2023 Cost-of-Living Adjustment (also know as indexing)
Your monthly PSSP pension payment will not increase as a result of indexing in 2023.
The Public Service Superannuation Plan’s legislation prescribes that the Public Service Superannuation Plan Trustee Inc. (Trustee) must complete a funded-health review of the Plan every 5 years. The purpose of the review is to determine the Plan’s capacity to afford indexing for the next 5 years and to review the adequacy of contribution rates.
The last funded-health review was conducted in 2020 and was based on the Plan’s funded status on December 31, 2019, which was 98.5% (below 100%). The PSSP’s legislation dictates that, when the funded ratio is below 100%, no indexing is permitted to be paid.
The 2020 funded-health review determined that because the Plan’s funded status was below 100%, indexing is mandated to be zero for the 5-year period starting January 1, 2021 and ending December 31, 2025.
The Trustee is very aware of the importance of indexing for retirees, especially in the face of mounting inflation, and is continuing to work diligently to improve the Plan’s funded health between now and the 2025 funded-health review. The Trustee is carrying on with membership expansion, pursuing appropriate investment strategies and assessing ways to reduce some Plan liabilities.
What is the 5-year funded-health review?
The Trustee is required to conduct a funded-health review of the PSSP every 5 years, in accordance with provisions in its legislation, the Public Service Superannuation Act (PSSA). The purposes of each review are to determine indexing (also known as cost-of-living adjustment, or COLA) for the next 5 years and to assess the appropriateness of the Plan’s benefits and contribution rates considering the funded ratio of the Plan at the time of the review.
Why is a funded-health review of the Plan required every 5 years?
In 2009, the Plan was significantly underfunded. On December 31, 2009, the Plan was 69% funded with a $1.6 billion funding deficit. The PSSP was modernized in 2010-2012 and a new funding policy was embedded in the PSSA. This initiative reduced the Plan’s liabilities by $1 billion. This funding policy provides for conditional indexing for PSSP retirees. Conditional indexing means that indexing may only be paid if the PSSP can afford it. The Plan’s funding policy was constructed to ensure the long-term financial sustainability of the Plan and is designed to treat all PSSP members, retirees and actives, as fairly and equitably as possible.
Why doesn’t the PSSP provide guaranteed indexing for all its members?
The PSSP’s funding policy does not allow for guaranteed indexing. Guaranteed indexing is very expensive and, if tied directly to full CPI, would drive the PSSP into a substantial deficit position. The PSSP has a limited amount of funds and must be managed carefully, keeping in mind the interests of its active and retired plan members, as well as the interests of its future generations. The Plan is no longer ‘backstopped’ by the Province and must ‘sink or swim’ on its own. This makes it even more important for the Trustee to strictly adhere to the PSSP’s funding policy
How do other public sector pension plans in Canada deal with indexing for their retirees?
Canadian jointly-sponsored public sector pension plans, like the PSSP, have increasingly been adopting conditional indexing; and some plans provide no indexing at all. The ability of a pension plan to pay indexing ultimately depends on the plan’s funded health.
When is the next 5-year funded-health review?
The Trustee’s next review of the Plan’s funded health will be in 2025, for the 5-year cycle starting January 1, 2026, and ending on December 31, 2030. At that time, indexing will be dependent upon the Plan’s funded status as of December 31, 2024. Indexing may only be provided in accordance with the funding policy.