 65 | = | Your annual PSPP lifetime pension |
Example 2 - Early reduced pension at age 60
Jordan is 60 years old with an average annual salary of $95, 000. With 15 years of pension credit, here is how their pension would be calculated, with and without the bridge benefit:
| Scenario | Calculation | Totals |
|---|---|---|
| Age: 60 Average annual salary: $95,000 Pension credit: 15 years Average YMPE: $66,666.67 |
Pension before age 65: 2.0% multiplied by $95,000 multiplied by 15 years MINUS early retirement reduction: 5% per year X retires 5 years early (age 60 to 65) X $28,500 |
$28,500.00 $7,125.00 |
| Annual pension payable before age 65 (When this member turns 65, the pension will be recalculated to reflect the adjustment for CPP integration and the early retirement reduction) |
$21,375.00 | |
| Pension before age 65: 2.0% multiplied by $95,000 multiplied by 15 years MINUS early retirement bridge benefit: (0.7% multiplied by $66,666.67) multiplied by x 15 years |
$28,500.00 $7,000.00 |
|
| Subtotal MINUS early retirement reduction: 5% per year X retires 5 years early (age 60 to 65) X $21,375.00 | $21,375.00 $5,375.00 |
|
| Annual pension payable after 65: $16,125.00 |
To learn more about reduced early retirement, visit our Types of Retirement page.
Below are definitions of some key words to help you understand how we calculate your pension.
What is CPP integration?
CPP integration refers to how the PSPP and CPP plans work together during your working years, early retirement and after age 65. Your PSPP basic pension includes:
- The lifetime pension, available from the date you retire
- If you retire early, an early retirement bridge benefit, available from your early retirement date up to age 65 (once you turn 65, the bridge benefit ends)
This bridge benefit helps supplement your retirement income until you reach 65 and are eligible for an unreduced CPP pension.
If you collect both your PSPP and CPP pensions before age 65, there will be a reduction to your combined PSPP and CPP pension income at 65, when the early retirement bridge benefit ends.
What is an average annual salary?
It’s the average of your annual salary for your best five consecutive years of membership in the Plan and, in certain cases, previous pension plan membership. Average annual salary excludes overtime pay, payments in lieu of benefits or payments that aren’t part of your regular annual salary.
What is pension credit?
Pension credit is the number of years and months that you (or your employer on your behalf) contributed to the Plan. If you hold a regular part-time position, the pension credit you receive will be pro-rated, based on the regular full-time hours for your position. Pension credit also includes any credit you've purchased or transferred into the PSPP from another pension plan.
What is the average YMPE?
The average of the year's maximum pensionable earnings (YMPE) in the year you stop being a PSPP member and the two previous years. The YMPE is the earnings limit set by the federal government each year to determine the maximum CPP contributions and benefits.