Teachers see reduction in pension contributions

October 11, 2016 ATA Teacher Welfare Staff

Teachers who reviewed their first pay statement for the 2016–17 school year may have noticed that they are paying less in pension contributions. Effective Sept. 1, 2016, contributions to the Alberta Teachers’ Pension Plan have been reduced.

Pension contributions are made up of two parts–payments to fund current service as it is earned and contributions to fund any deficiencies in the plan related to past service. Pension plans have 15 years in which to make up deficiencies. The reduction to pension contributions, which amounts to 0.78 percentage points for teachers and 0.7 percentage points for the Alberta government, is the result of solid investment returns over the previous four years ending Aug. 31, 2015. The plan saw an annualized average rate of return of 12 per cent over the last four years. As a result of those better-than-average returns, the plan was able to eliminate a portion of its deficiencies sooner than expected, paying off completely the deficiency that would have ended in 2017 and a paying off a large portion of the deficiency ending in 2019.

Teachers will now see their average contribution rates drop from 13.46 per cent of their salary to 12.68 per cent. The combined contribution rates that are shared by both government and teachers totals 24.63 per cent of salary. Current service costs are 17.12 per cent of that salary amount while deficiency contributions are 7.51 per cent. Teacher contribution rates to their pension are based on the chart below.

Pension contribution rates
% of teacher’s salary
 Teacher contribution  September 2015  September 2016
 Salary up $54,900  11.44  10.74
 Salary above $54,900  16.34 15.34

$54,900 is the Yearly Maximum Pensionable Earnings used for 2016 by the Government of Canada for contributions to the Canada Pension Plan.

Last year, the yearly pension contribution for a first-year teacher with six years of education would have been approximately $8,200, while a first-year teacher in 2016–17 will contribute approximately $7,650. Last year, a teacher at the top of the grid with six years of university would have contributed approximately $14,000, whereas that same teacher will contribute approximately $13,000 this year.

Teachers cannot assume that these better-than-average returns will continue in the future. The pension plan, like other pensions, continues to see low interest rates and low market returns. Pension contribution rates are based on an assumed long-term return rate, which is 6 per cent in this case. If those return rates are not met, contributions would have to increase to cover the deficiency.❚

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