Subject: Your December 21, 2006 e-mail
May 16, 2007
Mr. Dale Dirks
Dear Mr. Dirks:
Thank you for your correspondence of December 21, 2006 regarding the interaction between your military pension benefits and the Canada Pension Plan, and why your military pension was adjusted after you turned 65. Please excuse the delay in replying.
Pension plans, private (employer sponsored) and public, are designed with the same primary objective - to provide post-retirement income. Following federal and provincial pension legislation, the majority, if not all of, employer sponsored pension plans in Canada (including those of public servants, military personnel and police officers) allow for an integration between private pension plans and public pension (e.g. the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP)) to ensure a level of post-retirement income that replaces a substantial proportion of pre-retirement income at a reasonable cost to the contributor. In all
cases, all employees, including the military pay CPP contributions. This means a private pension plan can take into account benefits that their members will receive at age 65 from the CPP when determining contribution rates and benefits. As a result, employee contribution rates (the premiums paid during employment) are lower and employer-sponsored pension benefits are reduced at age 65 so that the combined amount remains roughly the same. This practice is consistent among pension plans, both in the private and public sectors and under both federal and provincial pension legislations. Under most plans, individuals who chose to apply for CPP before age 65 benefit from their unreduced employer pension and the CPP until they turn 65. At age 65 - the normal age of eligibility for CPP - the employer pension is reduced by a standard formula to reflect the fact that contributions have been made at a reduced rate on earnings up to the CPP pensionable maximum. If no integration existed and private pension plan benefits were not reduced, employees would have had to make larger contributions over their career to fund their pension benefit. These larger contributions would be in addition to their CPP contributions.
I have forwarded a copy of your correspondence to my colleague, the Honourable Gordon O'Connor, in his capacity as Minister of National Defence, given your pension plan is regulated by the Canadian Forces Superannuation Act (CFSA) which is administrated by his department.
Thank you for communicating your concerns.
James M. Flaherty
c.c. The Honourable Gordon O'Connor, P.C., M.P.