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Amendments to the Canada Pension Plan to be phased in from 2011 to 2016 Technical Presentation Last updated in January 2013 This document contains information on the Canada Pension Plan (CPP). In case of dispute, the wording and provisions of the Canada Pension Plan and Regulations prevail.

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**About this presentation**

The following presentation is intended to describe the changes which are currently being implemented to the Canada Pension Plan (CPP) at a technical level. This presentation is primarily directed at financial planners and other individuals well-versed in the current CPP provisions. This presentation is intended to demonstrate the impacts of these changes, and how they interact, in order to assist in making decisions about when to begin benefits in retirement. This presentation is separated in 3 main sections: Pages 3 to 17: General information about the C-51 Changes Pages 18 to 47: Example case studies Pages 48 to 59: CPP Retirement Benefit and Post-Retirement Benefit Calculations tables This presentation was created for information purposes only. Individuals should base their decisions on their personal situations.

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**Outline of presentation**

Modernizing the Plan to adapt to societal trends Four changes Choices depend on individual wants and needs Summary of effective dates Sources of additional information Examples of the new legislation’s application Annex: Calculation tables and formulas 3

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**CPP is adapting to societal trends**

The CPP provides partial income replacement in the case of retirement, disability, and death. Canadians are living longer and healthier lives, and this is creating greater opportunities for employment later in life. Retirement is a process that often occurs in stages, rather than as a one-time event. Changes to the CPP will ensure that the Plan remains actuarially fair and financially sustainable and that it responds to the evolving needs of Canada’s aging population and to changes in the economy and labour market. These amendments are being implemented gradually from 2011 to 2016. Changes to the Plan may affect how and when contributors choose to retire from work and when they decide to apply for a CPP retirement pension.

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**Summary of amendments to the CPP**

Restore the adjustment factors to their actuarially fair levels for retirement pensions taken before and after age 65. Amendment 2 Allow CPP retirement pension recipients who work to make contributions to a new Post-Retirement Benefit.* Amendment 3 Eliminate the requirement to stop working or decrease earnings in order to qualify for a reduced CPP retirement pension. Amendment 4 Enhance the general drop-out provision to exclude up to an additional year of low earnings from the benefit calculation. * Those who receive a retirement pension from the Quebec Pension Plan and work in Canada outside Quebec will be required to pay CPP contributions. 5

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**Rebalancing the adjustment factors for early and late retirement pensions is required…**

Rationale: The adjustment factors ensure that the effect on the Plan is the same over time regardless of when individuals choose to begin their pension. Amendment 1 Restore the adjustment factors to their actuarially fair levels for retirement pensions taken before and after age 65. Adjustment factors reflect length of time a person is expected to receive benefits (i.e. longer for early retirees / shorter for late retirees). Adjustment rate had been left unchanged since 1987, despite changes in life expectancy.

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**… to restore actuarial fairness.**

1987 Factors (Maximum): New Factors (Maximum at maturity): Age 60: reduced by 30% Age 60: reduced by 36% (2016) Age 70: increased by 30% Age 70: increased by 42% (2013)

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**Gradual changes with post-65 factors introduced faster**

Gradually increase pre-65 actuarial adjustment factors Increase post-65 actuarial adjustment factors: -0.5% per month -0.52% -0.54% -0.56% -0.58% -0.6% per month notice period 2009 2012 2013 2014 2015 2016 +0.5% per month +0.57% +0.64% +0.7% per month notice period 2009 2011 2012 2013

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**Working beneficiaries allowed to gain additional CPP retirement income…**

Rationale: Canadians are living longer and healthier lives and some are working later in life. Prior to 2012, working CPP beneficiaries between 60 and 65 could not contribute to the CPP. The CPP is changing to better recognize that retirement is a process that often occurs in stages. Amendment 2 Allow CPP retirement pension recipients who work to make contributions to a new Post- Retirement Benefit. As of 2012, for individuals who work while receiving their CPP retirement pension and are: Under age 65: contributions are mandatory for the pensioner and their employer. Between 65 and 70: contributions are optional. If an individual chooses to contribute, their employer will have to contribute. Contributions made while receiving the CPP retirement pension will build up only Post- Retirement Benefits. These contributions do not create eligibility or increase the amount of other CPP benefits (e.g. retirement, survivor, disability). These contributions are not subject to a credit split upon separation, divorce or the end of a common-law relationship.

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**…with the new Post-Retirement Benefit!**

The Post-Retirement Benefit (PRB) is a new benefit that is separate from other CPP benefits. Each year that an individual contributes will generate a new PRB, which is payable the following year and will continue for the rest of the individual’s life. PRBs are cumulative, with each year’s new benefit being added to previously earned PRBs, even if the individual is already receiving the maximum CPP retirement pension. As it is a separate benefit, PRB amounts are not subject to pension sharing. A PRB becomes effective on January 1 of the year following CPP contributions toward the PRB. The PRB is indexed and subject to the actuarial adjustment based on the recipient’s age at that time. The PRB amount can reach up to 1/40th of the annual maximum retirement pension ($303 per year or $25 monthly for 2013) for each year, adjusted for age. 10

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**Elimination of work cessation test**

Rationale: Retirement now tends to be a process rather than a one-time event. Today, older workers may stop and restart working, reduce their hours of work, or change the nature of their work. Amendment 3 Eliminate the requirement to stop working or decrease earnings in order to qualify for a reduced CPP retirement pension. Many want the flexibility to continue to work without interruption when they begin to receive their CPP retirement pension. The elimination of the work cessation test avoids disruptions in the income of workers and in the human resources of employers. It better reflects how Canadians choose to live, work and retire.

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**More years of low or zero earnings will be dropped from benefit calculation**

Rationale: People move in and out of the labour force for a variety of reasons (e.g. school, layoffs, providing care, etc.). The CPP is changing to provide increased pension protection for low-earning years and time spent outside the workforce. Amendment 4 Enhance the general drop-out provision to exclude up to an additional year of low earnings from the benefit calculation. Before 2012, the general drop-out provision was 15% of low earnings, in 2012 it increased to 16% and in 2014 it will increase to 17%. This will likely increase the benefit amount, helping those with gaps in contributions – for example, from involuntary periods out of the workforce. This will help mitigate the effects of a greater benefit reduction for those who start receiving their CPP retirement pension before age 65. It will also increase the average disability and survivor’s pension.

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**Who is affected by the changes?**

Individuals WILL be affected by changes, if they are: An employee who contributes to the CPP; A self-employed person who contributes to the CPP; Between the ages of 60 and 70 and work while receiving a CPP retirement pension (or work in Canada outside of Quebec while receiving a QPP retirement pension). The changes also affect employers who contribute to the CPP on behalf of their employees. Individuals WILL NOT be affected by these changes if they started receiving a CPP retirement pension before December 31, 2010, and they remain out of the workforce. They may, however, be required to make contributions toward the new Post-Retirement Benefit if they return to work after December 31, 2011.

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Considerations An individual under age 65 should consider the fact that once they receive the CPP retirement pension, they generally will not be eligible for the CPP disability benefit if they subsequently become disabled. The new adjustment factors will further increase the pension for those who start receiving it after age 65, and further reduce it for those who start receiving it before 65. In general, as a result of these changes, a contributor who applies for the CPP retirement pension at age 70 would receive approximately double the annual benefit they would have received had they applied for the CPP at age 60 (as of 2016), even if they do not continue to work after age 60.

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**Choices depend on an individual’s wants and needs**

When deciding whether to apply for the CPP retirement pension prior to age 65, at age 65, or after age 65 (up to age 70), contributors should consider their personal life circumstances. Sources of income, current and future Employment status now and in the future Contributor’s health History of employment and CPP contributions Whether CPP pension credits were split following a divorce, separation or the end of a common-law relationship Plans for retirement

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**Summary of effective dates**

Actuarial Adjustment Factors January 2011: Began increasing post-65 adjustment factors January 2012: Began increasing pre-65 adjustment factors Contributions from CPP retirement pension recipients toward the new Post-Retirement Benefit January 2012 (Benefit payable in 2013) Elimination of work cessation test for early receipt of CPP retirement pension January 2012 Enhancement of General Drop-out Provision January 2012 (16%) and January 2014 (17%)

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**Useful links Need more information?**

Service Canada – Canada Pension Plan (www.servicecanada.gc.ca/eng/isp/cpp/cpptoc.shtml) Annual Reports of the Canada Pension Plan (http://www.rhdcc-hrsdc.gc.ca/eng/oas-cpp/reports/index.shtml) Canada Pension Plan Actuarial Reports (http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?DetailID=499) Bill C-51, Economic Recovery Act (stimulus) (http://www2.parl.gc.ca/HousePublications/Publication.aspx?Docid= &file=4)

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Examples of the New Legislation’s Application The following examples are not recommendations. Individuals should base their decisions on their personal situations.

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**Two financial parameters determine the optimal time to receive a CPP retirement pension**

The CPP provides a great deal of flexibility in choosing the time to take the retirement pension (ages 60 to 70). The amounts that individuals receive are affected by when they choose to take their pensions. Generally, individuals will consider one or both of these factors in choosing the time to begin receiving their CPP retirement pension: the pension amount payable per month; and/or the total retirement benefits collected from the Plan. Influencing these two parameters are: Age of individual and time of CPP retirement Health considerations and Labour market participation before and/or after receiving the pension The following case scenarios examine both parameters and their interaction.

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**Consideration: Tendency to underestimate lifespan as life expectancies increase**

Life expectancy increases during life time With health care advancements and quality of life improvements over the last 40 years, people are living longer than was predicted at the time of their birth. The average life expectancy of an individual who turned 60 in 2010 is projected to be an additional 27.2 years [age 87] for a woman, and 24.7 years [age 84] for a man. The average life expectancy of an individual who turned 65 in 2010 is projected to be an additional 22.6 years [age 87] for a woman, and 20.3 years [age 85] for a man. Years of life remaining at age 60 and 65 1966 1980 1990 2000 2010 2015 2025 2050 60 22.9 24.1 25.4 26.4 27.2 27.5 28.0 29.3 65 18.5 19.7 20.8 21.9 22.6 23.5 24.6 17.8 19.5 21.6 24.7 25.1 25.8 27.1 14.0 15.5 17.2 19.0 20.3 20.7 21.3 Note: Life Expectancy projections presented here are taken from the 25th Actuarial Report on the CPP

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**retirement pension to maximize**

Sample Case 1 Gradual transition to retirement with average career earnings Mr. Brown (born 1953) plans to gradually transition to retirement: he will switch to part-time work at age 63 and fully retire at 68, while continuously contributing to the CPP. Mr. Brown has a work history with few gaps and an employer-sponsored pension. In 2013, his expected unadjusted CPP retirement pension is about 90% of the maximum. Mr. Brown will continue to work full-time at (or above) the year’s maximum pensionable earnings (YMPE), and part-time at 50% of YMPE ($25,050 in earnings, $1, in contributions) If he is healthy and has an average life expectancy (82), when is the optimal time to take his retirement pension? Begin receiving CPP retirement pension at 60, and; Continue contributing to the CPP while working part-time. Start CPP retirement pension at 63 or 65. to the CPP while working part-time. pension at 68. When to start CPP retirement pension to maximize pension payments? 21

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**Sample Case 1: Scenario 1 Start CPP at 60, continue contributing while working**

Mr. Brown’s work history is such that his unadjusted retirement pension will be $911.25, including 16% of the general drop-out. As he reaches 60 in 2013, the new actuarial reduction of 32.4% will apply (i.e., pension would be 67.6% of full pension at 65). Therefore, his actual pension at age 60 will be: $ x 67.6%=$616.01 Suppose earnings from work after CPP retirement 2013 (60) – 100% of YMPE 2016 (63) – 100% of YMPE 2019 (66) – 50% of YMPE 2014 (61) – 100% of YMPE 2017 (64) – 50% of YMPE 2020 (67) – 50% of YMPE 2015 (62) – 100% of YMPE 2018 (65) – 50% of YMPE 2021 (68) – 50% of YMPE The monthly PRB is a separate benefit. Each year of contributions results in a new PRB, payable the following year and actuarially adjusted for the age of the contributor. The total monthly pension at age 69 is the sum of all PRBs and the early retirement benefit taken at 60 = $ If life expectancy is 82 years, the life-time CPP pension will be $204,570. 2014 – $18.51 2017 – $23.49 2020 – $14.78 2015 – $20.03 2018 – $12.66 2021 – $15.85 2016 – $21.67 2019 – $13.72 2022 – $16.91 22

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**Sample Case 1: Scenario 2 Start CPP at 63 when full-time work stops, continue part-time work**

By continuing to work and starting his pension later, Mr. Brown increases his lifetime average earnings. His unadjusted retirement pension will now be $942.07, including the 17% general drop-out. As he turns 63 in 2016, the new actuarial reduction of 14.4% will apply (i.e., pension is 85.6% of full pension at age 65). His actual pension at age 63 will be: $ x 85.6%=$806.41 Earnings from work after CPP retirement 2016 (63) – 100% of YMPE 2018 (65) – 50% of YMPE 2020 (67) – 50% of YMPE 2017 (64) – 50% of YMPE 2019 (66) – 50% of YMPE 2021 (68) – 50% of YMPE The monthly PRB is a separate benefit. Each year of contributions results in a new PRB, payable the following year and actuarially adjusted for the age of the contributor. The total monthly pension at age 69 is the sum of all PRBs and the early retirement pension taken at 63 = $ If life expectancy is 82 years, the life-time CPP pension will be $212,959. 2017 – $23.49 2019 – $13.72 2021 – $15.85 2018 – $12.66 2020 – $14.78 2022 – $16.91 23

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**Sample Case 1: Scenario 3 Work full-time to 63, start CPP at 65, continue part-time work until 68**

At age 65, (2018) Mr. Brown’s unadjusted retirement pension will be $ Note: This amount is almost identical to the one in Scenario 2. Years of lower or zero earnings at the end of a career may reduce a contributor’s lifetime average, and thus, their unadjusted retirement amount. However, as he will start receiving his benefit at age 65, there is no actuarial adjustment. Therefore, his actual pension is also $940.92, which is higher than in Scenario 2. Suppose earnings from work : 2018 (65) – 50% of YMPE 2020 (67) – 50% of YMPE 2019 (66) – 50% of YMPE 2021 (68) – 50% of YMPE The monthly PRB is a separate benefit. Each year of contributions results in a new PRB, payable the following year and actuarially adjusted for the age of the contributor. The total monthly pension at age 69 is the sum of all PRBs and the full retirement benefit taken at 65 = $1, If Mr. Brown lives to age 82, the life-time CPP pension will be $214,568. 2019 – $13.72 2021 – $15.85 2020 – $14.78 2022 – $16.91 24

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**Sample Case 1: Scenario 4 Work full-time to 63, work part-time until 68 (and start CPP then)**

At age 68, Mr. Brown’s unadjusted CPP retirement pension will be $ Note: This increase is the result of earnings substitution which allows someone who has not yet taken up their retirement pension and continues to work past the age of 65 to replace earnings gaps in their earlier work history (such as periods of unemployment) with months of earnings after age 65. In 2021 the new adjustment factor for starting the pension at age 68 is 125.2%. Thus, Mr. Brown’s actual retirement pension will be: $ x 125.2%=$1,226.77 If a contributor postpones his or her CPP retirement pension until after age 65 (up to age 70), there will likely be a significant increase in the retirement pension. If Mr. Brown lives to age 82, the life-time CPP pension will be $220,819. 25

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**Sample Case 1: Summary $616.01 $806.41 $940.92 $1,226.77 $773.61**

1) Start CPP at 60 Continue working full-time until 63 and then part-time, contributing until 68 2) Stop working full-time at 63 and begin CPP then, and continue part-time work, contributing until 68 3) Stop working full-time at 63, continue part-time work, contributing until 68, and start CPP at 65 4) Stop working full-time at 63, continue part-time, contributing until 68, and start CPP at 68 CPP at time of receipt $616.01 $806.41 $940.92 $1,226.77 CPP (with PRBs) at age 69 $773.61 $903.82 $1,002.17 Life-time CPP pension by age 82 $204,570 $212,959 $214,568 $220,819 In this example, Scenario 2 and Scenario 3 produce similar results in terms of the total amount collected from the Plan. However, the monthly benefit will be higher if the retirement pension is taken at age 65 (Scenario 3) rather than 63 (Scenario 2). If an individual with a continuous work history has average or above average life expectancy, postponing receipt of the pension until age 68 will likely produce superior results for both the life-time CPP pension and the monthly benefit.

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**Sample Case 2 Interrupted career earnings and small expected pension**

Ms. Smith reaches 65 in 2017 and plans to supplement her pension by working part-time at 10% of the average wage -- Annual earnings of $5,010 and contributions of $74.75 in 2012 dollars. Ms. Smith spent 10 years outside the workforce to care for her young children. In addition to this, she has an interrupted employment history and her expected unadjusted CPP retirement pension is 35% of the maximum. She is healthy and has an average life expectancy (86). Start CPP retirement pension at 64 or 65, continue working and contributing to CPP until 70 pension at 65 with no further contributions. Continue working part- time until 70 and start CPP retirement pension at 70. When to start CPP retirement pension to maximize pension payments? 27

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**Sample Case 2: Scenario 1 Start CPP at age 64, continue contributing until 69**

Based on her work history, Ms. Smith’s unadjusted retirement pension will be $350.99, taking into account the new 17% general drop-out. As she reaches 64 in 2016, the new actuarial reduction of 7.2% will apply (pension is 92.8%). Her actual pension at age 64 will be: $ x 92.8%=$325.72 Earnings from work: 2016 (64) – 10% of YMPE 2018 (66) – 10% of YMPE 2020 (68) – 10% of YMPE 2017 (65) – 10% of YMPE 2019 (67) – 10% of YMPE 2021 (69) – 10% of YMPE The monthly PRB is a separate benefit. Each year of contributions results in a new PRB, payable the following year and actuarially adjusted for the age of the contributor. The total monthly benefit amount at age 71 is the sum of all Ms. Smith’s PRBs and her CPP retirement pension (taken at age 64) = $ If Ms. Smith lives to age 85, the life-time CPP pension will be $90,024. 2017 – $2.53 2019 – $2.96 2021 – $3.38 2018 – $2.74 2020 – $3.17 2022 – $3.59 28

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**Sample Case 2: Scenario 2 Start CPP at 65, continue contributing until age 69**

Based on her work history (and additional year of work), Ms. Smith’s unadjusted retirement pension will be $ In 2017, the new 17% general drop-out will apply. As she retires at 65, there will be no upward or downward adjustment to her CPP retirement pension. Her actual pension amount will be $ Earnings from work: 2017 (65) – 10% of YMPE 2019 (67) – 10% of YMPE 2021 (69) – 10% of YMPE 2018 (66) – 10% of YMPE 2020 (68) – 10% of YMPE The monthly PRB is a separate benefit. Each year of contributions results in a new PRB, payable the following year and actuarially adjusted for the age of the contributor. The total monthly pension at age 71 is the sum of all PRBs and the CPP retirement pension (taken at age 65) = $ If Ms. Smith lives to age 85, the life-time CPP pension will be $90,286. 2018 – $2.74 2020 – $3.17 2022 – $3.59 2019 – $2.96 2021 – $3.38 29

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**Sample Case 2: Scenarios 3 and 4**

Scenario 3. Start CPP retirement pension at 65 with no further contributions Based on her work history, Ms. Smith’s unadjusted retirement pension will be $ In 2017 the new general drop-out of 17% will apply. As she takes her pension at age 65, it will not be adjusted upward or downward. Her actual pension amount will be $ If she ceases contributing to the CPP, no additional benefits are earned. If she lives to age 85, the life-time CPP pension will be $86,889. Scenario 4. Continue contributing until 70 and start retirement pension at 70 Based on her additional years of contributions, Ms. Smith’s unadjusted retirement pension will now be $ As she takes the pension at age 70 in 2022, the new general drop-out of 17% and the new actuarial adjustment of 42% will apply. Her actual CPP retirement pension will be: $ x 142%=$513.02 If she lives to age 85, the life-time CPP pension will be $98,500. 30

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**Sample Case 2: Summary $325.72 $344.80 $513.02 $344.09 $360.64 $90,024**

1) Start CPP at 64 and continue contributing until 70 2) Start CPP at 65 and continue contributing until 70 3) Start CPP at 65 with no further contributions 4) Continue contributions until 70 and start CPP at 70 CPP benefit at time of receipt $325.72 $344.80 $513.02 CPP benefit (with PRBs) at age 70 $344.09 $360.64 Life-time CPP pension by age 86 $90,024 $90,286 $86,889 $98,500 If a contributor has an inconsistent employment history and is able and willing to work and continue contributing to the CPP, postponing receipt of the CPP retirement pension will increase the benefit amounts received (given average or above-average lifespan). Delaying taking the retirement pension by one year (65 vs. 64) results in a small increase in benefits (Scenarios 1 and 2). The largest monthly benefits and life-time CPP pension can be obtained by continuing to contribute and getting the maximum actuarial adjustment by taking the CPP retirement pension at age 70 (Scenario 4). Continuing to contribute to the CPP after collecting the retirement pension will increase the amount of benefits through the PRB; however, due to the actuarial adjustments, greater total benefit amounts may be received by postponing taking the retirement pension until after age 65. 31

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**Sample Case 3 Poor health and below average life expectancy**

Mr. Scott reaches 60 in He was recently laid off and is in poor health. As a result, he now works part-time, earning 10% of the average annual wage (annual earnings $5,010.00; contributions $74.75 in 2012 dollars). Earlier in his career, Mr. Scott had a few work interruptions and his income was below average. His expected unadjusted pension is 50% of the maximum retirement pension. He has less than an average life expectancy (age 69). Begin receiving CPP retirement pension at 60 or 61. Start CPP retirement pension at 65. pension at 60. Work part-time and continue contributing to the CPP until age 64. When to start CPP retirement pension to maximize pension payments? 32

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**Sample Case 3: Scenario 1 and 2**

Scenario 1: Begin receiving CPP retirement pension at 60 with no further contributions Based on his work history, Mr. Scott’s unadjusted retirement pension will be $506.25, including a new general drop-out of 16%. As he reaches 60 in 201, the new actuarial reduction of 32.4% will apply. His actual pension at age 60 will therefore be: $ x 67.6%=$342.23 If he lives to age 69, the life-time CPP pension will be $36,960. Scenario 2: Work part time until age 61, begin receiving CPP retirement pension at 61 with no further contributions. Mr. Scott works one additional year at a lower wage; his unadjusted retirement pension will be $503.27, including the new general drop-out of 17%. As he reaches 61 in 2014, the new actuarial reduction of 26.88% will apply. His actual pension at age 61 will therefore be: $ x 73.12%=$367.99 If he lives to age 69, the life-time CPP pension will be $35,327. 33

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Sample Case 3: Scenario 3 Scenario 3: Keep working part-time until age 64, begin receiving CPP retirement pension at 65 with no further contributions. In 2018, a general drop-out of 17% will apply. In this case, the unadjusted retirement pension is $ As Mr. Scott starts the retirement pension at 65, his pension will not be adjusted upward or downward. If he lives to age 69, the life-time CPP pension will be $22,475. 34

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Sample Case 3: Scenario 4 Scenario 4: Start retirement pension at 60 and continue contributing until 64. Actual CPP retirement pension at age 60 will be $ as in Scenario 1. Earnings from work: The monthly PRB is a separate benefit. Each year of contributions results in a new PRB, payable the following year and actuarially adjusted for the contributor’s age. Retirement benefit with PRBs at age 65 = $350.60 If Mr. Scott lives to age 69, his life-time CPP pension will be $37,603. 2013 (60) – 10% of YMPE 2015 (62) – 10% of YMPE 2014 (61) – 10% of YMPE 2016 (63) – 10% of YMPE 2014 – $1.85 2016 – $2.17 2015 – $2.00 2017 – $2.35

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**Sample Case 3: Summary $342.23 $367.99 $468.23 $350.59 $36,960 $35,327**

1) Start CPP at 60 and no further contributions 2) Start CPP at 61 and no further contributions 3) Start CPP at 65 and no further contributions 4) Start CPP at 60 and continue contributing (until 64) CPP benefit at time of receipt $342.23 $367.99 $468.23 CPP benefit (with any PRBs) at age 65: $350.59 Life-time CPP pension by age 69 $36,960 $35,327 $22,475 $37,603 If a contributor has poor health and a short life expectancy, the total amount they collect from the CPP may be higher if they begin receiving the retirement pension as early as possible. Any delay in taking the pension will increase the monthly amount but may decrease the total amount collected, as the contributor would receive the payments for a limited period of time (Scenario 1 compared to 2 and 3). Working part-time and making CPP contributions toward the new PRB after starting the CPP retirement pension can result in small increases in CPP payments. (Scenario 4). 36

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**retirement pension to maximize**

Sample Case 4: Ceasing contributing, but postponing receipt of retirement pension (different life expectancies) Mr. Mazur will reach 60 in New adjustment factors will be fully introduced. Mr. Mazur had some career interruptions and in 2016 his predicted unadjusted retirement pension will be 75% of the maximum. He is planning to permanently stop working at age 60. Assuming his life expectancy is average (85), below average (76) or above average (93). Take CPP retirement pension at age 60 pension at age 62 or 65 pension at age 70 When to start CPP retirement pension to maximize pension payments? 37

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**Sample Case 4 Stop work at 60, start CPP at 60 or 62**

Scenario 1 Based on his work history, Mr. Mazur’s unadjusted retirement pension at age 60 will be $ As he will reach 60 in 2016, the general drop-out is 17% and the new 36%reduction factor applies (64.0% of a full pension). His actual pension at 60 will be: $ x 64.0%=$486.00 If he lives to age 76, his life-time CPP pension will be $99,144. If he lives to age 85, his life-time CPP pension will be $151,632. If he lives to age 93, his life-time CPP pension will be $198,288. Scenario 2 If he stops working at 60, but postpones starting the CPP retirement pension until 62, the unadjusted retirement pension would be $ (years of zero earnings at the end of contributory period reduce the pension). As he will reach 62 in 2018, the new drop-out of 17% and the new 21.6% reduction factor will apply (i.e. 78.4% of a full pension). His actual pension at age 62 will be: $ x 78.4%=$568.29 If he lives to age 76, his life-time CPP pension will be $102,292. If he lives to age 85, his life-time CPP pension will be $163,667. If he lives to age 93, his life-time CPP pension will be $218,223. 38

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**Sample Case 4 Stop work at 60, take up CPP at 65 or 70**

Scenario 3 If Mr. Mazur stops working at age 60, but postpones starting the CPP retirement pension until 65, his unadjusted retirement pension at age 65 will be $ (years of zero earnings at the end of contributory period reduce the pension). As he will reach age 65 in 2021, the general drop-out is 17%. Since he starts the pension at 65, there is no adjustment up or down. His actual pension at age 65 will be: $ x 100%=$678.59 If he lives to age 76, his life-time CPP pension will be $97,717. If he lives to age 85, his life-time CPP pension will be $171,005. If he lives to age 93, his life-time CPP pension will be $236,149. Scenario 4 If he stops working at 60, but postpones taking the CPP retirement pension until age 70, the unadjusted retirement pension will be $ As he will reach 70 in 2026, the general drop-out is 17% and the new actuarial increase will apply (i.e. 142% of a full pension). His actual pension at age 70 will be: $ x 142%=$963.60 If he lives to age 76, his life-time CPP pension will be $80,942. If he lives to age 85, his life-time CPP pension will be $185,011. If he lives to age 93, his life-time CPP pension will be $277,516. 39

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**Client stopped working at age 60**

Sample Case 4: Summary Client stopped working at age 60 Start CPP at 60 Start CPP at 62 Start CPP at 65 Start CPP at 70 CPP benefit at time of receipt $486.00 $568.29 $678.59 $963.60 Life-time CPP pension by age 76 (below average life expectancy) $99,144 $102,292 $97,717 $80,942 Life-time CPP pension by age 85 (average life expectancy) $151,632 $163,667 $171,005 $185,011 Life-time CPP pension by age 93 (above average life expectancy) $198,288 $218,223 $236,149 $277,516 A contributor who postpones applying for the CPP retirement pension until age 70 will receive approximately double the monthly benefit they would have received had they started the pension at age 60 (as of 2016), even if they do not continue to work after age 60. (First row) However, if the contributor’s lifespan is below average, the maximum pension (age 70) would not lead to the highest life-time CPP pension. (Second row) If the contributor has an average or above average lifespan, the bigger pension taken at age 70 would lead to a higher life-time CPP pension. (Third and fourth rows) Taking the pension at age 60 in the majority of cases would lead to the minimum life-time CPP pension. 40

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Methodology The preceding examples provide comparisons of pension benefits valued in constant 2013 dollars. The calculations are based on fixing the maximum retirement pension to the 2013 value, while using YMPE value from the previous year to show the lagged effect of the PRB. YMPE (2012) was $50,100 and the 2013 maximum monthly unadjusted retirement pension is $1,012.50 The maximum annual contribution for employees in 2012 was $2,306.70 The comparison of the net present value (NPV) of future benefits is not provided, as: The YMPE is indexed annually according to average wage growth. The future YMPE and the maximum CPP retirement pension in the year the pension starts would be taken into consideration while calculating an individual’s pension; therefore, the actual pensions will be of higher dollar value than indicated in the examples provided here. Therefore, constant 2013 dollars are a good proxy of the NPV of future benefits.

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Annex Calculation Tables

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**Calculating CPP Retirement Pension**

In 2013, contributions are paid on earnings between $3,500, the Year’s Basic Exemption (YBE), and $51,100, the Year’s Maximum Pensionable Earnings (YMPE). Assuming a contributor, now aged 65, began contributing to the CPP in 1966 and is retiring sometime in 2013. Step 1 Determine average YMPE over last five years, including year of retirement. Add the YMPE for the year 2011 and each YMPE for the four previous years, then divide by five: $51,100 + $50,100 + $48,300 + $47,200 + $46,300 = $243,000 $243,000 / 5 = $48,600 The five-year average of the YMPE is called MPEA (Maximum Pensionable Earnings Average) and for the year 2013 is $48,600. Step 2 Convert the earnings for each year since 1966 into 2013 dollars. Suppose the person had earnings of $5,200 in The YMPE in that year was $10,400. To convert the earnings to 2010 dollars, you look at the relationship of the amounts: $5,200 is to $10,400 As X is to MPEA (that is $48,600) So $5,200 in 1978 dollars is the same as $24,300 in 2013 dollars. Repeat this calculation for each year in the contributory period in which contributions were made from 1966 to 2013. FOR ILLUSTRATION PUPOSES OTHER CONSIDERATIONS This is the simplest example of how to calculate a CPP retirement pension. The calculation would be more complex if it included variables such as the child rearing provision, disability benefits, credit splitting, survivor benefits, or provisions for early or late retirement. One thing to remember: for the sake of simplification, we’re talking in terms of years, however, the actual CPP calculation is performed on a monthly basis (annual income is divided equally into months) – for the purposes of CPP calculation, each month remaining in the contributory period has exactly the same weight in the final calculation of the pension. 43

44
**Calculating CPP Retirement Pension (cont.)**

Step 3 Once all the earnings are in 2013 dollars, identify and eliminate from the calculation of the pension the 16 percent of the years with low or no earnings (e.g. due to periods of education, unemployment, etc.). In this example, approximately 7.5 of the 47 years in the contributory period are eliminated. Step 4 Add the earnings (in 2013 dollars) for each of the remaining 39.5 years, and divide the total by The result is the yearly average pensionable earnings in 2013 dollars. Step 5 Multiply the yearly average pensionable earnings by 0.25 (the CPP pension replaces up to 25 percent of the average industrial wage). For the monthly pension payment, divide the product by 12. If the contributor’s average pensionable earnings were $37,600, the contributor’s monthly pension would be calculated as follows: $37,600 X 0.25 = $9,400 per year $9,400 / 12 = $ per month. *Note: As this is for information purposes only, the calculations performed below above done at an annual level, while the actual CPP benefit calculation is done at the monthly (rather than annual) level, such that steps 3 and 4 below would look at number of contributory months and average monthly earnings. For previous YMPE’s, refer to the document entitled, The CPP and OAS Stats Book, Table # 16 by visiting the following website: OTHER CONSIDERATIONS This is the simplest example of how to calculate a CPP retirement pension. The calculation would be more complex if it included variables such as the child rearing provision, disability benefits, credit splitting, survivor benefits, or provisions for early or late retirement. It is important to recognize that for the CPP calculation, each year has exactly the same weight in the final calculation of the pension. 44

45
**Calculating new Post-Retirement Benefit (PRB)**

The new benefit maximum amount is equal to 1/40th of the maximum CPP retirement pension for the year in pay. Thus, someone with earnings of half of YMPE would receive a PRB of one half of 1/40th of maximum pension. Each year’s PRB is considered its own “new” benefit, and is subject to the actuarial adjustment based on the recipient’s age on January 1 of the year following the year in which contributions were made. The formula for calculating a (monthly) PRB based on earnings in 2012 is: [PE(2012)/YMPE(2012)] x 1/40 x 25% x MPEA(2013) x AAF(1-Jan-2013) /12, where: PE = Pensionable Earnings YMPE = Year’s Maximum Pensionable Earnings MPEA = Maximum Pensionable Earnings Average (25% of this amount is maximum pension for the year) AAF = Actuarial Adjustment factor at age on 1 January 2013. The formula for PRB in this slide reflects calculations for the benefit earned in 2012 and paid in 2013. 45

46
**PRB Calculation Example**

Consider the case of Mr. Lee, who took up his retirement pension at age 60 in 2007, and had $55,000 of earnings in 2012. The formula for calculating Mr. Lee’s new monthly (2013) PRB is as follows: [(A/B) × C × D × E] / 12 = $28.15/month Where: A= Pensionable Earnings (2012) = $50,100 (Can’t exceed YMPE) B=YMPE (2012) = $50,100 C= (1/40 x 25%) D= MPEA (2013) = $48,600 E= Actuarial Adjustment Factor = 1.112 Mr. Lee is on 1 January 2013, subject to 16 months of adjustment 16 x = = 1.112 Adding those values to the formula: [($50,100/$50,100) x x $48,600 x 1.112]/12 = $28.15/month

47
**Pension calculation table for 2010 (adjustment factors: -0**

Pension calculation table for 2010 (adjustment factors: % per month before 65, +0.5% per month after 65) AGE 60 61 62 63 64 65 66 67 68 69 70 70% 76% 82% 88% 94% 100% 106% 112% 118% 124% 130% 70.50% 76.50% 82.50% 88.50% 94.50% 100.50% 106.50% 112.50% 118.50% 124.50% 71% 77% 83% 89% 95% 101% 107% 113% 119% 125% 71.50% 77.50% 83.50% 89.50% 95.50% 101.50% 107.50% 113.50% 119.50% 125.50% 72% 78% 84% 90% 96% 102% 108% 114% 120% 126% 72.50% 78.50% 84.50% 90.50% 96.50% 102.50% 108.50% 114.50% 120.50% 126.50% 73% 79% 85% 91% 97% 103% 109% 115% 121% 127% 73.50% 79.50% 85.50% 91.50% 97.50% 103.50% 109.50% 115.50% 121.50% 127.50% 74% 80% 86% 92% 98% 104% 110% 116% 122% 128% 74.50% 80.50% 86.50% 92.50% 98.50% 104.50% 110.50% 116.50% 122.50% 128.50% 75% 81% 87% 93% 99% 105% 111% 117% 123% 129% 75.50% 81.50% 87.50% 93.50% 99.50% 105.50% 111.50% 117.50% 123.50% 129.50% Multiplier for the pension amount for each month between 60 and 70th birthdays

48
**Pension calculation table for 2011 (adjustment factors : -0**

Pension calculation table for 2011 (adjustment factors : % per month before 65 [notice period], +0.57% per month after 65) AGE 60 61 62 63 64 65 66 67 68 69 70 70% 76% 82% 88% 94% 100% 106.84% 113.68% 120.52% 127.36% 134.20% 70.50% 76.50% 82.50% 88.50% 94.50% 100.57% 107.41% 114.25% 121.09% 127.93% 71% 77% 83% 89% 95% 101.14% 107.98% 114.82% 121.66% 128.50% 71.50% 77.50% 83.50% 89.50% 95.50% 101.71% 108.55% 115.39% 122.23% 129.07% 72% 78% 84% 90% 96% 102.28% 109.12% 115.96% 122.80% 129.64% 72.50% 78.50% 84.50% 90.50% 96.50% 102.85% 109.69% 116.53% 123.37% 130.21% 73% 79% 85% 91% 97% 103.42% 110.26% 117.10% 123.94% 130.78% 73.50% 79.50% 85.50% 91.50% 97.50% 103.99% 110.83% 117.67% 124.51% 131.35% 74% 80% 86% 92% 98% 104.56% 111.40% 118.24% 125.08% 131.92% 74.50% 80.50% 86.50% 92.50% 98.50% 105.13% 111.97% 118.81% 125.65% 132.49% 75% 81% 87% 93% 99% 105.70% 112.54% 119.38% 126.22% 133.06% 75.50% 81.50% 87.50% 93.50% 99.50% 106.27% 113.11% 119.95% 126.79% 133.63% Multiplier for the pension amount for each month between 60 and 70th birthdays

49
**Pension calculation table for 2012 (adjustment factors: -0**

Pension calculation table for 2012 (adjustment factors: % per month before 65, +0.64% per month after 65) AGE 60 61 62 63 64 65 66 67 68 69 70 68.80% 75.04% 81.28% 87.52% 93.76% 100% 107.68% 115.36% 123.04% 130.72% 138.40% 69.32% 75.56% 81.80% 88.04% 94.28% 100.64% 108.32% 116.00% 123.68% 131.36% 69.84% 76.08% 82.32% 88.56% 94.80% 101.28% 108.96% 116.64% 124.32% 132.00% 70.36% 76.60% 82.84% 89.08% 95.32% 101.92% 109.60% 117.28% 124.96% 132.64% 70.88% 77.12% 83.36% 89.60% 95.84% 102.56% 110.24% 117.92% 125.60% 133.28% 71.40% 77.64% 83.88% 90.12% 96.36% 103.20% 110.88% 118.56% 126.24% 133.92% 71.92% 78.16% 84.40% 90.64% 96.88% 103.84% 111.52% 119.20% 126.88% 134.56% 72.44% 78.68% 84.92% 91.16% 97.40% 104.48% 112.16% 119.84% 127.52% 135.20% 72.96% 79.20% 85.44% 91.68% 97.92% 105.12% 112.80% 120.48% 128.16% 135.84% 73.48% 79.72% 85.96% 92.20% 98.44% 105.76% 113.44% 121.12% 128.80% 136.48% 74.00% 80.24% 86.48% 92.72% 98.96% 106.40% 114.08% 121.76% 129.44% 137.12% 74.52% 80.76% 87.00% 93.24% 99.48% 107.04% 114.72% 122.40% 130.08% 137.76% Multiplier for the pension amount for each month between 60 and 70th birthdays

50
**Pension calculation table for 2013 (adjustment factors: -0**

Pension calculation table for 2013 (adjustment factors: % per month before 65, +0.7% per month after 65) AGE 60 61 62 63 64 65 66 67 68 69 70 67.6% 74.08% 80.56% 87.04% 93.52% 100% 108.4% 116.8% 125.2% 133.6% 142% 68.14% 74.62% 81.1% 87.58% 94.06% 100.7% 109.1% 117.5% 125.9% 134.3% 68.68% 75.16% 81.64% 88.12% 94.60% 101.4% 109.8% 118.2% 126.6% 135% 69.22% 75.7% 82.18% 88.66% 95.14% 102.1% 110.5% 118.9% 127.3% 135.7% 69.76% 76.24% 82.72% 89.2% 95.68% 102.8% 111.2% 119.6% 128% 136.4% 70.3% 76.78% 83.26% 89.74% 96.22% 103.5% 111.9% 120.3% 128.7% 137.1% 70.84% 77.32% 83.8% 90.28% 96.76% 104.2% 112.6% 121% 129.4% 137.8% 71.38% 77.86% 84.34% 90.82% 97.3% 104.9% 113.3% 121.7% 130.1% 138.5% 71.92% 78.4% 84.88% 91.36% 97.84% 105.6% 114% 122.4% 130.8% 139.2% 72.46% 78.94% 85.42% 91.9% 98.38% 106.3% 114.7% 123.1% 131.5% 139.9% 73% 79.48% 85.96% 92.44% 98.92% 107% 115.4% 123.8% 132.2% 140.6% 73.54% 80.02% 86.50% 92.98% 99.46% 107.7% 116.1% 124.5% 132.9% 141.3% Multiplier for the pension amount for each month between 60 and 70th birthdays

51
**Pension calculation table for 2014 (adjustment factors: -0**

Pension calculation table for 2014 (adjustment factors: % per month before 65, +0.7% per month after 65) AGE 60 61 62 63 64 65 66 67 68 69 70 66.40% 73.12% 79.84% 86.56% 93.28% 100% 108.4% 116.8% 125.2% 133.6% 142% 66.96% 73.68% 80.40% 87.12% 93.84% 100.7% 109.1% 117.5% 125.9% 134.3% 67.52% 74.24% 80.96% 87.68% 94.40% 101.4% 109.8% 118.2% 126.6% 135% 68.08% 74.80% 81.52% 88.24% 94.96% 102.1% 110.5% 118.9% 127.3% 135.7% 68.64% 75.36% 82.08% 88.80% 95.52% 102.8% 111.2% 119.6% 128% 136.4% 69.20% 75.92% 82.64% 89.36% 96.08% 103.5% 111.9% 120.3% 128.7% 137.1% 69.76% 76.48% 83.20% 89.92% 96.64% 104.2% 112.6% 121% 129.4% 137.8% 70.32% 77.04% 83.76% 90.48% 97.20% 104.9% 113.3% 121.7% 130.1% 138.5% 70.88% 77.60% 84.32% 91.04% 97.76% 105.6% 114% 122.4% 130.8% 139.2% 71.44% 78.16% 84.88% 91.60% 98.32% 106.3% 114.7% 123.1% 131.5% 139.9% 72.00% 78.72% 85.44% 92.16% 98.88% 107% 115.4% 123.8% 132.2% 140.6% 72.56% 79.28% 86.00% 92.72% 99.44% 107.7% 116.1% 124.5% 132.9% 141.3% Multiplier for the pension amount for each month between 60 and 70th birthdays

52
**Pension calculation table for 2015 (adjustment factors: -0**

Pension calculation table for 2015 (adjustment factors: % per month before 65, +0.7% per month after 65) AGE 60 61 62 63 64 65 66 67 68 69 70 65.20% 72.16% 79.12% 86.08% 93.04% 100% 108.4% 116.8% 125.2% 133.6% 142% 65.78% 72.74% 79.70% 86.66% 93.62% 100.7% 109.1% 117.5% 125.9% 134.3% 66.36% 73.32% 80.28% 87.24% 94.20% 101.4% 109.8% 118.2% 126.6% 135% 66.94% 73.90% 80.86% 87.82% 94.78% 102.1% 110.5% 118.9% 127.3% 135.7% 67.52% 74.48% 81.44% 88.40% 95.36% 102.8% 111.2% 119.6% 128% 136.4% 68.10% 75.06% 82.02% 88.98% 95.94% 103.5% 111.9% 120.3% 128.7% 137.1% 68.68% 75.64% 82.60% 89.56% 96.52% 104.2% 112.6% 121% 129.4% 137.8% 69.26% 76.22% 83.18% 90.14% 97.10% 104.9% 113.3% 121.7% 130.1% 138.5% 69.84% 76.80% 83.76% 90.72% 97.68% 105.6% 114% 122.4% 130.8% 139.2% 70.42% 77.38% 84.34% 91.30% 98.26% 106.3% 114.7% 123.1% 131.5% 139.9% 71.00% 77.96% 84.92% 91.88% 98.84% 107% 115.4% 123.8% 132.2% 140.6% 71.58% 78.54% 85.50% 92.46% 99.42% 107.7% 116.1% 124.5% 132.9% 141.3% Multiplier for the pension amount for each month between 60 and 70th birthdays

53
**Pension calculation table for 2016 (adjustment factors: -0**

Pension calculation table for 2016 (adjustment factors: % per month before 65, +0.7% per month after 65) AGE 60 61 62 63 64 65 66 67 68 69 70 64% 71.2% 78.4% 85.6% 92.8% 100% 108.4% 116.8% 125.2% 133.6% 142% 64.60% 71.8% 79% 86.2% 93.4% 100.7% 109.1% 117.5% 125.9% 134.3% 65.2% 72.4% 79.6% 86.8% 94% 101.4% 109.8% 118.2% 126.6% 135% 65.8% 73% 80.2% 87.4% 94.6% 102.1% 110.5% 118.9% 127.3% 135.7% 66.4% 73.6% 80.8% 88% 95.2% 102.8% 111.2% 119.6% 128% 136.4% 67% 74.2% 81.4% 88.6% 95.8% 103.5% 111.9% 120.3% 128.7% 137.1% 67.6% 74.8% 82% 89.2% 96.4% 104.2% 112.6% 121% 129.4% 137.8% 68.2% 75.4% 82.6% 89.8% 97% 104.9% 113.3% 121.7% 130.1% 138.5% 68.8% 76% 83.2% 90.4% 97.6% 105.6% 114% 122.4% 130.8% 139.2% 69.4% 76.6% 83.8% 91% 98.2% 106.3% 114.7% 123.1% 131.5% 139.9% 70% 77.2% 84.4% 91.6% 98.8% 107% 115.4% 123.8% 132.2% 140.6% 70.6% 77.8% 85% 92.2% 99.4% 107.7% 116.1% 124.5% 132.9% 141.3% Multiplier for the pension amount for each month between 60 and 70th birthdays

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