The communication we received from our actuary, Pat Johnson, is reprinted below.
PLEASE REMEMBER - No one can predict how interest rates will move. The new calculation will be done at the end of November and will be applied on December 1. For those retiring on or before November 30 their CV will be based on the figures as of November 1. For those retiring on December 1 or later in December, their CV will be based on the figures as set on Dec 1.
For those members who are planning on taking the monthly pension, this does not affect your pension or the amount you will receive.
For those members taking their CV, the rates at the end of November will determine what amount you will receive if your retirement date is December 1 or later. If long term interest rates continue to increase in November, the CV will go down on December 1. If the long term rates go down in November the CV will increase. These calculations are done every month, and CV rates adjusted accordingly.
Right now, with the increase in interest rates so far, CV calculations show a reduction of between 4% to 9% between retiring in November, or waiting until December.
"This is just a heads up about potential rate changes for December. We are now mid-month (and the rates for December 2016 calculations won't actually be set until November 30). Following the election of Trump in the US, the Canadian interest rates used in determining the discount rates for commuted values have really spiked up (meaning commuted values for December will materially decrease if these rates hold until the end of the month).
Since the end of October, the mid-term Canada bond yields are up 34 basis points, the long-term Canada bond yields are up 37 basis points and the real return Canada bond yield is up 16 basis points.
If these rates hold until the end of the month, the commuted values for December 2016 will be 4% to 9% lower relative to November 2016. Obviously, if rates continue to climb, commuted values in December will be even lower, and if rates settle back down, the decrease in the commuted values won't be as material.
You can't ever predict interest rates with confidence, but if you have some members considering termination near the end of the month - based on the current rates you might want to suggest that they consider terminating employment near the end of November rather than early in December based on the rate change so far.
We do not know if rates will continue to rise, stay the same, or decrease. Income tax considerations will also be important factors.
Please talk to your investment advisor before making any decisions.
|Did you know ...
GSU will calculate a commuted value estimate and explain the available benefits and entitlements you are eligible for as a member of your bargaining unit.
This service is provided to you as part of your union dues.
There is no additional charge for assisting you.