NEGOTIATING NEWS #6

MUNFA'S EARLY RETIREMENT INCENTIVE AND RETIREMENT ALLOWANCE PROPOSALS

The attractiveness of early retirement depends on numerous and diverse personal factors. Regardless of such individual considerations, someone retiring early should no longer require employment income, and should be in a position reasonably to anticipate sufficient post-retirement income from a pension or pensions, from personal savings including investment return on these savings, and, perhaps, from post-retirement employment earnings.

An early retirement incentive is intended to supplement such sources of income, to allow retirement earlier than would otherwise be possible.

The MUNFA proposals for an Early Retirement Incentive Plan and a Retirement Allowance (see Information Bulletin 1999/2000:09) are proposals for cash inducements for early retirement. Both proposals are intended to give the financial flexibility of having control of a substantial amount of one's retirement income. In particular, with the inducement amounts under the retiree's control, some inflation protection can be achieved to partially circumvent the lack of indexing which is a significant defect in the MUN Pension Plan.

The proposals have also been structured so as to be workable to an employer wishing to undertake faculty renewal in a timely and efficient fashion. It is for this reason that the proposed retirement inducements decrease with time. To encourage early retirement, inducements should encourage those interested in early retirement to retire sooner rather than later.

While the retirement inducements are not designed with specific reference to the MUN Pension Plan, most MUNFA members' retirement planning will depend primarily on their membership in that Plan. Therefore, it may be helpful to give examples of post-retirement income that can reasonably be expected from the prudent investment of the proposed retirement inducements, considering this anticipated income in the context of income provided by a MUN pension.

Under the provisions of the MUN Pension Plan, the normal retirement age is 65. After reaching the age of 55, however, an employee may elect to retire and begin collecting a pension. Between the ages of 55 and 60, if an individual has less than 30 years of pensionable service with MUN, the pension is reduced by 0.5% for each month from the date the pension begins until (and including) the month in which the individual turns 60. In other words, for someone with less than 30 years of pensionable service, a pension is reduced by 30% at age 55, by 24% at age 56, by 18% at age 57, by 12% at age 58, and by 6% at age 59. After age 60, there is no actuarial reduction. And, if years of pensionable service equal or exceed 30, there is no actuarial reduction after the age of 55. (These provisions are subject to certain specified minimum amounts of service.) Finally, for persons with 30 years of pensionable service, advanced early retirement is possible between the ages of 50 and 55, with an actuarial reduction of 6% for each year short of age 55. (Only a few MUNFA members are eligible for advanced early retirement.)

Early retirement incentive proposal

The following table gives examples of annual retirement income that could reasonably be expected from personal investment of the cash amount received pursuant to the Early Retirement Incentive in the MUNFA proposals (30.42u), combined with a pension from the MUN Pension plan.

• In each case (columns 1-12) an early retirement incentive based on a current salary of $70,000 is assumed. This value is chosen for purposes of illustration, as representative for potential retirees.

• Pension values are based on a pensionable salary of $67,456. To explain: A MUN pension is based pensionable salary, the average best 5 years' basic annual salary. On the MUNFA salary scale, salary increases by $1,272 each year. Assuming the best 5 years' of salary are earned in the last 5 years of employment, as is usual, someone currently earning $70,000 would have earned salaries of $70,000, $68,728, $67,456, $66,184, and $64,912 in his or her best 5 years, for an average of $67,456. Pension is calculated as 0.02 times pensionable salary, times years of pensionable service, less applicable actuarial reduction. The pension rollback in 1993-4 is ignored here, for simplicity.
  
  
• It is assumed that the incentive is invested, and grows at a rate of 7% compounded annually.
  
  
• It is assumed that the retiree lives to age 85, at which point the incentive (plus the income it has been generating) will be exhausted. This is a reasonably conservative assumption. According to the Statistics Canada website, in 1991 for Canadians aged 55, life expectancy was 78.2 years for men and 83.1 years for women; at age 65 life expectancy was 80.6 years for men and 84.7 years for women. For members of pension plans, life expectancy is slightly higher than that of the general population.

Compared to the values in the table, someone with a higher salary would anticipate a higher retirement income, by virtue of receiving a larger pension and inducement; someone with a lower salary would anticipate a lower retirement income. For a given age and salary, someone with more years of pensionable service would receive a higher pension and inducement, and would experience a smaller actuarial reduction, or no actuarial reduction. Again, someone with fewer years of pensionable service would have less retirement income. (Comparisons of columns 1 and 2, 2 and 9, and 6 and 12 illustrate this).

The table shows examples only. However, on the assumptions used here it is always true that the investment income generated by the proposed Early Retirement Incentive will at least offset any actuarial reduction experienced. And, because the actuarial reduction decreases as one moves closer to age 60, and becomes zero thereafter, the incentive, prudently invested, can be expected to generate appreciable amounts of additional income.

Retirement Allowance Proposal

The MUNFA Retirement Allowance proposal for members aged 62, 63, or 64, is for a retirement allowance of 1/12 of basic annual salary for each five years of service, to a maximum of 50% of basic annual salary. Thus, for someone with 30 years of service, the inducement would total one-half of salary. Assuming for purposes of illustration a current salary of $70,000, an investment return of 7% per year and a life expectancy of 85 years, the income flow expected from investment of this allowance is approximately $3,067 per year depending on age at retirement. For someone with 20 years of service, the retirement allowance proposed would equal one-third of current salary. This amount, invested on the assumptions being used, would be expected to generate about $2,045 per year.

MUNFA Negotiating Committee:

• Bill Schrank (Economics) - Chief Negotiator
• John Bear (Medicine)
• Elizabeth Browne (Library)
• Jon Church (Medicine)
• Malcolm Grant (Psychology)
• Clar Matchim (Business)
• Eric Mintz (SWGC)
• Jim Overton (Sociology)
• Elizabeth Yeoman (Education)
• Chris Youé‚ (History)
• Marian Atkinson (MUNFA Executive Officer, non-voting member)

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