School’s Out!

Last week was the end of high school for our family.  Hopefully the kids and their friends are on to bigger and better things.  Last week also marked the end of a career for thousands of teachers in Ontario.  A chance to move on after a career of public service teaching our children everything from tying their shoes and their ABCs to organic chemistry and calculus.

Although there are exceptions, teachers aren’t generally seen as the high-flyers in our communities.  Rather, these are the folks that dutifully show up day-in and day-out, year-in and year-out to get our kids launched into the world.  While there are reasons to complain about the salary and benefits that a teacher receives I think we should offer some gratitude to those that slug it out in the trenches with not just the bright and engaged kids but the kids that make each day in a school a challenge.

In Ontario, teachers starting out make about $50,000 and after 10 years they make about $85,000.  Some teachers make $100k and end up on Ontario’s sunshine list, but this is not all of them for sure.  So, if you make about $85k and live next door to a teacher you might think that you should be enjoying a comparable lifestyle to your neighbour.  Unfortunately, comparing yourself to, and keeping up with, the Joneses is not so simple.

Clouding comparison are several important differences that are hidden below the surface.  First, teachers get lots of vacation, it is pushed into prescribed timelines when the school is closed – but nonetheless it is time away from work.  Add to that up to 20 sick days and you see that the teacher has much more time to sort out personal matters that other workers need to pay someone to do or need to do on the more limited number of days off available.  Some private sector employers offer unlimited sick days – many do not – and for those that do I suspect taking 20 days a year would ultimately affect your annual salary and maybe your job security.

These however are not the big difference.  The big difference is the pension promises we make to teachers.  In the language of the pension industry, teachers get a defined benefit pension plan with a ‘2% benefit’ for each year of service and based upon ‘final average earnings’.  The benefits used to be fully indexed but that is no longer guaranteed to control the cost of the promise.  This plan promises a teacher a pension of 70% of final pay after 35 years of service.  It is hard to find this type of generosity in the private sector any longer.  It’s a dog-eat-dog defined contribution world out here for most of us.

But before we go off the deep end, everyone should be reminded that teachers contribute a hefty portion of each paycheque – about 11%.  All in, to this point in the story I am not upset about the pension promise or the deal we make with teachers to take care of them after they spend their career taking care of our kids.

Where things go sideways for me is when we come to early retirement.  Most in the DC world these days should be thinking about retirement between 65 and 70.  If you are a DC plan member still thinking about retiring at age 58 then either you have done an excellent job deferring consumption and earnings, or you are just out of touch with today’s ‘pension math’ which isn’t the pension math that allowed many workers from the 1980s to retire before 65, many as young as 60 when CPP became available early.

There are two very generous features to the early retirement benefits in the Ontario Teacher’s Pension Plan.  The first is the bridge benefit, which essentially pays a teacher’s target CPP benefit to them from their early retirement date to age 65 when they are expected to start their actual CPP.  No need to start CPP early to retire early.  This is an idea from a day gone by and probably should be phased out – but I have bigger fish to fry.

The real problem is the ’85 factor’.  For the uninitiated, the 85 factor allows a teacher to retire when their age and ‘qualifying years’ add up to 85.  You might think that a qualifying year means a teacher taught for the year – but in fact, these days it means they taught for 10 days.  To be clear, the pension calculation itself is based upon ‘working service’ but it still means whatever pension is promised to you at age 65 is available without any reduction at age 55 if you have 30 qualifying years.  So, start teaching by 25 and you are out the door 30 years later.

The issue here is not just that taxpayers fund generous pensions for teachers, it is the larger social questions that this plan design raises.  Do we really want to push our well-trained and experienced teachers out of productive work so young?  Do we really want to create a system that after about 10 years of teaching you need to ‘hang on’ for another 20, whether you are good or not, whether you enjoy the work or not?  The 85 factor is widely described as the ‘golden handcuffs’.  Once the school system gets them around your wrists you can’t leave – and if a principal sees you are burned out or lacks competence and hopes you leave – that hope is in vain.

If you have a young person in your family that has gone to teacher’s college in the last decade, you are likely aware that there are more teachers at the bottom end trying to get a job than there are teachers walking out the other end in retirement – this is true even though we more or less bully teachers out the door well before age 60.  The system makes no sense especially when you consider that some teachers come back post-retirement as supply teachers.  Clearly the supply of teachers far exceeds the demand and there is no rationale for offering a super generous early retirement pension on top of the already fair wages we provide to teachers.

A pension plan designed to let teachers teach for only ten years and then let them do something different with their lives would help build a healthier teaching profession where burnout could be better fought off.  Without generous early retirement incentives, the passionate teachers that rise to the top would be welcomed to spend 40 years teaching which they would do for the gratification and not the annuitization.

Joe Nunes
Joe Nunes
Joseph Nunes, Co-founder and Executive Chairman of Actuarial Solutions Inc., has practiced in the area of pensions and retiree health plans for over 30 years. He has experience with many types of plans including single-employer, multi-employer, private sector, government, unionized, non-unionized, as well as registered and non-registered executive plans.


  1. Avatar Mel Norton says:

    Some years ago, when the OTPP was reshaped, there was an option to diminish the early retirement benefit or to diminish contributions. I would have preferred the alternate, but in a minorité of cases ( many teachers seem burned out well before having 30 years in), it maybe for the best.

    Don’t dump on this plan only . Most plans in the broader public sector are similar or richer (wrt early retirement), and with lower member contributions- including OMERS, CAAT, PSPP, OPTrusr, PSSP (grandfathered), Federally Appointed Judges, RCMP, Armed Forces, Diplomats, OPP, closed Transit, MPs, and the Cadillac, Hydro et al (factor 82)

  2. Avatar Bob T says:

    Maybe it is not burnout just good math sense and a poor set of employment rules. If we disregard the integration rules of the pension, the $80,000 teacher pays $8800 in pension contributions, close around $5200 to CPP/EI/etc. And then is taxed on the remains sum of $66,000. The teacher goes to work throughout the year performing all the tasks an full responsibilities of the job. The teacher who retires at 60 with 35 years of service gets a pension of roughly $56,000 on which he is taxes and is taxed at a lower rate with some further tax deductions and thus the take home pay is at worst about $10,000 less take home pay. With no duties or costs associated with going to work,etc. Now the agreement allows such teacher to take on work as a substitute for part of the school year and the teacher working part time with less responsibility picks up most of the $10,000. So why continue as a full time teacher.

    On the school board side, they love these folks, they cost less than a full timer in wages, they do not have to pay their portion of the pension costs nto pension fund, nor do they have other costs associated with the full timers, so I if they higher 2 or 3 part timers, they save significantly. Of course, new individuals to the field struggle to get full time jobs because their possible position is filled with retirees. Another result of course is the pension plan gets less money in contributions in total which overtime impacts all the full timers as there ar less full time teaching positions.

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