Demystifying your cost-of-living adjustment (COLA) benefit

As a Public Service Pension Plan (PSPP) member, you receive a valuable benefit called a cost-of-living adjustment (COLA) each year that allows you to maintain your buying power as prices rise with inflation. This year, COLA is 6.3 per cent.

COLA is cumulative, which means that this year’s increase is added to your previous year’s pension. COLA is announced each December on OPB.ca. Your personal COLA increase is provided in the annual Retired Members Statement (RMS) you receive in January.

Breaking down COLA

We are required under our PSPP plan text to calculate COLA using a specific formula based on the consumer price index (CPI). It is a measure of the average price change of goods and services bought by Canadians. CPI is a measure of inflation determined by the Canadian Government and released by Statistics Canada.

The CPI is calculated monthly by Statistics Canada and measures the changes in prices of certain consumer items. The CPI is calculated using “a fixed basket of goods and services.” Picture a basket filled with items such as housing, food, water and hydro, clothing and transportation. Items change yearly to represent Canadian spending patterns. The cost change of these items is tracked over time. If the total cost of the basket increases, inflation will rise.

Your COLA may not reflect the increase in the cost of goods and services or match the inflation rate in any given month. This is because our calculation approach ensures that peaks and valleys in inflation are averaged over a longer period of time.

Three-step process to calculating your COLA:

• We look at the CPI over a 24-month period that ends on September 30 of the current year. We then divide that figure into two 12-month periods both from October 1 to September 30
• For each 12-month period, we calculate the average of the monthly CPI
• Then we divide the average of the second 12-month period by the average of the first 12-month period, which gives us the COLA for the coming year

Your PSPP pension is increased by the amount of the CPI up to a maximum of eight per cent. When the CPI is higher than eight per cent, the excess is carried over to the next year when the CPI is less than eight per cent.

Regardless of your eligible retirement date, COLA helps protect your pension from inflation to help you maintain your purchasing power throughout retirement. Our formula also protects the sustainability of the PSPP plan for our current and future members.