What age is too old to go to AC and collect a full pension?

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KAG
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What age is too old to go to AC and collect a full pension?

#1 Post by KAG » Wed Aug 17, 2016 5:50 am

This topic comes up a lot in the flight deck so I figured Id ask. I know AC now has a DC pension, What do those numbers look like and what age is too old to get hired at AC and be able to collect a full pension?


Thanks in advance.
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Re: What age is too old to go to AC and collect a full pensi

#2 Post by TheStig » Wed Aug 17, 2016 6:48 am

That depends on your definition of a 'full pension'...
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Re: What age is too old to go to AC and collect a full pensi

#3 Post by ogopogo » Wed Aug 17, 2016 9:00 am

Question isn't relevant. I don't work for AC, but DC means just that - you contribute a certain amount, the company does as well, you choose a place to invest the funds, and then when you stop working, you stop working. No more paycheque. There is no "maximum", is there? As long as you're working, the fund keeps growing (assuming you haven't invested in something retarded).

If you chose to Register the funds, then you have to wait until you're 71 if you want to avoid the high tax rate.

Do I have this right?
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Re: What age is too old to go to AC and collect a full pensi

#4 Post by KAG » Wed Aug 17, 2016 9:15 am

I know nothing about pensions, but I thought the OLD DB pension there was a max age where beyond that you could not get the full pension.
So lets say a 40 year old starts at AC. Works the usual progression and ends up a wide body a few years before retirement at 65. About what amount could one expect annually?
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Re: What age is too old to go to AC and collect a full pensi

#5 Post by Old fella » Wed Aug 17, 2016 9:59 am

Well, I am currently on DB pension and in a nutshell the magic number is 60 yrs of age as that is the point you can take retirement unreduced , in other words no penalty. So if 60 yrs of age and you have 25 years of Pensionable Time, you collect 50%of you pension(2%x25yrs) unreduced at your current salary. For those on DB like me it is calculated on your best 5 yrs , that's why we all want to upgrade to a higher salary as your pension will be more. If you decide to retire less that 60 yrs of age you are subject to reductions in combination of age/length of service, which ever is the greatest, also those on DB are fully indexed as I understand it, I know mine is. You can also take your CCP at a reduced rate at 60 yrs old - I did that as well. There are pro/con for DB and DC pension schemes , needless to say. Thing is don't f--- with your pension as you are always heading in that direction and you will have to rely on those earnings.

Those on DC pension, I can't comment on as do not know in's and out's
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Re: What age is too old to go to AC and collect a full pensi

#6 Post by TheStig » Wed Aug 17, 2016 10:37 am

ogopogo wrote:Question isn't relevant. I don't work for AC, but DC means just that - you contribute a certain amount, the company does as well, you choose a place to invest the funds, and then when you stop working, you stop working. No more paycheque. There is no "maximum", is there? As long as you're working, the fund keeps growing (assuming you haven't invested in something retarded).

Do I have this right?
Bingo! It's a savings plan which the company contributes to as well. Whatever is in the pot at retirement (or when you quit, get fired, ect.) is your nest egg.

The DB plan, which closed in 2012, requires 34 years of service to maximize and based on the pilots best 60 consecutive months earnings. Those metric define a monthly pension payment in retirement.
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Re: What age is too old to go to AC and collect a full pensi

#7 Post by tailgunner » Wed Aug 17, 2016 12:05 pm

DB plans are NOT indexed to the inflation rate....
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Re: What age is too old to go to AC and collect a full pensi

#8 Post by Old fella » Wed Aug 17, 2016 4:53 pm

tailgunner wrote:DB plans are NOT indexed to the inflation rate....
Mine is.........
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Re: What age is too old to go to AC and collect a full pensi

#9 Post by Maxpwr » Wed Aug 17, 2016 9:01 pm

tailgunner wrote:DB plans are NOT indexed to the inflation rate....
Don't know where you got that from because some are indexed, some are not.
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Re: What age is too old to go to AC and collect a full pensi

#10 Post by altiplano » Thu Aug 18, 2016 5:51 am

I think he got it from the topic of this discussion which is Air Canada pensions and they are not indexed.
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Re: What age is too old to go to AC and collect a full pensi

#11 Post by fish4life » Thu Aug 18, 2016 8:18 am

To have a conversation about DB plans anymore is almost useless because for most new employees they rarely exist anymore. Government jobs are about the only ones that still offer DB plans and even then with the amount of government debt those might not even be safe, just take a look at cities like Detroit as an example.
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Re: What age is too old to go to AC and collect a full pensi

#12 Post by Star'Fox » Thu Aug 18, 2016 9:34 am

Some helpful numbers here,

Max RRSP contribution is $24,930 a year (which at AC you will reach when making above 140k). So, in 25 years at 6% interest you will have 1.5 million. If you deiced to budget to the age of 90 (and keep a 3.5% rate of return or better) that's $75,000 a year in retirement.

The main issue here is getting your DC contributions to the max ($24,930) as soon as you can, which with the new 4 year low pay scale is difficult.
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Re: What age is too old to go to AC and collect a full pensi

#13 Post by altiplano » Fri Aug 19, 2016 6:21 am

With reference to "the new 4 year scale"

Latest equipment bid result is out and lots of year 1 guys are going to be EMB captain which will get them over that $140k you mention and then some.
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Re: What age is too old to go to AC and collect a full pensi

#14 Post by Lateralus » Fri Aug 19, 2016 6:58 am

altiplano wrote:With reference to "the new 4 year scale"

Latest equipment bid result is out and lots of year 1 guys are going to be EMB captain which will get them over that $140k you mention and then some.
Wow thats incredible to hear. Good things happening at AC for sure!
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Re: What age is too old to go to AC and collect a full pensi

#15 Post by ogopogo » Fri Aug 19, 2016 12:53 pm

Star'Fox wrote:Some helpful numbers here,

Max RRSP contribution is $24,930 a year (which at AC you will reach when making above 140k). So, in 25 years at 6% interest you will have 1.5 million. If you deiced to budget to the age of 90 (and keep a 3.5% rate of return or better) that's $75,000 a year in retirement.

The main issue here is getting your DC contributions to the max ($24,930) as soon as you can, which with the new 4 year low pay scale is difficult.
Making 140K doesn't necessarily mean you have the ability to max your RSP every year. I managed to do it, but it takes discipline. Don't buy stuff you can't afford, kids in University, etc. Those with child support payments, big mortgages, etc may not be able to max out. Just my 2c.
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Re: What age is too old to go to AC and collect a full pensi

#16 Post by rudder » Fri Aug 19, 2016 1:32 pm

ogopogo wrote: Making 140K doesn't necessarily mean you have the ability to max your RSP every year. I managed to do it, but it takes discipline. Don't buy stuff you can't afford, kids in University, etc. Those with child support payments, big mortgages, etc may not be able to max out. Just my 2c.
Max 'all source' registered retirement contributions for 2016 are 18% of earned income to a maximum of $24,930.

So an AC Define Contribution Plan pilot must deduct from this contribution limit his/her DC contributions AND the employer matching DC contributions. What is left is the allowable RRSP contribution limit.
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Re: What age is too old to go to AC and collect a full pensi

#17 Post by TheStig » Fri Aug 19, 2016 1:40 pm

ogopogo wrote: Making 140K doesn't necessarily mean you have the ability to max your RSP every year. I managed to do it, but it takes discipline. Don't buy stuff you can't afford, kids in University, etc. Those with child support payments, big mortgages, etc may not be able to max out. Just my 2c.
I'm not a member of the DC plan at Air Canada, but in the interest of sharing information to those thinking about joining here are the goods.

Upon joining pilots will be enrolled in the DC pilots pension plan which is registered with OSFI and the CRA and subject to the limitations of the Pension Plan Act.

Pilots will select between 3-6% of their earnings to contribute to the plan. The company will match their contributions (100%) in years 1 and 2.

Between 2-5 years of service the company will match 137.5% of contributions

After 5 years of service the company will match 175% of contributions.

Where the discussion of $24,000ish/year comes into play is that it is the CRA limit for contributions, and $150,000/year becomes somewhat limiting, for example:

With 5 years of service and an income of $15000/year. If the pilot contributes 6% of their income to the plan ($9000) and the company adds their 175% ($15,750). The pilot has now reached the CRA contribution limit. I'm by no means a financial expert or tax accountant but these figures show a few obvious weaknesses/limitations in the current contract and CRA rules.

Obviously any pension and company contributions are better than none. But the new hire pay scales at Air Canada need to better suited to the nature of a Defined Contribution Pension plan. The contract pay scales are still set up in the bygone era of Defined Benefit pension plans, where a pilots pension was determined by their best (ie final in most situations) earnings. Today pilots need to be able to start investing early and right to the limit. Even if the CRA limits aren't changed the first 4 years of low pay and lower company matching is a missed opportunity for the DC plan members to not have their investments grow.
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Re: What age is too old to go to AC and collect a full pensi

#18 Post by Maxpwr » Fri Aug 19, 2016 5:50 pm

Keep in mind that during the early "low earning" years you accumulate RRSP contribution room that you can later use anyway.
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Re: What age is too old to go to AC and collect a full pensi

#19 Post by complexintentions » Fri Aug 19, 2016 9:21 pm

Where is the AC DB pension plan at these days regarding funding? I seem to recall that it was one of those accounting line items management would regularly wave around to claim poverty at contract negot times but haven't heard anything lately about unfunded liabilities. Update?

DC pension is the way of the future, for sure. No way demographics will support the gold-plating into the future. (Not AC-specific, everywhere.)
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Re: What age is too old to go to AC and collect a full pensi

#20 Post by altiplano » Sat Aug 20, 2016 5:33 am

Pilots DB pension at AC is over-funded - The corporation is taking a funding holiday.
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Re: What age is too old to go to AC and collect a full pensi

#21 Post by Old fella » Sat Aug 20, 2016 6:43 am

altiplano wrote:Pilots DB pension at AC is over-funded - The corporation is taking a funding holiday.
DB pension at the Service Provider(NC) is completely funded, we get the data every year.
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Re: What age is too old to go to AC and collect a full pensi

#22 Post by fish4life » Sat Aug 20, 2016 8:12 am

By no means am I a financial expert but the "funding holiday" seems like such a bad idea. Right now the company is making record profits (great news) so wouldn't right now be a great time to over fund the pension since they are flush with cash? This way during the next inevitable downturn when cash is hard to come by the company can take a holiday then and the pension fund will still be above water instead of being under funded then.
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Re: What age is too old to go to AC and collect a full pensi

#23 Post by rudder » Sat Aug 20, 2016 8:30 am

Maxpwr wrote:Keep in mind that during the early "low earning" years you accumulate RRSP contribution room that you can later use anyway.
That is not necessarily correct. The RRSP contribution limit is not calculated the same as the TFSA contribution limit.

Every year, a calculation is made by CRA based on Earned Income provided by the individual based on their income tax filing. It is calculated based on 18% of earned income (to a limit) for that year. Yes, unused contribution room may be carried forward. But if earned income is just $50K, then the RRSP calculated contribution limit earned in that year is just $9000. It does not matter how much money that you make the next year or any year thereafter.
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Re: What age is too old to go to AC and collect a full pension?

#24 Post by Dockjock » Sun Aug 28, 2016 8:54 am

fish4life wrote:By no means am I a financial expert but the "funding holiday" seems like such a bad idea. Right now the company is making record profits (great news) so wouldn't right now be a great time to over fund the pension since they are flush with cash? This way during the next inevitable downturn when cash is hard to come by the company can take a holiday then and the pension fund will still be above water instead of being under funded then.
There is a maximum allowable over-funding beyond which it is not permitted to contribute, I believe it is 110%. There was talk of raising that to 125% but I haven't kept up. If companies could, and they probably would like to, contribute more than this amount to as you suggest save for a rainy day, even though that would be a great long-term idea and no business leader really thinks this way (they would likely return the money to shareholders as a first priority), it would be an easy way to shelter profits from tax. So the government prohibits this because it wants its tax revenue. So a funding holiday is actually a forced stop of contributions by the government so that those excess profits can be taxed. It is somewhat of a miracle that the AC pensions are now over-funded and yet rates are still where they are. If rates ever (and this seems increasingly unlikely) rise to normal levels again, there will be a very, very long contribution holiday. A decade long probably. Which is why the DC pension is such a gut-punch because it was introduced during a, in hindsight now, fairly short period where the entire company was vulnerable due to the DB pension funding laws, which AC got temporary relief from in 2009 but which never fully changed to allow for longer downturns.

As for DC, it is a group RRSP with the exception that you cannot withdraw money while employed. Contributions accumulated every year regardless of funding level (funding level is irrelevant), which if you were to make lemonade out of lemons, means there are no holidays.

Apologies on my previous explanation I was vastly mistaken and edited this post.
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Re: What age is too old to go to AC and collect a full pension?

#25 Post by LTD » Sun Aug 28, 2016 10:23 am

Dockjock,

With all due respect to your detailed explanation of Air Canada's DC plan (or any other DC plan in Canada). It is completely inaccurate on all accounts.

ACs DC plan (like any other DC plan in Canada) is pretty much exactly like an RRSP and is limited and bounded by the exact same rules and limitations.

The ONLY difference between a generic RRSP and any DC plan, is your employer also helps contribute a percentage of your salary into the DC plan (total capped at 18% of your salary or the current Canadian limit of about 24k a year, whichever is lower) and the funds available to invest into in a DC plan are limited to whatever your company negatioted with the financial institution in charge of your company plan.

Long story short... DC plan = RRSP.

Hope this info helps,

LTD
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