Air Canada Pension question

[Bede]

Do all AC new hires now get a defined contribution pension? How much is the contribution?

Also, let's assume a guy just retired with DB pension. He worked for AC for 30 years, how much would he be earning annually (rough guess, let's say he retired off whatever equipment would be typical for a 30 year guy). Same question but for a guy who has been at AC for 20 years.

I'm trying to do an apples to apples comparison to what we get through ESP at WJ.

Thanks.

[The Raven]

You'll probably get a lot of answers. Everyone's situation is different. In my case, I will be retiring shortly with 35 years service at Air Canada. I've been making $220,000/year for a number of years now. My dental and health benefits have been great as well. I will be retiring within a year with an annual pension of $125,000.

Also, 20 years ago I started saving as much as I could. I wanted to be able to support myself without having to rely on my pension. To me, my pension would be a bonus. I've managed to save just over a million dollars so far. That alone will give me a tax free income of $40,000/year. Combine that with CPP and my annual tax-free income outside of my pension will be just under $50,000/year.

Therefore when I retire, I will have a pension of $125,000/year plus a tax free income from my own savings and CPP of approximately $50,000/year. Total $175,000 annually.

So to sum up, a guy with 30-35 years service is making $200,000 to $240,000 depending on what he is flying. If he has 35 years service when he retires his pension should be at least $125,000/year. And if he is fortunate like me, he's managed to put aside some money over the last few years to give him a bit of extra padding.

[Bede]

Raven,

Congrats on a long and fruitful career. I hope your retirement treats you just as well.

I ran into a fellow a couple years ago while working on my airplane. He came up to me and we chatted for a while. He started his career flying props for AC and retired a few years back as a captain on the '47. I like my job, but I can't say I wasn't jealous of his career. Sadly, those careers are by and large a thing of the past.

I guess all the new hires get DC now, is that correct?

[DBC]

Anyone post Aug 1 2012 is on the new DC.

I'm no expert on the DC but I think it's as follows: 100% matching between 3-6%, with 137.5% from year 3-5 and 175% after that. Together they cannot exceed the limit from the Income Tax Act for a given year, so eventually you cannot put the full 6% as you hit somewhere around 140k a year.

I'm not sure if our contract is public domain or anything like they seem to be in the states or not.

Hopefully someone will come along and correct me on the parts I am wrong on.

[Old fella]

You'll probably get a lot of answers. Everyone's situation is different. In my case, I will be retiring shortly with 35 years service at Air Canada. I've been making $220,000/year for a number of years now. My dental and health benefits have been great as well. I will be retiring within a year with an annual pension of $125,000.

Also, 20 years ago I started saving as much as I could. I wanted to be able to support myself without having to rely on my pension. To me, my pension would be a bonus. I've managed to save just over a million dollars so far. That alone will give me a tax free income of $40,000/year. Combine that with CPP and my annual tax-free income outside of my pension will be just under $50,000/year.

Therefore when I retire, I will have a pension of $125,000/year plus a tax free income from my own savings and CPP of approximately $50,000/year. Total $175,000 annually.

So to sum up, a guy with 30-35 years service is making $200,000 to $240,000 depending on what he is flying. If he has 35 years service when he retires his pension should be at least $125,000/year. And if he is fortunate like me, he's managed to put aside some money over the last few years to give him a bit of extra padding.

Good show........ now go and enjoy. You earned it - stay healthy!!

[The Raven]

"Good show........ now go and enjoy. You earned it - stay healthy!!"

Thanks Old Fella.

My financial adviser (and friend) told me a long time ago that "money always finds a home". In other words, save or invest a portion of each paycheque otherwise you will spend it. I took his advice and have set aside as much of my pay as I could afford in conservative investments (bonds and dividend paying stocks mainly). I've been doing this for a long time. I never bought any large toys (boats, planes, etc.) even though I was sometimes tempted. I've always bought used cars and currently proudly drive two beaters. I suppose I've always lived below my means.

I have no intention of buying any toys in retirement. I live in the country and the perfect evening is spent beside the pond with a nice glass of wine and good company. I suppose the only luxury that I will be indulging in will be having nicer vacations. I think it's time to be pampered a little.

Anyway, I'm not retired yet. Still a few months to go. One thing is for sure though, I'll be retired before I reach age 60. I'm not slighting anyone that wants to work past age 60, it's just not for me.

[Old fella]

For sure, the raven. I took early retirement few years back cause didn't want to leave the Maritimes. I wasn't as thrifty as you but towards the end we became debt free even with my reduced pension which is on the positive side, my better half still works on a part-time basis in the medical profession. We are comfortable and can afford a scattered trip. Spent a few weeks in Ireland last year, flew on your airline(AC) via YYZ on the B777 - excellent service on AC over and back as always. Planning Italy in a couple of years to crawl around the hills of Sienna and quaff quality classified red - might even get lost in one of those large Italian botti.

PS no regrets for me on leaving the work with an early retirement, I do my own thing in my own little world. I know a few who are still working well into their 60s/70s. That's fine also but isn't for me.

Stay loose.........

[TheStig]

Do all AC new hires now get a defined contribution pension? How much is the contribution?

As mentioned all new hire pilots go on the DC plan.

Also, let's assume a guy just retired with DB pension. He worked for AC for 30 years, how much would he be earning annually (rough guess, let's say he retired off whatever equipment would be typical for a 30 year guy). Same question but for a guy who has been at AC for 20 years.

The maximum pension is just over $140,000 per year, the pension formula is based on years of service and a pilots best 60 consecutive months earnings. To reach the maximum pension a pilot requires 35 years of service (anything longer doesn't make a difference) and best 60 months average salary of over $230,000/year (anything greater doesn't make a difference).

At this time a pilot retiring with 30 years would likely have had the opportunity to have earned more than $230,000/Year, but not if they've decided to stay senior on the A320 or B767, or have been based in YVR, YUL or YWG, or perhaps been on disability. Although, I believe that 30 YOS would traditionally been enough to spend 5 years in the left seat of a B777/A340/A330 in YUL and YVR. FWIW, as the 767's are transferred to rouge and are replaced by 787's (heavier and faster) every wide body Captain position at mainline will provide a >$230,000 salary. So to answer your question, with 30 years and 5 years as a heavy Captain a retiree could expect a pension of about $127,000/year.

A pilot retiring with 20 years would be taking early retirement until they reach age 65 and would be subjected to a 6% penalty per year (from their 'new' retirement age of 65). Under the new pension rules a pilot requires at least 25 years of service by the time they turn 60 or their 'new' retirement age becomes 65. This sucks. Even if you have 24.9 years when you turn 60, your new retirement age is 65, and leaving early (if you can call 65 early?) subjects you to the penalty.

But this isn't what you've asked, so I'll try and stick to the subject at hand, a few examples because I'm actually curious to see what you come up with (hopefully you don't mind sharing?)

Best Average Earning = BAE
Years of service = YOS

25 YOS + $230,000 BAE = $106,000/year
25 YOS + $190,000 BAE = $87,000/year
20 YOS + $190,000 BAE = $52,000/year (at 60) or $76,000 at 65

Like I said, please share your results. You're comparisons to the DB plan, sadly, have now become irrelevant for those looking at joining AC

[43S/172E]

The Raven
Well done and Bravo Zulu on managing your life's financials which should be mandatory reading at 21!
It all boils down to how much "stuff" you need in your life which is not that much. A thousand years ago on a LAX lay over my F/O was telling me about his new house (bigger than mine), his car way better than mine and his recent divorce new flame etc.....
I mentioned a nice place in Redondo Beach for breakfast and was told he was watching his "expense money" and could not go there as it was too expensive for him! Rather telling I would say!
Our passion is travel and like your self and Old Fella tonight will be spent quaffing a nice Sauvignon Blanc around 46.5 South
Enjoy your your retirement Raven you have earned it and yes time will accelerate and while you have good health enjoy it and you too Old Fella

[Old fella]

The Raven
Well done and Bravo Zulu on managing your life's financials which should be mandatory reading at 21!
It all boils down to how much "stuff" you need in your life which is not that much. A thousand years ago on a LAX lay over my F/O was telling me about his new house (bigger than mine), his car way better than mine and his recent divorce new flame etc.....
I mentioned a nice place in Redondo Beach for breakfast and was told he was watching his "expense money" and could not go there as it was too expensive for him! Rather telling I would say!
Our passion is travel and like your self and Old Fella tonight will be spent quaffing a nice Sauvignon Blanc around 46.5 South
Enjoy your your retirement Raven you have earned it and yes time will accelerate and while you have good health enjoy it and you too Old Fella

Back at ya. Happiest people I have noted are those who after 30+ working years, saw themselves clear(through their own initiative) and said"been there, done that", by your leave and it's time. Yup, seen it all, those with the bigger shack, the two-seater ragtop, SUV, the trade in for new blonde 30 yrs his junior and still working ....

[aV1aTOr]

Some things to keep in mind about the DC plan that new hires are now on:
As has been mentioned, ability to contribute between 3%-6%. No more, no less. This is limited by the income tax contribution limit which is ~$147/yr gross income. (indexed to increase).
The fund is self directed, so you need to evaluate your risk appetite for growth/stability of the fund.
Since the fund is a finite amount of money based on how much you contributed and for how long (35 yrs max), you must decide your own draw down rate in retirement. How long do you plan to live, and how much do you plan to leave to your estate?
This raises an important advantage of the DC plan: it is your money. If you decide to call it quits with AC or flying in general after 15 years, you take your pot and go. No penalties. If AC goes belly up half way through your career, no one can touch your fund. It's your possession, as much as the money in your bank account is.
Also, here's another huge advantage: if you die early (say 65) and still have let's say 1 million in the account, and no spouse (or they go early too), it goes to your estate/will. Not so with the DB pension. With the DB, poof. It's gone. The DC is yours to pass on, however much is left when you die.
Downside, you are at the mercy of the markets and your direction within some preset mixed funds. Short term this could be terrifying. Long term, the TSX has done an average 7% return over the past 50 years or so.
A very basic example, if a pilot had a 30 year career with a conservative equipment (pay) progression, and maxed out his/her contributions (6% until the ceiling is reached), at a conservative 5% return on the portfolio over the life of the fund, he/she would have a pot worth roughly 1.3 million. It's no 125k/yr pension like the DB might be, but as I mentioned it has it's upsides.
Hope this helps. Very high likelihood this will all change multiple times in the future with each new contract, but as it stands now, this is what new hires get.