All active members of the McGill University Pension Plan are reminded that effective January 1, 2013, employee contribution rates will be increasing. These changes were announced in the Notice of Amendment No. 24 to the Pension Plan which was sent to all members in July 2011.
Why is it important to save for retirement?
Pension specialists agree that you need about 70% of your gross pre-retirement income in order to maintain the same standard of living at retirement. The amount required at retirement depends on your retirement goals and the standard of living you would like to maintain at retirement. What do you dream of doing at retirement? If you plan on travelling the world, you may need more than 70%. If you like to do activities around the house, you may need less. This is why establishing a retirement goal, reviewing and adjusting it on an annual basis is important. The plans offered by the government (Old Age Security and Quebec Pension Plan) account for a portion of the 70%, however, your personal savings, including funds in your McGill pension plan, make up the rest.
How much should I be saving?
A 2010 Towers Watson Capital Accumulation Plan Survey revealed that the contribution rate required in a defined contribution plan to replicate an average defined benefit pension is between 14 and 16%. The upcoming changes to employee contribution rates will help members achieve this target.
What are the new employee contribution rates?
|
Employee Contribution |
University Contributions | ||
| Age Group |
NEW RATES |
FORMER RATES |
NO CHANGE |
| Up to age 39 |
5.0% – no change |
5.0% |
5.0% |
| Age 40 to 49 |
7.0% |
5.0% |
7.5% |
| Age 50 to 65 |
8.0% |
5.0% |
10.0% |
|
Less 1.8% of earnings subject to Quebec Pension Plan (QPP) contributions |
Less 1.8% of earnings subject to QPP contributions |
Less 1.8% of earnings subject to QPP contributions |
|
The Year’s Maximum Pensionable Earnings [YMPE] is the limit on which you make contributions to the Quebec Pension Plan. This figure is adjusted each year by the Quebec Pension Plan. Until you reach the YMPE in a given year, the contributions listed above are reduced by 1.8%. Once you reach the YMPE, the full contributions above are deducted until the maximum contribution limit allowed for the year is reached. For 2012, calculations were based on a YMPE of $50,100; for 2013 it was $51,100.
How will this change affect my take-home pay?
You don’t pay tax on pension contributions if they’re within the limits allowed under tax law. The limit on combined employer and employee contributions is 18% of your earned income for the year, to a maximum dollar contribution limit (see Pension Plan Brochures for current limits). If your contribution limit is reached at any point during the year, contributions are stopped for the remainder of the year.
| Example of semi-monthly contribution increases, based on 24 pay periods: | ||||||||||
|
Annual Earnings |
Up to age 39 – NO CHANGE |
Age 40 to 49 |
Difference per Pay [2013] – 24 pays |
Age 50 to 65 |
Difference per Pay [2013] – 24 pays |
|||||
| 2012 | 2013 | 2012 | 2013 | Gross | Net | 2012 | 2013 | Gross | Net | |
| $40,000.00 | $1,168.00 | $1,168.00 | $1,280.00 | $2,080.00 | $33.33 | $23.82 | $1,280.00 | $2,480.00 | $50.00 | $35.74 |
| $65,000.00 | $2,411.20 | $2,393.20 | $2,411.20 | $3,693.20 | $53.42 | $32.92 | $2,411.20 | $4,343.20 | $80.50 | $49.61 |
| $90,000.00 | $3,661.20 | $3,643.20 | $3,661.20 | $5,443.20 | $74.25 | $45.76 | $3,661.20 | $6,343.20 | $111.75 | $68.87 |
Keeping the pension plan healthy and sustainable over the long-term
This change is one of the steps to help ensure that the pension plan remains healthy and sustainable over the long-term.
The 2008-2009 financial crisis, increased longevity by pensioners receiving an annuity from the Pension Plan, increased life expectancy and a low interest rate environment has made these changes necessary. These changes will decrease take-home pay slightly but they will get you closer to your retirement goals while providing greater stability and sustainability for the pension plan.
How can I learn more?
Attend the pension plan information session that best suits your needs – find out more and/or register at: www.mcgill.ca/hr/bp/pensions/infosessions.
Visit the Régie des rentes website for additional information and interactive tools to assist you in determining your retirement goals:
- Planning your retirement: http://www.rrq.gouv.qc.ca/en/planification/Pages/planification.aspx
- Question Retraite: Guide to Financial Planning for Retirement: http://www.questionretraite.qc.ca/cms/assets/documents/guide-to-financial-planning-for-retirement-2012-2013.pdfAll active members of the McGill University Pension Plan are reminded that effective January 1, 2013, employee contribution rates will be increasing. These changes were announced in the Notice of Amendment No. 24 to the Pension Planwhich was sent to all members in July 2011.