How much is the new pension worth?

[Daniel Cooper]

I'm doing some salary comparison and was wondering if it would be possible how much the pension is worth for a someone hired today. I guess it would depend on how long you live right? Is it paid for life for you and your spouse? Let's say you have 30 years until retirement at 65 and will live to 85 (hopefully). Would it be possible to ballpark how much you would have to save by yourself to equal that pension?

[PostmasterGeneral]

Login to the ACPA website and there’s a “pension estimator” that you can play around with. You can try different parameters such as when you intend to upgrade to narrowbofy captain, or if you stayed FO on a widebody etc.

[altiplano]

It all depends how much you make and put into it in your career.

It's paid for life. There is a survivor benefit.

[Daniel Cooper]

What a wonderful tool. If anyone is wondering I figured I'd need to save an average of $2900 per month for 30 years at 5.4% rate of return in an RRSP to equal what I would get from an AC pension (around $2.6m if I live to be 85). This is being conservative on career advancement and assuming you never go NB Capt. With that upgrade or living longer and it's worth much more.

[L39Guy]

$2.6 million ~ $2900 per month is correct. However, you would also have to take into account the company match as well as the tax implications (i.e. tax deductibility of RRSP contributions) so your personal, after tax contributions to achieve $2,900 net savings would be considerably less.

[yycflyguy]

$2.6 million ~ $2900 per month is correct. However, you would also have to take into account the company match as well as the tax implications (i.e. tax deductibility of RRSP contributions) so your personal, after tax contributions to achieve $2,900 net savings would be considerably less.

Good point!

[Daniel Cooper]

I think I understand what you are saying. If I personally contribute $2900/month to an RRSP I get a tax refund for that which lowers the overall cost. Is that what you mean?

[L39Guy]

Yes. For example, let’s assume you’re in a 40% marginal tax i.e. for every extra dollar you make you pay 40 cents in taxes. Assuming you have the RRSP contribution room, a $2,900 pension investment would give you a $1160 tax refund, making your net, after tax cost of that $2900 investment $1740.

[altiplano]

Don't forget in your cost calculation that you may not be able to shelter $2900 every month in an RRSP (unless you are earning the maximum and have unused contribution space from the past).

$2900 * 12 months is $34800.

The maximum in 2019 is 18% of income up to $26500.

Even if you had past room and earned the maximum, it's unlikely you'd be able to do it for the 30 year timeline. You'd have to fill up your TFSA and unsheltered investment account with the rest...

That's a great thing about this pension scheme vs. DC/RRSP, it allows income sheltering beyond the cap... plus you don't have to wait for your tax refund on your end of the contribution because it's factored into every paycheque.

[complexintentions]

Just a small point, but RRSP "tax refunds" are actually "tax deferrals" - you still pay tax on the contribution when you withdraw it in retirement.

Hopefully at a much lower tax rate, of course. But I'm not hopeful that tax rates will be lower for retirees in the future than they are now, given the massive indebtedness of all levels of government. Also watch for clawback thresholds to decrease - they'll get their tax one way or another. Ah well, nice problem to have, right?!

But thought I'd point it out as many seem to think RRSP refunds are 100% free money.