STRP Focus on Equity: A New Benefit Formula

YMPE: The Year’s Maximum Pensionable Earnings – the earnings level at which all working Canadians stop contributing to the CPP each year. In 2023, it is $66,600.

You would probably agree that the current STRP formula is a little tricky to understand.  That’s because it’s what we call an “integrated” formula – it  provides different benefits below and above a certain earnings level (called the YMPE) in order to align it with benefits that you earn in the Canada Pension Plan.

There are two problems with the current formula:

1. Members who earn a lower income (i.e., teachers in their first five years) pay more per dollar of pension earned in the Plan than members who earn a higher income (i.e., LEADS members). This means that lower-paid members are subsidizing some of the benefits for higher-paid members.
2. The Canada Pension Plan is making changes to their benefits and earnings levels. Once that takes effect, the STRP’s integrated formula will no longer align, defeating the purpose of the current formula’s design.

The Solution: A new, easier-to-understand and more equitable pension formula!

Starting July 1, 2024, your pension formula will change to a flat accrual rate of 1.6 percent on all earnings. This means that the STRP will no longer be dependent on any future changes made to CPP benefits. And even better, this new accrual rate will eliminate the subsidization happening among members at different salary levels. Everyone will pay the same rate for every dollar of pension earned.

How does this change affect me?

There is no action required on your part – your pension will automatically be calculated using the new formula beginning July 1, 2024. You may notice that the contributions to the STRP (shown on your pay stub) will be a bit different than they were in previous years. That’s because along with the change to the benefit formula, the contribution rate will also change to a flat rate of 10 percent on all earnings.

While the total contributions the Plan receives will not change, the amounts each individual member will contribute may be slightly different based on how their salary currently compares to the YMPE. Lower-earning members will see increases in their future pensions but will pay a bit more in contributions. Higher-earning members will see a small decrease in future pension but will also pay a bit less.