The Retirees' Newsletter Page 5

The Faculty and Librarian Retirees' Association, University of Windsor, Windsor, Canada

Vol VII, Issue No.2 -- April, 1997

HOW DOES MY PENSION CHANGE OVER THE YEARS?

LET US LOOK AT WHAT HAPPENS during the next year, that is, the year after your retirement.

What happens to your Money Purchase Pension? Since you are now retired and not getting a salary, no more deposits will be made by you or, on your behalf, by the University, to your Money Purchase Account. However, at the end of this (fiscal) year, the money in your account will be increased by the net interest earned by being invested as part of the Pension Fund, and your Money Purchase Pension 1 will thus increase by the same amount.

What happens to your Minimum Guaranteed Pension? The increase in this pension will be no more than the increase in the Cost of Living, the exact relationship being whatever was agreed upon in the pension plan. Such increase is seen in FIGURE 2.

AT RETIREMENT, normally one's Minimum Guaranteed Pension2 is higher than one's Money Purchase Pension 1 . Also, normally though not necessarily, the rate of increase at the end of the fiscal year is less for the Minimum Guaranteed Pension 2 than for the Money Purchase Pension 1. Let us suppose that this is the situation.

If we return to FIGURE 2, we see that the pension you will be getting after 1 year of retirement will still be pension 2, the Minimum Guaranteed Pension, since it is greater than pension 1, the Money Purchase Pension. However, it will be slightly more than you got the previous year, due to the increase in the cost of living.

You will continue getting the Minimum Guaranteed Pension 2 year after year until, as in FIGURE 3, pension 1 overtakes pension 2 . Say this happens at year "n" after retirement.

NOW THE PENSION YOU WILL BE GETTING after n years of retirement will be the Money Purchase Pension 1, since it is now more than the Minimum Guaranteed Pension 2.

What Happens after Year n, the Year the Money Purchase Pension overtakes the Minimum Guarantee Pension? You will continue to get the Money Purchase Pension 1 as long as it is higher than the Minimum Guaranteed Pension 2 . You will receive the full benefit of earnings of the Pension Fund.

HOWEVER, IF THE PENSION FUND SHOULD SUFFER A LOSS in any particular year, you must be prepared for a corresponding decrease in your (Money Purchase) Pension.

Nevertheless, if losses in the Pension Fund result in a decrease in your Money Purchase Pension which brings it lower than your Minimum Guaranteed Pension, you will get your Minimum Guaranteed Pension, because this is the least you could receive under the plan.

NORMALLY, ONCE YOU GET ON THE MONEY PURCHASE PENSION, you stay there and receive the full impact of Pension Fund earnings. However, you must also be prepared to accept infrequent loss.

NEXT QUESTION: When does year "n" occur? Is there any reasonably reliable way of predicting it? This will be taken up in the next instalment, which will be carried in Newsletter Vol. VII, Issue 03, for June, 1997.

* A PORTION OF THIS 6% DEDUCTION WAS SENT TO THE CANADIAN GOVERNMENT AS YOUR CONTRIBUTION TO THE CANADA PENSION PLAN. AS A RESULT OF THESE CONTRIBUTIONS, YOU GET, ON RETIREMENT, ADDITIONAL PENSION CALLED CANADA PENSION.

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