Your CAAT pension includes 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 refers to periodic increases to the amount of a pension payment. These additions reduce the erosion of the buying power of your pension caused by inflation.
Inflation protection is cumulative. 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.
Conditional inflation protection means 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, 2023.
Each year in December, retired members are sent a letter detailing the increase to their pensions (if any) for the upcoming year. The letter will show the amount of the inflation protection increase, the gross pension payments after any inflation protection increases have been applied, any adjustment for income tax, and the net payment as of January 1 in the following year.
The CAAT Plan inflation protection rate for 2021 is 0.78%
The inflation protection that may be applied to your pension is based on when you earned your pension.
Consumer Price Index
Inflation protection is calculated based on changes to the previous year’s Consumer Price Index (CPI). 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 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. The inflation protection increase paid by the Plan is equal to 75% of the percentage change in the CPI during the 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.
Your next Retired Member Annual Statement, includes a chart which shows your current pension, broken down into the service periods for inflation protection, and the increase that applies to each portion.