There will be no increase in pensions in January 2013 for McMaster retirees covered by the Salaried Pension Plan. This makes the fourth consecutive year without an increase in pensions, which translates to a decline in the real value of our pensions of approximately 7.5% over that period.

The annual January pension increase (if any) is based on the amount that the 5-year average rate of return on the pension fund, as of the previous June 30th, exceeds 4.5%. In addition, any increase in pensions is limited to the increase in the Consumer Price Index for the previous year (July 1 to June 30).

The investment return for 2011-2012 was 3.85%, giving a 1.92% average for the 5-year period ending June 30, 2012, far short of the 4.5% threshold. The average rate of return for the past 3 years was 8.42% but this was more than offset by negative rates of return during the world financial crisis in 2007-2009 (-3.98% in 2007-2008 and -11.89% in 2008-2009).

Looking forward to January 2014, a rate of return greater than 8.99% would be required for the year ending June 30, 2013 before a pension increase would be possible. Since the required rate of return is greater than the average rate of return in past years, it is very likely there will also be no pension increase in January 2014. The gross (before investment management fees and administrative expenses) rate of return for the first 3 months of 2012-2013 (July – September) was 3.6% and a positive rate of return for the October – December period is also expected, a good start to the year.

The implementation of previous decisions to diversify a portion of fund investments into long-term bonds, real estate and infrastructure has been deferred until interest rates return to normal from the unusually low current rates. Also complicating future investment decisions is a proposal by the Ontario government to create a “Super Fund” to manage the pension fund investments of Ontario universities in the future.

Robert West
MURA representative, Salaried Pension Trust Committee