This page provides additional information on the Actuarial Valuation Results as at December 31, 2010 and January 1, 2012 Plan changes as reported in the November 2011 and February 2012 issues of the UBC Staff Pension Plan Update. Below is a breakdown of questions by topic.
Actuarial Valuations Results
The UBC Staff Pension Plan undergoes an Actuarial Valuation every three years, which is a financial check-up on the Plan. The results of the Actuarial Valuation as at December 31, 2010 showed that the Plan is well funded; however, it is necessary to reduce the inflation adjustment applied to the SPP basic benefit to 50% of CPI. Below are some Q & As that may help you further understand the Actuarial Valuation results:
Is the Plan Healthy?
The key result from the December 31, 2010 Actuarial valuation is that the basic benefits are well funded; however, future indexing must be reduced to a level of 50% of inflation for the next three years.
What happens if the funding is not sufficient to support Pensions?
If funding is determined to be insufficient, benefits may be reduced, starting with future indexing as described in the Plan’s Funding Policy outlined in the Plan Text.
If there is insufficient funding, would UBC or its members have to make additional contributions to the Plan?
No, the Plan does not allow additional contributions as both member and UBC contributions are fixed.
What is the Staff Pension Plan’s Funding Policy?
The Staff Pension Plan’s Funding Policy specifies the basis on which the Plan will meet its obligations to pay benefits to members. It is documented in Article 13 of the Plan Text.
The Funding Policy has the following elements:
- Members and the University make contributions to the Plan on the basis of a fixed percentage of pay.
- All the assets in the Plan belong to Plan members.
- Each member would earn a fixed percentage of pay for each year of pensionable service, with payments commencing at age 65.
- Whatever benefits the Plan pays today should be affordable for the foreseeable future, and it specifies that this assessment will be made on a 25-year projection using assumptions that meet the guidelines given.
For a detailed description on the Plan’s Funding Policy, please see the SPP Funding Policy in the Governance section of the SPP website.
Will anything change if markets become significantly better or worse?
If the markets become significantly better or worse, the Pension Board may ask the Plan’s Actuary to perform a Valuation which may recommend further changes to the Plan’s benefits.
What happened to the Contingency Reserve that existed at the last Valuation?
The Contingency Reserve that existed at the last Valuation helped the Plan weather the 2008 market downturn. At the last Valuation, a Safety Margin was not required. However, the Plan now requires a Safety Margin (separate from the Contingency Reserve) to absorb negative fluctuations in the markets. The funds that were in the Contingency Reserve have been used to provide this safety margin. The Pension Board have put mechanisms in place that should help rebuild the Contingency Reserve.
Who sets the Margin?
The Pension Board sets the appropriate margin based on recommendations from the Plan’s Actuary.
How has the Margin been set at its current level?
The base Margin has been set at 10% of the Plan’s liabilities plus 4% due to the Actuarial Value of Assets being greater than the Market Value of the assets as recommended by the Plan’s Actuary.
What responsibilities does the SPP Board have in terms of investments?
The Pension Board is now responsible for recommending the Plan’s Policy Asset Mix to the UBC Board of Governors for approval. The Pension Board is also responsible for the Plan’s Statement of Investment Policies and Procedures (SIPP document).
Further details on the responsibilities of the SPP Board, can be found in the Terms of Reference and Governance Policy document.
Who is UBC IMANT?
UBC IMANT (otherwise known as UBC Investment Management Trust) is a wholly-owned subsidiary of UBC responsible for implementing the SPP Policy Asset Mix.
What is indexing?
It is the amount of inflation adjustment applied to a member’s Plan benefit subject to the Plan’s ability to finance it. Plan benefits may be adjusted upwards or downwards if the Plan’s financial health falls outside limits defined in the Plan’s funding policy. Deferred members receive pre-retirement indexing on their pension while they defer, and retirees receive post-retirement indexing on their pension. Active members do not receive any indexing until they become a Deferred or Retired member.
How am I affected by the indexing change?
| Active Members | Active members will not be affected unless they become a Deferred or Retired member. |
| Deferred Members | Effective January 1, 2012, Deferred members will receive either:
The minimum level of pre-retirement indexing (75% of CPI minus 1%), or he same amount of indexing as awarded to pensioners, whichever formula produces the greater benefit. |
| Retired Members | Retirees will receive 50% of the CPI increase beginning January 1, 2012 for the next three years. This increase is known as the SPP Cost of Living Adjustment (COLA).
For example: The SPP COLA for 2012 will be 1.40% and is 50% of inflation (CPI), which is 2.8%. 1.40% represents 50% of the change of inflation from October 2010 to October 2011. |
How often will indexing be adjusted?
The level of indexing will be reviewed following every Valuation, which occurs normally every three years. The next Actuarial Valuation is scheduled for December 31, 2013. However, under certain circumstances (i.e. substantial change in the markets) a valuation may be conducted sooner upon request of the Pension Board.
Is post-retirement indexing guaranteed?
No, indexing has always been subject to the Plan’s ability to pay as per the Plan’s Funding Policy.
Ensure Deferred Members Receive a Minimum Annual Inflation Adjustment
This change is effective January 1, 2012 and ensures that Deferred members receive a minimum annual inflation adjustment in order to comply with the B.C. Pension Benefits Standards Act. Deferred members will receive the greater of pre-retirement or post-retirement indexing on their deferred pension.
What is pre-retirement indexing?
Pre-retirement Indexing is an inflation adjustment applied to the pension benefits of Deferred members. You are a deferred member if you no longer contribute to the Plan and have not yet started to receive pension benefits.
Could pre-retirement indexing be greater than post-retirement indexing?
Yes, there are some circumstances where pre-retirement indexing could be greater than post-retirement indexing. An example of the calculation is as follows:
Example 1: Post-Retirement Indexing > Pre-Retirement Indexing
If the level of inflation is 3%:
| Minimum Pre-Retirement Indexing 75% of inflation, minus 1%¾ of 3% minus 1% = 2.25% minus 1% = 1.25% |
1.25% |
| Post-Retirement Indexing 50% of inflation½ of 3% = 1.50% |
1.50% |
Retirees would receive a 1.50% increase in their pension as would the Deferred members.
However, if the inflation rate rises to 6%, the outcome of the calculation would be as follows:
Example 2: Pre-Retirement Indexing > Post-Retirement Indexing
If the level of inflation is 6%:
| Minimum Pre-Retirement Indexing 75% of inflation, minus 1%
¾ of 6% minus 1% = 4.50% minus 1% = 3.50% |
3.50% |
| Post-Retirement Indexing 50% of inflation½ of 6% = 3.00% |
3.00% |
In this case, Deferred members would receive a greater pre-retirement indexing of 3.5% than the post- retirement indexing of 3.0% received by pensioners.
Is there indexing applied to Commuted Value lump sums for members under age 55?
Yes, there is a minimum level of pre-retirement indexing as required by the B.C. Pension Benefits Standards Act.
Ensure a Steady & Positive Interest Rate is Applied to Member Contributions
Effective January 1, 2012, interest applied to member contributions is a five-year bank rate, instead of the fund rate of return. This interest rate is less volatile and provides steady and positive returns on contributions
Where can I find the interest rate applied to member contributions?
The rate can be found on the Bank of Canada website. Interest on member contributions is calculated at the end of each year. Rates for the last five years can be found on the Important Terms page under Five Year Bank Rate.
The rate to select is called V122515 and is commonly referred to as a five-year bank rate.
Ensure that Early Retirement is Cost Neutral to the Plan
Before January 1, 2012, the early retirement reduction factor was 4% for each year that you retire prior to age 65 (age 55 is the earliest that you can start your SPP pension). It has always been intended that early retirement is equitable by being cost neutral to the Plan so that Plan members are not subsidizing the cost of early retirement. However, the basis needs to be adjusted going forward to ensure that this equitable approach continues.
Effective January 1, 2012, the early retirement reduction factor will be an actuarial equivalent factor to age 65. This means that instead of applying a fixed reduction factor such as 4%, each early retirement age will have a corresponding reduction factor applied. Therefore, whether you commence your pension before age 65, at age 65, or after age 65, the total pension amount that you receive over the course of your retirement will be equal in value (actuarial equivalent).
Is this change retroactive?
No, this change is not retroactive and only applies to pensionable service accrued on and after January 1, 2012.
Why is an early retirement reduction factor applied to my pension if I retired before age 65?
If you retire before age 65, your monthly pension amount is reduced to account for the additional years that you will be receiving a pension. If you retire after age 65, the reverse applies as your monthly pension amount will increase to account for starting your pension later.
Where can I find more information if I am planning to retire before age 65?
If you are planning to retire within one year, we encourage you to book a one-on-one Retirement Information Session with a senior administrator. It is an opportunity for you to review your pension options in detail and ask questions. You are encouraged to bring your spouse, if you have one. To book a RIS, please send us an email through the Online Contact / Feedback Form.
This material has been compiled by the Staff and Pension Board Members of the University of British Columbia Staff Pension Plan from information provided to them. If there is any inconsistency between the contents of this communication and the pension plan trust or legislation, the trust and legislation will prevail.