Pension Termination Benefits / Commuted Values
Teachers who have not registered for online statements from the Alberta Teachers’ Retirement Fund (ATRF) receive their pension information statements each January in the mail. The document describes current pension status and provides valuable information on the individual teacher’s ATRF benefit. Information in this statement includes an estimation of the termination benefit.
Some teachers noted a decrease on the reported estimate of their termination benefit in their last annual statement. The main driver behind increases or decreases in termination benefits (commuted value) is the change in interest rates.
The Canadian Institute of Actuaries (CIA) calculate commuted values using many factors. Two of these are interest and inflation rates. These rates change from month to month based on the movement in bond yields from the Bank of Canada. As net bond yields rise, commuted value decreases and vice versa. While a commuted value may change, lifetime pension payable to a plan member remains the same.
The increase in interest rates from the Bank of Canada is usually the main factor behind the decreases in commuted values. As interest rates have increased over recent months, there has been a corresponding decrease in commuted value. Recently, new CIA standards and updated assumptions have been implemented, accounting for some of these changes to commuted values. Changes in commuted values also depend on the member’s age, service and other factors.
ATRF includes messages on their estimate calculator in MyPension, which reminds plan members that commuted values can fluctuate significantly. It also states that these amounts are estimates, not the final actual benefit amounts. Final figures are provided once a teacher terminates employment and applies for benefits upon retirement.
Commuted value only matters if a teacher is no longer an active member of the plan and plans to withdraw their funds. The Alberta Teachers’ Association’s most common advice is not to withdraw funds.
While a commuted value may change from month to month, the lifetime pension payable to a plan member who does not withdraw their commuted value from the plan will remain the same. #WEAREATA