All posts by saskpension

May 2012 returns

SPP posted a return of -2.36% to the balanced fund (BF) and 0.046% to the short-term fund (STF). The year to date return in the BF is 2.04% and in the STF is 0.155%.

Market index returns for May 2012 were:

Index May 2012 return (%)
S&P/TSX Composite (Canadian equities) -6.14
S&P 500 (C$) (US equities) -1.46
MSCI EAFE (C$)
(Non-north American equities)
-7.19
DEX Universe Bond (Canadian bonds) 2.11
DEX 91 day T-bill 0.12

Understanding SPP annuities

By Sheryl Smolkin

For many years you have been focused on saving and investing for retirement by maximizing contributions to the Saskatchewan Pension Plan (SPP) and other retirement savings vehicles.  As you plan for retirement, you need to consider the best way to shift from accumulation mode to the decumulation phase of retirement savings.

You may choose an annuity from SPP and receive a pension for the rest of your life, transfer the funds to a locked-in account with a financial institution, or choose a combination of the annuity and transfer options. If your account balance is small you may be able to have your account paid to you in a lump sum instead of receiving monthly payments.

SPP members may begin receiving benefits from the Plan any time after age 55 and must be retired from the Plan by the end of the year in which they reach 71. At SPP, “retirement” simply means you are receiving pension payments. You can still be employed and receive a pension from SPP.

SPP annuity options

All SPP annuities pay you a monthly pension for your lifetime. The amount of your monthly pension is based on your account balance, your age at retirement, interest and annuity rates in effect and the age of your joint survivor (where applicable).  SPP annuity income qualifies for the pension income credit and for pension income splitting. Each annuity option treats death benefits differently.

If you decide to purchase an annuity, your individual account balance is transferred from the SPP contribution fund to the SPP annuity fund and a pension contract is established. The annuity fund holds investments in high quality long-term bonds.

Here are the kinds of annuities offered by SPP:

Life only annuity
This annuity provides you with the largest possible monthly pension for your life. When you die all payments stop.

Refund life annuity
This annuity pays you a monthly pension for the rest of your life. When you die any balance remaining in your account is paid to your beneficiary in a lump sum. If you name your spouse as beneficiary of your account, CRA allows death benefits to be transferred, tax-deferred, directly to his or her SPP account or to an RRSP, RRIF or guaranteed Life Annuity. Tax-deferred transfer options are also available if the beneficiary is a financially dependent child or grandchild.

Joint survivor annuity
The joint survivor annuity also pays you a monthly pension for the rest of your life. If you choose this option you must name your spouse as survivor. When you die, monthly payments continue to your spouse. If your spouse predeceases you, the payments stop with your death. Benefits are based on your age and the age of your joint survivor.

Pros and cons of SPP annuities

When you opt for an annuity which pays a fixed monthly benefit, you are buying peace of mind. You know how much you will receive and you can budget accordingly.  Because you purchase the annuity directly from SPP, there are no commissions or referral fees and you can be sure you are getting competitive rates.

Essentially, SPP assumes the risk associated with the investment and you receive pension payments for your life time.

With interest rates at historic lows, you may be reluctant to opt for an annuity. However, it is important to keep in mind that your benefit reflects an integrated blend of cash flows:

  • Interest on your money.
  • A portion of your contributions back.

Example: August 2012/Joint survivor is the same age as retiree/lump sum of $100,000*

Age 55 Age 60 Age 65 Age 70
Life only annuity $451 $494 $554 $637
Refund annuity $433 $464 $505 $561
Joint survivor annuity 100% $406 $434 $473 $529

* Your annuity benefits will reflect your own age, interest rates and the balance in your contribution account.

If you are considering retiring from SPP, call the toll-free line
(1-800-667-7153) for an estimate of your monthly pension based on the various annuity options available and your personal information.

Talking to Ellen Roseman

Ellen Roseman podcast

Hi, my name is Sheryl Smolkin. I’m a lawyer and a journalist. Today I’m pleased to be kicking off the Saskatchewan Pension Plan’s new series of interviews with financial experts. My first guest is Ellen Roseman.

Ellen is a journalist and author of five books who has been advocating for the consumer rights of Canadians for the past 35 years. She is a Toronto Star columnist, a fellow blogger on moneyville.ca and she has her own blog “On Your Side.” In January, she was featured on an episode of CBC Marketplaces called “Canada’s Worst Customer Service: Store Edition.”

But Ellen is also passionate about financial literacy and she has been teaching courses in investing and personal finance in the University of Toronto’s Continuing Studies Department since 2004. She also does Financial Basics workshops at Ryerson University. Financial literacy is what we are going to talk about today.

Q. Ellen, why do you think Canadians are so uneasy about their money skills?

A. We don’t learn much about money in school. In the past we used to learn from our parents but today many parents are uneasy about their money management skills and they’re not sure how to bring up their kids with good habits. It has also become a lot more complex and intimidating. For example, look at the number of retirement plans and many of the tax rules are getting more complicated

Q. How important is it to educate our children about money? When should parents start?

A. It’s probably good to start at a young age – like when children are younger, they tend to think that using the ATM is like the lottery and it’s free. You can also go to the grocery store and explain how much different items cost. It’s a delicate balance, but I think it’s a good idea to get your children used to using money and open a bank account at around 6, 7 or 8 years old.

Q. What resources are available to parents to help them educate their children about money?

A. The Canadian Banker’s Association put together a whole network of websites including their own and those of other financial institutions called “There’s something about money.” There are also a lot of financial institutions that have children’s resources on their own websites like Canada Saving’s Bonds. In addition, all the big banks are pretty good about having places where kids can read up and play money games. The approach is almost as entertainment rather than true education, because they learn through being interactive and playing

Q. The Federal Task Force on Financial Literacy recommended over a year ago that provincial and territorial governments put financial literacy into the formal education system. To what extent, if any has progress been made in the implementation of this recommendation?

A. British Columbia led the way even before the Financial Literacy Task Force because they have a compulsory course in Grade 10 and they make great use of the Financial Consumer Agency of Canada’s resource called “The City.” It’s interactive and it lasts for about 18 or 20 hours. Teachers use it in their classes

Manitoba and Ontario decided rather than one course in high school, they wanted to integrate financial education throughout the school system. So starting at about Grade 3 or 4 and going all the way to the end of high school, they introduce it it into things like math, economics and other courses. This process is harder and takes longer.

It’s going quite well in Manitoba, but Ontario is having some problems. A lot of teachers don’t feel very comfortable about teaching about financial issues.

Q. In one column you suggested that financial literacy means saying no to business interests in the schools. Can you tell me a little bit about why this is a concern and what the alternatives might be?

A. We already have a lot of business interests targeting schools. For example, Visa Canada wants to introduce a course about responsible spending. The course is totally sensible but the sponsor is aiming to get kids indebted by the age of 18, continuing for the rest of their lives

The Canadian Banker’s Association has a program where they send banker’s into schools to talk to students about money just as a one-time thing. But there is a little too much emphasis on RRSPs which really isn’t relevant to 16 or 18 year olds. There should be more about basic budgeting skills, deciding between a want and a need, and making sure not to overspend.

Q. Even if financial literacy programs become standard fare in high schools, how can we ensure the programs are engaging and interesting for young people so they don’t just tune out?

A. Make it relevant to people’s lives and the issues they’re experiencing at the moment.

Children in high school have some immediate needs. They need to know about the cost of post secondary education and how much that will be in dollars and cents. Who is going to pay for it? How do you manage a student loan? How do you pay for transportation? What’s the cost of all the gadgets they buy? Why it doesn’t make sense to buy with a credit card if you’re still paying it off a few years later and yet you’re ready to move onto the next device.

Q. You have been teaching basic investment concepts to adults for many years. What do you tell them about the role of a financial advisor, and the questions they should ask before signing on with one?

A. It’s very important for people to have a good financial advisor. Five to 10% of Canadians can actually be their own financial advisor but the rest need some financial advice.

Many of the people out there dispensing financial advice are working for big banks and other financial institutions. They are basically sales people who get incentives to accumulate as many assets under management and they encourage them to borrow to invest. Their whole expertise is about the accumulation phase, which is building up assets towards retirement but there’s a big gap once people retire or are about to retire. Many financial advisors are not skilled in how to keep more after-tax income in your pocket.

Check their references to make sure they’re registered. Do online research

Make sure they listen. If they’re diagnosing and recommending before they get to know you that usually means it’s some kind of off the shelf solution instead of a custom approach.

Finally, don’t get too friendly with them. Once your lives get too intertwined it’s pretty hard to fire them. Friendship should never interfere with a business relationship.

Thanks Ellen. It was a pleasure to chat with you. I know Saskatchewan Pension Plan members will be eagerly awaiting the release of your new book 99 Ways to Fight Back and they will also want to check out your Toronto Star articles and your blogs on moneyville.ca and ellenroseman.com.

How much can I contribute to my RRSP?

By Sheryl Smolkin

To contribute to the Saskatchewan Pension Plan you must have Registered Retirement Savings Plan (RRSP) contribution room.  Therefore it is important to understand what “RRSP contribution room” means and how is it calculated.

Your RRSP contribution room is the amount of RRSP contributions you can deduct for income tax purposes in a particular year. For 2012, RRSP contribution room will be the 2012 RRSP deduction limit appearing on the notice of assessment (or reassessment) you receive once you have filed your 2011 income tax return and it has been processed.

The RRSP deduction limit for each year is the lesser of:

  • 18 per cent of your previous year’s earned income,* and
  • The RRSP dollar limit for the year ($22,970 for 2012).

*Earned income is the annual total of:  employment income, net rental income, net income from self-employment, royalties, research grants, alimony or maintenance payments, disability payments from CPP or QPP and supplementary UIC payments.

However, if you belong to a workplace registered pension plan (RPP), your annual RRSP contribution room will be reduced by a Pension Adjustment (PA) representing the value of both employer and employee RPP contributions.

If you do not use up your RRSP contribution room in any year, it is added to the next year’s RRSP contribution room and carried forward indefinitely. When certain kinds of income are transferred to your RRSP such as a retiring allowance or an amount received from a deceased spouse’s RRSP, contribution room is not required.

If you want to calculate your 2012 RRSP deduction limit, use Chart 3 on the Canada Revenue Agency’s website.

The maximum annual contribution you can make to the Saskatchewan Pension Plan is $2,500, even if you have additional RRSP contribution room. You can also transfer an additional $10,000/year from another RRSP to the Saskatchewan Pension Plan.

Since you have already used up RRSP room when you made the original RRSP contribution, you will not need additional RRSP contribution room to make an RRSP/SPP transfer of up to $10,000 each year.

Also read:

RRSPs and other registered plans for retirement

RRSP contribution limits

Frequently asked questions: RSPs

April 2012 returns

SPP posted a return of -0.41% to the balanced fund (BF) and 0.042% to the short-term fund (STF). The year to date return in the BF is 4.51% and in the STF is 0.109%.

Market index returns for April 2012 were:

Index April 2012 return (%)
S&P/TSX Composite (Canadian equities) -0.60
S&P 500 (C$) (US equities) -1.77
MSCI EAFE (C$)
(Non-north American equities)
-3.09
DEX Universe Bond (Canadian bonds) 0.13
DEX 91 day T-bill 0.05

May contest: Get to know SPP

Thank you to everyone who entered the April contest. The winner will be contacted via email.

Get to know SPP by entering our contest on this blog.

All you have to do is answer one simple question about SPP and your name will be entered for a chance to win one of the following books:

The Wealthy Barber Returns by David Chilton

Retirement’s Harsh New Realities by Gordon Pape

Count on Yourself by Alison Griffiths

The Worried Boomer by Derek Foster

Or a $20 gift card.

There are 3 separate contests (March, April and May) each with a different question. Answer the question and enter for your chance to win by clicking here!

You can even get additional chances to win by telling a friend about the contest.

Please check out the contest today!

FAQ: INVESTMENT CHOICE

Q. What investment options does the Saskatchewan Pension Plan offer?

A. Saskatchewan Pension Plan (SPP) offers its members two investment choices:

  • The balanced fund (BF)
  • The short-term fund (STF).

Members are permitted, but not required, to choose how to direct their contributions in the Plan’s funds. The default fund is the BF – if a member does not give us directions, contributions are deposited to the BF.

Q. What are the objectives of the balanced fund?

The objective of the BF is capital accumulation – growing member accounts to provide them with retirement income in a prudent, risk-controlled manner.

The BF diversifies investments between several asset classes including bonds, equities, real estate and short-term investments. As a further diversification tool, the assets of this fund are divided between two investment managers.

Q. What are the objectives of the short-term fund?

The objective of the STF is capital preservation. Therefore, the money is invested in one asset class – Canadian money market instruments. The STF benchmark is the DEX 91-day T-bill Index. This fund operates on a cost-recovery basis.

STF returns will likely be lower than the BF as the objective is to preserve account balances rather than provide long-term growth.

Q. Which fund should you choose?

A. To answer this question you have to gauge what level of risk you’re willing to accept in a given investment. Factors that will influence this include your investment goals and your retirement timeline. Here are some questions and statements to consider when choosing between the BF and STF:

Balanced Fund Short-Term Fund
Is my main investment goal to seek higher returns and build up the value of my account significantly? Is my main investment goal to make sure I preserve the money I already have in my account?
Do I prefer a mixed portfolio of stocks, bonds, and short-term investments? Am I willing to accept a smaller return in exchange for less investment risk?
How long do I have until I retire? How long do I have until I retire?
If my pension plan takes an unexpected loss, do I have enough time to recover from it before I retire? If my pension plan takes an unexpected loss, do I have only a short amount of time to recover from it before I retire?
Am I comfortable with risk in my portfolio? Do I need more certainty in my portfolio?
Can I tolerate a moderate short-term loss and remain focussed on my long-term goals? Will a moderate short-term loss seriously jeopardize my future plans?
“I’m a long-term investor who can comfortably tolerate a moderate level of risk and can accept a short-term loss along the road to long-term gains.My goal is to steadily increase my account balance through consistently investing in a balanced portfolio over a long period of time.” “I’m a short-term investor who can willingly trade the opportunity for higher earnings for a less risky investment. My goal is to guard my money and keep my account intact. I am less concerned about earning a high rate of return.”

It’s a good practice to re-visit these questions periodically when monitoring your investments to ensure that you are still matched with the correct fund. If any of your answers to these questions change, consider whether you want to remain in the fund, or whether a switch would be more suitable. You may wish to seek the guidance of a financial professional for assistance in making your decisions.

March 2012 returns

Foreign equity markets contributed to fund growth in March and as a result, SPP posted a return of 1.09% to the balanced fund (BF) and 0.024% to the short-term fund (STF). The year to date return in the BF is 4.94% and in the STF is 0.067%.

Market index returns for March 2012 were:

Index March 2012 return (%)
S&P/TSX Composite (Canadian equities) -1.63
S&P 500 (C$) (US equities) 4.81
MSCI EAFE (C$)
(Non-north American equities)
1.00
DEX Universe Bond (Canadian bonds) -0.32
DEX 91 day T-bill 0.09

How do I know my money is in good hands?

By Sheryl Smolkin

When you save for retirement, the last thing you should have to worry about is whether your money is in good hands. With the Saskatchewan Pension Plan you can be confident that your money is managed by professional investment managers based on a written statement of specific quality, quantity and benchmark standards.

A Board of Trustees appointed by the Saskatchewan government administers the Plan and acts as Trustee of the Funds. The Board has a fiduciary responsibility to ensure the investments are managed prudently. Responsibility for safekeeping of the assets, income collection, settlement of investment transactions, and accounting for the investment transactions has been delegated to a trust company.

No one can guarantee how much your investments will earn over time, but SPP’s Statement of Investment Policies and Goals for the investment and administration of plan assets is based on a “prudent person portfolio approach.”

Non-retired members can invest their assets in either the balanced fund or the short-term fund. These two funds are collectively known as the Contribution Fund.  Assets of retired members are held in the Annuity Fund.

The purpose of the SPP Balanced Fund is to accumulate member assets and invest them in a prudent, risk-controlled manner for long-term growth. The short-term fund is designed to preserve capital and provide a stable cash flow.

In order to achieve the long-term investment goals, the balanced fund invests in assets that may have uncertain returns, such as Canadian equities, foreign equities and bonds. However, the Board attempts to reduce the overall level of risk by diversifying the asset classes, diversifying within each individual asset class and diversifying by manager style.

Risk is also addressed through quality, quantity and diversification guidelines and by retaining an Investment Consultant who monitors investment performance and reports to the Board on Investment Manager related issues that may have an impact on performance.

As a further risk control measure, management reviews compliance on a monthly basis of each of the managers with the quality and quantity guidelines contained in this policy. Finally, investment managers provide quarterly reports to the Board on compliance with the investment policy throughout the reporting period.

The short-term fund eliminates most risks by investing solely in a high quality money market portfolio. The remaining risks are accepted as the costs of providing a high level of capital preservation.

You can review SPP’s balanced fund, short-term fund and annuity fund investments at December 31, 2011 on the Plan’s website.

SPP allocates 100% of the market rate of return, less operating expenses of about 1% to members monthly. With all of the checks and balances in place, you can be confident that your money is in good hands, and will be there to help fund your retirement when you need it.

Also read:

Is my money safe in a company pension plan?

Four key questions about the safety of your pension

Is the money in my RRSP safe?

Talking to Tim Calibaba

Tim Calibaba podcast

Hi,

My name is Sheryl Smolkin. I’m a pension and benefits lawyer and journalist. Today I’m continuing with our series of interviews with the people behind the scene at the Saskatchewan Pension Plan

Tim Calibaba has an extensive background and experience in many aspects of the financial services industry going back more than 30 years.  In 2009 he received a designation from the prestigious Institute of Corporate Directors, Rotman School of Business, University of Toronto.

Currently he is serving as a member of the Board of Trustees for the Saskatchewan Pension Plan. He is also on the Boards of Directors of both Stone Investment Group and independent wind energy firm, Kineticor Renewables Inc.

Today Tim is going to answer some questions about how the Saskatchewan Pension Fund is invested.

Welcome Tim. Thanks Sheryl.

Q.  Tell us a little more about your investment background and experience.

A. Well, I’ve been in the mutual fund industry for many years. I started my own business back in 1986 in Saskatchewan. At that time we were just a small Saskatchewan based-company only operating in that province. Since then we expanded over a 20 year period from British Columbia right through to Ontario.

When we sold our business and merged with Berkshire Investments we had 400 advisers across Canada and over $4 billion in assets under management. As an independent mutual fund dealer, we were primarily focused on looking for the best investment managers for our clients’ money.

Q. What role do the Trustees have in investing funds deposited by SPP members?

A. Well, the first thing the Board has to do is set what is called the Investment Policy Statement. So we make a decision about where we want the funds allocated to from the standpoint of various countries, the portion in stocks, bonds, real estate – that sort of thing.

We set the policy and then we search for the best managers to fulfill that policy and make those investments on behalf of our customers. Then we basically follow through on the selection and monitoring of those managers.

Q.  What style of investing does the Board adhere to?

A. The Board has always had a very diversified style. One of our two managers is Greystone and that company has a growth style. The other manager is Leith Wheeler in Vancouver which has more of a value investment style.

As part of those styles then we also allocate to different countries, so we have a portion invested in international funds and the U.S. We feel that diversification is very important with a combination of styles and allocation of assets on a global basis.

Q. How does the Board monitor and get advice on investments?

A. The Board meets quarterly and at every quarterly meeting we have our independent consultant Aon Hewitt who does the management research for us. They review the manager’s performance – not just of our managers but of other managers that are available to pension funds and they report to us every quarter how our managers are doing and if there is any changes at their firms we should be worried about. And at every meeting we bring in one of the managers as well as Aon Hewitt so we can talk to them face to face.

Q. How has the SPP balanced fund performed as compared to market benchmarks over its 25 year history?

A. It’s actually done very well. It’s had a performance of 8.2% for 25 years which is pretty outstanding and approximately one percent better than the benchmark. Part of the reason is the low cost and efficient operation.

With the expense ratio around one percent it obviously helps the investors.

Q.  Why do you think SPP is a good investment to build retirement savings for members?

Well first of all, I think you have to look at the 25 year history. A fund that has been around that long and has done that well has obviously proven itself and that’s important if you are looking for a place to invest your money for retirement.

We have also have a low management expense ratio, as I mentioned before. We have a very diversified style with the two different management styles and we are diversified internationally with a real estate and bond component. So I think overall we have a very strong portfolio. With the balanced approach it does help to minimize the effects of the ups and downs in the market.

We also have a pension plan available to small business owners that is very low cost and very simple for any business, whether Saskatchewan based or outside of Saskatchewan to participate in.

Thanks very much Tim. I appreciate that you were able to take time from your busy schedule to talk to us today.