CPI tracks how the average cost of a basket of goods and services changes over time. It captures price movements in areas like food, housing and transportation.
Every January, the pensions of federal public servants and veterans increase to help keep pace with rising costs. This adjustment, called indexation, is based on data from Statistics Canada’s Consumer Price Index (CPI).
In short, indexation helps protect retirement income from inflation, but it reflects the previous year’s CPI, not the current month’s prices.
What’s happening lately?
For 2025, pensions were increased by 2.7 per cent. That boost helps mitigate inflation and preserve retirees’ purchasing power. In 2026, another increase of 2 per cent has been confirmed. Because indexation compounds over time, these adjustments remain a vital safeguard to help ensure that pension income retains value even as costs rise over the years.
Comparing indexation and inflation
Inflation and indexing are not the same. Inflation refers to the increase in prices of goods and services in general terms. CPI is the most widely used measure, though several others — such as the GDP deflator or cost-of-living indices — can also capture price changes in different ways.
Indexation takes those measurements and applies them to benefits like pensions to help keep their value steady. By adjusting annually based on CPI, indexation helps counteract inflation’s long-term effects and maintain purchasing power.
What does all this mean for my pension?
Because both inflation and indexation are tied to CPI, they tend to move closely together over time. When inflation rises sharply one year, indexation reflects that increase the following year. In the long run, inflation and indexation keep up with one another, leapfrogging each other in some years, but always trending similarly.
We see the same pattern when looking at the value of an average pension over time. A pension worth roughly $25,000 in 2016 would be over $31,000 in 2025 with indexation applied. That growth reflects the compounding effect of annual indexation increases, which help preserve purchasing power as prices rise. While the average pension also changes because of factors like demographics, salary trends and retirement patterns, the broader point remains: indexation is designed to keep long-term pace with inflation.
In practical terms, this means that while indexation may not always match your personal cost increases in any one year, it does provide steady and reliable protection for your pension over time.
RCMP pensions and the federal budget
Budget 2025 puts forward a change to the indexation formula for RCMP disability pensions beginning in 2027. These benefits are currently indexed using whichever is higher: CPI or a wage-based calculation. Under the proposal, they would shift to CPI-only indexation. While CPI-based indexing is standard for many federal pensions, RCMP disability pensions serve a different purpose, providing support for members who cannot work because of service-related injuries or illnesses. Any change to how these benefits grow over time needs careful consideration to ensure stability for those who rely on them. Federal Retirees is seeking further clarity and advocating for a transparent assessment of the impacts.
This refreshed article revisits one of our most popular pension explainers, now updated with 2026 information and recent developments.