Get to know your pension early

Why should I care about my pension? I’m only 31! This is a common sentiment among early-career teachers, and I hear you. Newer teachers have lots of expenses — student loans, housing, insurance — which makes 25 or 30 years down the road seem irrelevant, if not impossible. However, looking for opportunities to save and invest money early in your career will serve you well, as it maximizes the impact of compounding interest. 

The best option to save money for your future, with minimal personal risk, is your Alberta Teachers’ Retirement Fund (ATRF) pension. 

Your ATRF pension is a defined benefit pension, which means that your final pension income is based on your average salary and years of service, not investment returns. Teachers sometimes ask if they can opt out of the ATRF and just invest for themselves. That is not permitted, and there are several reasons why the pension plan is a better way to prepare for your future rather than personal savings or RRSPs.

Your contributions typically make up only about 20 per cent of your future retirement income. The rest comes from gains made by investments. And before you ask, no, you are very unlikely to be able to invest better on your own. Why?

1. Risk: If you invest your money yourself, you carry all the risk. So if you make a poor choice, or there’s a recession, you lose. ATRF can distribute the risk over 50,000 individuals over decades of time. Because of its size ($21.6 billion), ATRF is able to invest in a diverse portfolio, which helps even out any losses or bad events. In addition, ATRF invests for the long term, which allows even more investment diversity. 
2. Access: Because of its size, ATRF can invest in stuff no individual can, like commercial real estate or infra-structure (the 407 highway in Toronto, for example). 
3. Investment cost: Most mutual funds charge more than two per cent to invest your money. While you can find less expensive options, it would be very hard to match the 1.07 per cent cost that ATRF spent last year, especially given the complexities of some investments. If you don’t have the time or expertise to manage your personal investments daily, you’ll be paying for someone else’s expertise (and hoping they have your best interests at heart). 
4. Guarantee: Once you are eligible for a pension (after five years), your pension, payable at age 55, is guaranteed until your death. And if you have a pension partner, you can choose an option that pays until their death too. You can’t get that from any other investment plan for this price.
5. Cost of living: Each January your pension increases by 70 per cent (for service after 1991) of the current cost of living increase, regardless of the performance of the plan or increases paid to active teachers. Try asking a life insurance agent to quote the purchase price for an income policy that provides an increase each January ... see what they say.

Not teaching long? Leave your contributions on deposit. You can always get your pension (or contributions) at age 55 if you don’t return to teaching. Teaching is a very flexible career. Many teachers take time away for family or to try different careers. Many return to teaching later, and those early years left in the plan increase the value of the pension. Substitute teaching service can be purchased for half price at retirement too. Plus, there are reciprocal transfer agreements with all other provincial teachers’ plans if you move away from Alberta. 

Parental or other unpaid leave? You can “purchase” any unpaid leave on your return, which means that time counts as if you were working. While you can buy a leave at any time prior to retirement, it’s based on your current salary and service, so it is much more expensive the closer you are to age 55. If you can afford it, buy it while you’re young and “cheap.” If you have questions about the cost and value of buying a leave, contact ATRF at member@atrf.com (for those actively teaching).

While it may be difficult to imagine retirement this early in your career, having a defined benefit pension means you don’t have to think about retirement just yet, but awareness of your pension plan at an early age — its nuances with respect to contributions and leaves — will pay off in the long run.

If you have any questions about your pension, contact ATA Teacher Employment Services at tes@ata.ab.ca.❚

Sharon Vogrinetz is a former ATA assistant executive secretary and sat on the ATRF board of trustees from 2000 to 2012.