If your marital status has changed due to separation or divorce, be aware that under Ontario law, the value of the pension earned while married must be included in the calculation of family property. Click the link below to learn about the process to follow should you find yourself in this situation, and your province of employment is Ontario.
You are retired and collecting a pension
As a retired member of the CAAT Plan, you have access to a stable source of income from the time you retire for the rest of your life. It comes with annual increases to offset inflation and includes survivor benefits to continue payments to your spouse when you die.
Your pension receives conditional inflation protection increases
Inflation refers to the increase in the prices of goods and services over time. Pension plans can help offset the negative impact of inflation by providing inflation protection, also known as indexation.
Inflation protection is the periodic increase of a pension payment that reduces the erosion of the buying power of your pension that inflation causes.
In the CAAT Plan, when members retire, their initial pension payment is called the "lifetime pension". Inflation protection, when it is granted, is added to the lifetime pension each year that the CPI has increased, and the new amount is the new lifetime pension. In other words, inflation protection is cumulative. Once inflation protection has been paid, it is a permanent addition to your retirement income.
Increases are conditional on affordability – the Plan’s funded status must be at level 2 and above on the Funding Policy. The most recent valuation guaranteed funding until at least January 1, 2022.
How the annual increase is determined
Consumer Price Index
The inflation protection increase paid by the Plan is equal to 75% of the percentage change in the Consumer Price Index (CPI) during the year.
Inflation protection is calculated based on changes to the previous year’s Consumer Price Index. The CPI, calculated by Statistics Canada, is considered a reliable measure of inflation, and indexation is designed to help protect the value of pensions from eroding due to inflation.
The CPI is the basis for the inflation protection calculation. Statistics Canada tracks the cost of a fixed "basket" of consumer goods and services (food, housing, etc.) and calculates the average change in prices. Each month, the CPI for the previous month is produced and used to measure the behaviour of inflation in Canada.
The average method - Inflation protection is calculated using a method called the “average method.” The average CPI for the 12 month period ending in September of the current year is compared to the average of the 12 month period ending in September of the previous year.
Maximum inflation protection increase
The maximum increase in a year is 8%. In years when inflation is high, any amount above the 8% would be carried forward and applied to inflation protection in following years. This carry forward is referred to as “banking.” In recent years, when inflation has been low, the increase has rarely risen above 2%. If there is no increase in the September CPI of a given year, there will be no increase to pensions in the following year.
The CAAT Plan inflation protection rate for 2020 is 1.47%.
Your pension is subject to income tax
Each month, income tax will be deducted from your pension payment.
In February of each year, you will receive a T4A tax slip which indicates the total pension paid to you and the tax deducted from your pension during the year. These slips are required for completing your income tax return and filing it with the Canada Revenue Agency.
You may choose to increase the amount deducted from your pension, especially if you receive income from other sources, such as investment and employment earnings.
Income splitting Q&A
Read the top questions we've received about income tax splitting in retirement:
Canadians who receive pension income that qualifies have the ability to allocate up to 50% of that income to their spouse or common-law partner. As a rule, pension income from the higher-earning spouse can be claimed by the lower-earning spouse to reduce the overall tax payable by the couple.
Most Canadian pensioners who are married or living in a common-law relationship (as defined by the Canada Revenue Agency) qualify for pension income splitting. The individuals must not be living separate and apart, and must both be Canadian residents.
Depending on your age and the age of your spouse, certain types of income will qualify for pension income splitting. Pensioners aged 65 and older can split income from their registered pension plan (the CAAT Plan, for example) and from registered retirement savings plans, registered retirement income funds, and life income funds. Pensioners under 65 are generally limited to income from registered pension plans and certain qualifying death benefits.
Note that income from Old Age Security (OAS) and Canada Pension Plan (CPP) are not eligible to be split.
The ultimate decision of whether or not to split your pension is up to you and your spouse, however you may wish to consult a financial advisor for more information. When making the decision, it's important to consider other tax calculations that may be affected by pension income splitting, such as medical credits and instalment payments. It will be important to remember that only one spouse can split his or her pension income with the other, so if both you and your spouse receive a pension, you have to decide which one will split the income with the other. Since your situation may change from year to year, it's a good idea to reassess the benefits of splitting your pension as part of your ongoing financial planning.
If I don't have a spouse, can I split my pension income with someone else?
No. Eligible pension income can only be split with a legal or common-law spouse.
If you wish to split your pension from the CAAT Plan, you can do it each year when you file your income taxes. Both you and your spouse complete and sign the form T1032 Joint Election to Split Pension Income, which should be included in your income tax package. You must both include a copy of the form with your returns each time you file.
Contact the Canada Revenue Agency directly for details about your income taxes and pension income splitting.
Keeping in touch with your pension plan
If you need to update your information with the Plan, or make changes to your pension payment, contact us.