Calculation of Cost of Living Adjustment (COLA)
Teachers' Pension Plan - CPI Minus 1% Method
downloadable version (PDF)
June 1, 2010
RE: NOVA SCOTIA TEACHERS’ PENSION PLAN, Indexing method of ‘CPI minus 1%’ as it pertains to Cost of Living Adjustment (COLA) or Indexing of Pension Benefit
Dear Pensioner or Beneficiary,
Effective July 1, 2010, there will not be a Cost of Living Adjustment (Indexing) granted for your monthly pension benefit from the Teachers’ Pension Plan.
An increase may only be granted when the changes in Canada’s average Consumer Price Index (CPI) are greater than 1%, ie. they would create a net positive result once the ‘minus 1%’ was deducted, per the formula below. If the net result is negative, there is no adjustment to your pension, because indexing cannot be less than zero. Based on this, the following details why no cost of living adjustment may be granted:
Increase in the average Consumer Price Index (CPI)
Calculated Cost of Living Adjustment (actually negative)
Actual Cost of Living Adjustment (indexing cannot be less than zero) |
0.5%
-1.0%
-0.5%
0.0% |
Information on the Consumer Price Index
The Pension Index for a particular year is calculated as the average of the Consumer Price Index (CPI) for Canada (All Items), as published by Statistics Canada, for the 12 months ending April 30 of the previous year. The ‘no indexing’ outcome regarding July 1, 2010 was calculated as the percentage increase in the Pension Index for 2010 over the Pension Index for 2009, less 1.0%, as shown below.
The CPI is made up of eight major components. They are:
1. Food
2. Shelter
3. Household operations and furnishings
4. Clothing and footwear
5. Transportation
6. Health and personal care
7. Recreation, education and reading
8. Alcoholic beverages and tobacco products
Goods and services are organized by Statistics Canada according to a classification system. Products are grouped with other items because they have a common end use or because they are substitutes for each other. These products are grouped together to form basic classes and these are grouped together to form the 8 major components listed above.
Calculation of the Pension Indexes for 2009 and 2010
| Month |
|
CPI |
|
Month |
|
CPI |
| May 2008 |
|
114.6 |
|
May 2009 |
|
114.7 |
| June 2008 |
|
115.4 |
|
June 2009 |
|
115.1 |
| July 2008 |
|
115.8 |
|
July 2009 |
|
114.7 |
| August 2008 |
|
115.6 |
|
August 2009 |
|
114.7 |
| September 2008 |
|
115.7 |
|
September 2009 |
|
114.7 |
| October 2008 |
|
114.5 |
|
October 2009 |
|
114.6 |
| November 2008 |
|
114.1 |
|
November 2009 |
|
115.2 |
| December 2008 |
|
113.3 |
|
December 2009 |
|
114.8 |
| January 2009 |
|
113.0 |
|
January 2010 |
|
115.1 |
| February 2009 |
|
113.8 |
|
February 2010 |
|
115.6 |
| March 2009 |
|
114.0 |
|
March 2010 |
|
115.6 |
| April 2009 |
|
113.9 |
|
April 2010 |
|
116.0 |
| Average |
|
114.5 |
|
Average |
|
115.1 |
Calculation of Cost of Living Adjustment (COLA)
Average CPI for 12 months ended April 2010
minus Average CPI for 12 months ended April 2009
divided by Average CPI for 12 months ended April 2009
minus 1.0%
= [(115.1 - 114.5) divided by 114.5] minus 1.0%
= 0.5% minus 1.0% = -0.5%
HOWEVER, BECAUSE INDEXING CANNOT BE NEGATIVE, THE COST OF LIVING ADJUSTMENT = 0.0%
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