Category Archives: Personal finance

Your guide to upcoming CPP changes

In June 2016 federal, provincial and territorial finance ministers finally reached an agreement to expand the Canada Pension Plan. However, because the changes will be phased in over an extended period, there has been considerable confusion among many Canadians about how both CPP contributions and benefits will increase, and who the winners and losers will be.

The Globe and Mail reports that an expanded CPP is designed to address the shortfall in middle-income retirement planning that is occurring as a result of disappearing corporate pensions. “Most at risk are workers under the age of 45 with middling incomes – say, families earning about $50,000 to $80,000 a year,” note authors Janet McFarland and Ian McGugan. “Without the defined-benefit pensions that their parents enjoyed, many could hit retirement with little in savings.”

Here is what you need to know about the planned CPP changes.

Effects on CPP retirement pension and post-retirement benefit:
Currently, you and your employer pay 4.95% of your salary into the CPP, up to a maximum income level of $55,300 a year. If you are self-employed you contribute the full 9%.

When you retire at the age of 65, you will be paid a maximum annual pension of $13,370 (2017) under the program if you contributed the maximum amount each year for 40 years (subject to drop out provisions). People earning more than $55,300 do not contribute to CPP above that level, and do not earn any additional pension benefits.

The first major change will increase the annual payout target from about 25% of pre-retirement earnings to 33%. That means if you earn $55,300 a year, you would receive a maximum annual pension of about $18,250 in 2017 dollars by the time you retire — an increase of about $4,880/year (subject to the phase in discussed below).

The second change will increase the maximum amount of income covered by the CPP (YMPE) from $55,300 to about $79,400 (estimated) when the program is fully phased in by 2025, which means higher-income workers will be eligible to earn CPP benefits on a larger portion of their income.

For a worker at the $79,400 income level, CPP benefits will rise to a maximum of about $19,900 a year (estimated in 2016 dollars). Contributions to CPP from workers and companies will increase by one percentage point to 5.95% of wages, phased in slowly between 2019 and 2025 to ease the impact. The federal finance department says the portion of earnings between $54,900 and $79,400 will have a different contribution rate for workers and employers, expected to be set at 4%.

The enhancement also applies to the CPP post-retirement benefit. If you are receiving a CPP retirement pension and you continue to work and make CPP contributions in 2019 or later, your post-retirement benefits will be larger.

Impact on CPP disability benefit/survivor’s benefit
The enhancement will also increase the CPP disability benefit and the CPP survivor’s pension starting in 2019. The increase you receive will depend on how much and for how long you contributed to the enhanced CPP.

Impact on CPP death benefit
There is currently a one-time lump sum taxable death benefit of $2,500 for eligible contributors of $2,500. This amount will not change.

The main beneficiaries of the CPP changes will be young employees, who are less likely to have workplace pension plans than older workers. To earn the full CPP enhancement, a person will have to contribute for 40 years at the new levels once the program is fully phased in by 2025. That means people in their teens today will be the first generation to receive the full increase by 2065.

The recently released Old Age Security report from chief actuary Jean-Claude Ménard which includes the GIS illustrates how higher CPP premiums scheduled to begin in 2019 will ultimately affect the OAS program.

The report reveals that because of the planned CPP changes, by 2060, 6.8% fewer low-income Canadians will qualify for the GIS, representing 243,000 fewer beneficiaries. This will save the federal government $3-billion a year in GIS payments.

In other words, higher CPP benefits mean some low income seniors will no longer qualify for the GIS, which is a component of the Old Age Security program. The GIS benefits are based on income and are apply to single seniors who earn less than $17,688 a year and married/common-law seniors both receiving a full Old Age Security pension who earn less than $23,376.

Also read: 10 things you need to know about enhanced CPP benefits

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

How much should you contribute to your child’s education?

According to a May 2017 Globe and Mail Report average university/college tuition in Saskatchewan is over $7,000/year but you need to also factor in living expenses, books etc. And if your child is just starting kindergarten, it is not easy to predict how costs will escalate over the next decade or more.

Many parents wisely take advantage of the tax breaks and grants available by saving in Registered Educational Savings Plans. But they also expect their kids to contribute to the cost of their post-secondary education by applying for scholarships, working part-time and taking out student loans.

Therefore it is interesting to note the results of a recent poll conducted on behalf of RBC® that found students who receive less than one-quarter of their funding from parents feel more confident in their financial decision-making and are more likely to make and stick to a budget compared to their peers who receive more family financial support .

Students whose parents contribute less than 25% Students whose parents contribute 25% or more
I feel confident in my financial decision making 50% 41%
I make a budget and stick to it 42% 33%

 

Expectations after school
Students receiving more financial support not only have more expectations of parental assistance during school but are twice as likely to expect some help from their parents post-graduation (21% compared to 11%).

“While contributing financially to your child’s education is a wonderful gift, being clear on expectations from both parties is really important. Make sure you discuss the ‘terms’ including when financial support will end,” says Laura Plant, RBC Director, Student Banking

Tips for Parents

  1. Have “the talk”: Start talking about budgeting and money management with your child early on. The earlier you get the conversation started, the more prepared everyone will feel when it comes time to start paying for tuition and other expenses. The transition to post-secondary education is significant – reducing money stresses is one way of easing the change.
  2. Start saving early: If you plan on contributing to your child’s education, save early and save often. One way of getting started is by opening up a Registered Education Savings Plan.
  3. Set the expectations: If you plan on contributing to your children’s post-secondary education, set the expectations on what you will contribute and what you expect them to contribute. Getting everyone on the same page is an important first step.

Tips for Students

  1. Don’t leave free money on the table: No matter how you are funding your education, there are lots of resources out there to help you access free money, including scholarships. Resources such as ScholarshipsCanada.com and StudentAwards.com will help you on your journey to free money.
  2. Save, Save, Save: Develop a habit to save on a regular basis. No matter how small the amount, saving can help you achieve your short and long term financial goals – whether it’s paying for tuition, rent or saving up for a reading week vacation. Let your money work harder for you by setting up automatic transfers from your daily chequing account into a separate high-interest savings account or guaranteed investment certificate to be used towards your goals.
  3. Talk to an expert: Let’s face it, as a post-secondary student (or soon to be student), you have a lot on your plate. Speak with a financial advisor on how to start saving and what options make the most sense for you and your family. This will help set you up for success.

We contributed to our childrens’ university education using RESP savings and current earnings. While I didn’t keep track of how much we gave them or what percent of their educational expenses we covered, they were able to graduate from their first degrees debt free.

Both kids also have Masters degrees and took post-graduate professional college programs which they self-financed. My son had scholarship money and my daughter worked for a major public sector union that paid for her tuition as she successfully passed each course.

I am quite confident that the financial lessons they learned living on a student budget and helping to support themselves were just as important to their future success as the programs they formally studied at university.

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Gifting money to your children now, rather than later

According to a recent CIBC poll, the majority of Canadian parents with a child 18 years or older (76%) say they’d give their kids a financial boost to help them move out, get married, or move in with a partner, with nearly half of them giving an average of about $24,000.

And, when given the option, almost two-thirds of parents would prefer to give cash rather than have their adult child and partner/spouse live with them. Yet, most Canadians (68%) either misunderstand or say they don’t know the tax and other financial implications of gifting.

“The poll findings show that while many parents are thinking about giving their kids a financial boost to leave the nest, there are a lot of misconceptions about gifting,” says Jamie Golombek, Managing Director, Tax and Estate Planning,  CIBC Wealth Strategies Group.

In his new report, Give a Little Bit, he says, “Unlike in the U.S., we don’t have any kind of gift tax, which means if you have what’s called ‘never money’ – money you’ll never spend in your lifetime – it’s worth considering making a financial gift while you’re alive to help your kids get started in life.”

Mr. Golombek addresses the misconceptions about financial gifting and provides important tips on tax considerations in his Give a Little Bit report and accompanying video.

Key poll findings:

  • 76% say they’d give financial support to help an adult child move out, marry or live with a partner, while 24% wouldn’t provide any financial support.
  • Of parents providing financial support:
    • 47% would give money in the form of a financial gift
    • 28% would let their adult child and his/her partner live with them
    • 25% would act as a guarantor on a mortgage
  • 65% of parents would prefer to give a financial gift than have their adult child and spouse/partner live with them
  • $24,125 is the national average gift size. Those with household incomes of more than $100,000 gift nearly double that amount ($40,558) with as many as 25% giving over $50,000.
  • 68% of Canadians either misunderstand or don’t know what taxes exist on financial gifts

Gifting risks
The poll finds that parents are split on whether or not to tie a financial gift to major or special milestones like buying a home, graduation, birth of grandchildren, or settling down with a spouse. Further, more than half (55%) of parents are concerned about gifting to their children, with two-in-five of them admitting they may need the money later and almost a third (29%) worrying that their son or daughter won’t use the money ‘wisely’.

As well, more than a third (37%) of all parents say they’re comfortable taking on debt to help their kids get a good start. However, few parents will actually tap into their credit lines or borrow from family and friends and most (80%) of those giving money will draw from cash and savings to fund their gifts.

“The caveat to making any financial gift is that you generally don’t want to put your own finances at risk,” says Golombek. “You need to map out the lifestyle you want in retirement and the money you’ll need before making a financial gift.”

Bequeathing Boom
Over the next decade, baby boomers are expected to inherit an estimated $750 billion, according to a CIBC Capital Markets report. Based on the findings from the CIBC Gifting Poll, likely a good chunk of the bequest boom will skip a generation as 74% of parents aged 55+ say they would pay forward their inheritance or a portion of it to their children or grandchildren if they received an inheritance today.

“When you gift during your lifetime, you’re able to enjoy seeing your beneficiaries use the money while at the same time reaping potential tax savings opportunities,” Golombek says. “In addition, by gifting assets before you die, these assets will not be subject to probate fees because they will not be part of your estate.”

He offers five tips for gifting:

  1. Talk to your financial advisor to determine how much ‘never money’ you may have.
  2. Gift cash in Canada with no tax implications (gifting appreciated property may trigger capital gains tax).
  3. Minimize taxes for the entire family by gifting property to family members in lower tax brackets.
  4. Use strategies to avoid probate tax of up to 1.7% (depending on the province/territory) of the estate’s value.
  5. Help kids buy a home or pay down debt with a secured mortgage.

Also read: Déjà-Boom: Boomerang kids collide with retirement goals of boomer parents

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Buying time, buying happiness

I have a secret to confess. Ever since my husband and I got married, we have been big fans of outsourcing jobs that we both dislike or that someone else can do better. As a result, we have paid for house cleaning, lawn mowing, snow removal and ordered our share of pizzas and other take-out meals. This strategy has minimized domestic friction and freed up time to spend with our growing family.

It now appears that according to recent research published by the Proceedings of the National Academy of Sciences of the United States (PNAC) that we were on to something. Using large, diverse samples from the United States, Canada, Denmark, and The Netherlands (over 6,200 people), the study reveals that that individuals who spend money on time-saving services report greater life satisfaction.  Furthermore, working adults say they are happier after spending money on a time-saving purchase than on buying material goods. Together, these results suggest that using money to buy time can protect people from the detrimental effects of time pressure on life satisfaction.

In one component of the study, 60 working adults from Vancouver were recruited to spend two payments of $40 on two consecutive weekends. On one weekend, participants were randomly assigned to spend $40 on a purchase that would save them time. On the other weekend, to control for the experience of receiving and spending a windfall, participants were assigned to spend $40 on a material purchase.

After making each purchase, participants received a phone call at 5:00 PM and reported their feelings of positive effect, negative effect, and time stress on that day. People who made a time-saving purchase reported greater end of day positive effect. Study findings also suggest that using money to buy time may not only reduce feelings of time pressure on a given day, but outsourcing can provide a cumulative benefit by serving as a buffer against the deleterious effects of time pressure on overall life satisfaction.

The authors found no consistent evidence that the benefits of buying time are limited to relatively wealthy people. If anything, within the U.S. sample they observed a stronger relationship between buying time and life satisfaction among less affluent individuals. Nevertheless, they acknowledge that their sample included relatively few people at the lowest rungs of the income spectrum who are struggling to meet their basic needs.

Interestingly, despite the potential benefits of outsourcing many respondents allocated no discretionary income to buying time, even when they could afford it: i.e., just under half of the 818 millionaires surveyed spent no money outsourcing disliked tasks. We can only guess whether the inherent frugality of the very affluent is a critical factor contributing to their financial success!

Furthermore, the study suggests that low rates of “buying time to increase satisfaction” among some study participants may be a function of gender and culture with women in some cultures feeling obligated to complete household tasks themselves and working “a second shift” at home even when they can afford someone to help.

All of us are faced with multiple time vs. money decisions every day. For example:

Take the toll road and get home faster or not?
Buy a Halloween costume for your child or make one?
Purchase a dryer or hang the laundry outside to dry?
Pay a babysitter or watch a movie on Netflix?
Buy a car or take the bus?

So the next time you update your budget, when you budget for family essentials, debt repayment and retirement savings, think about whether spending some money to save time is an affordable priority. The PNAC study definitely validates our family’s experience that buying time is one way to reduce stress and promote family harmony!

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Understanding flood insurance in Canada

We moved into our newly-built home in 2001 and fortunately we have never experienced flooding. But some of our neighbours have and I still get really nervous when we  periods of torrential rain or spring freezes and thaws.

In particular, I worry about whether or not in these circumstances our home insurance would cover necessary repairs.  That’s why when the article Home Insurance and Flooding in Canada: Finally Explained  from InsureEYE appeared in my inbox, I was pleased when company co-founder Alexey Saltykov gave me permission to share the information* with savewithspp.com readers.

According to insurEYE, there are actually four different types of flooding from the perspective of insurance companies in Canada and each of them is treated differently. They can all be protected via a home insurance policy (sometimes with additional endorsements).

Flood Insurance Topic #1: Overland flooding

  • Originates outside of your home.
  • Often enters your house through the basement/ windows/doors/walls and house foundation.
  • Often has natural causes e.g. rising river level, heavy rains, melting snow.
  • High to very high degree of damage.

Insurance perspective: Until recently, home insurance in Canada has not covered this risk. Then, during the last two to three years, Canadian home insurers developed overland flooding coverage that is typically sold separately and added on top of your standard home insurance policy.

Insurance companies will typically assess the risk associated with your property and decide if you fall into one of the following categories:

  • Low risk: You will be able to get overland flooding protection (also called an overland flooding endorsement) for a low price and it will have extensive coverage.
  • Medium risk: An insurer will offer you overland flooding coverage, but the limits might be lower than in the previous case and this coverage will be more expensive.
  • High risk: You might have challenges getting this coverage due to the history of flooding in your neighbourhood, or your case will be treated as a high-risk home insurance case (i.e. meaning much higher premiums). High River in Alberta is an example of such a location.

Chances that insurer will pay your claim: With an overland flooding endorsement – very high; without it – very low.

What could you do up front to avoid potential issues?

  • Home location: Before buying a property, try to understand if it is located in a flood-endangered location. Typically, local flooding maps will help you understand this  In addition, a good real estate lawyer who works on your closing formalities should inform you if your property is in a flood-endangered zone.
  • Overland flooding endorsement: In general, if you have a house that has a basement (the part of the house that is most likely to be flooded during overland flooding), consider getting an overland flooding endorsement after understanding its cost.
  • Bundles: For customers’ simplicity, some insurers bundle sewer backup and overland flooding insurance riders, offering a combined product with a range of limits and deductibles. Examples of such companies include Intact Insurance and Economical Insurance.

Flood Insurance Topic #2: Sewer Backup

  • Originates inside your home.
  • Often enters your dwelling through a toilet/sewage system.
  • The major cause is an overflow in municipal water storage pushing sewer water back into your house.
  • High to very high degree of damage.

Insurance perspective: Insurance companies treat sewer backup as a separate risk and often cover it through a separate, optional endorsement, also called a sewer backup endorsement. This insurance coverage has been on the market for a long time; therefore, significantly more policy holders know about it – somewhere around 50%. This coverage is typically not that expensive, and it adds just a few additional dollars per month to your home insurance policy.

Chances that your insurer will pay your claim: With a sewer backup endorsement – very high; without it – very low.

What can you do up front to avoid potential issues?

  • Sewer backup valve: Getting a sewer backup valve (also called a backwater valve) is not too complicated. If it is integrated into your plumbing system, it will help to keep the house protected against unpleasant sewer backup surprises. These devices cost under $250 and are a cost-efficient way to prevent sewer backup accidents. Depending on the age and construction, your home may require either a backwater valve on the main sewage line (typically for homes built before the 70s) or both on the main sewage and storm line (newer homes). Check with your plumber or with municipal services.
  • Water damage/sewer backup endorsement: As mentioned earlier, this type of coverage does not cost a lot, but it can prevent significant financial loss. Cleaning and restoration costs can add up to $50,000 – $100,000 and, together with damaged content upgrades (especially in the case of finished basements), can reach $250,000 – $500,000 for larger homes.
  • Coverage limits: Carefully understand coverage limits for sewer backup – these can either be defined separately, or can be equal to the full policy coverage. Be careful when insuring with insurers that cap their coverage (e.g. TD Insurance, State Farm).

Flood Insurance Topic #3: Plumbing issues

  • Originates inside your home
  • Can be caused by burst pipes, broken faucets, malfunctioning taps, incorrectly sealed pipes
  • Medium to high degree of damage

Insurance perspective: From the insurance perspective, this is one of the easiest flooding situations to deal with. The flood originates within your house and, in most cases, is covered by your standard home insurance policy without the purchase of an additional rider.

Chances that an insurer will pay your claim: High
Unless there are special circumstances, the insurance company will typically pay this claim (after subtraction of your deductibles, which are mentioned in the insurance policy).

What can you do upfront to avoid potential issues?

  • Modern plumbing: Make sure your home uses copper or plastic pipes as opposed to lead or galvanized plumbing. That will also be rewarded with lower insurance premiums.
  • Switch off water: Turn off water if you are leaving for several weeks (like on a long vacation or a business trip), and make sure that somebody visits your place regularly. It is important to know that some insurers may even reject your claim if something happens during your long absence and nobody was regularly visiting your home. Some policies may even require that these visits take place as often as every 4th or 5th day.
  • Insulation for interior pipes in winter: Your interior pipes may cause problems while you are away – make sure they are well insulated in the winter to prevent pipe bursts due to ice buildup.
  • Keep external pipes dry in the winter: Your external pipes should be dry in order to prevent any ice build-up; otherwise, that can also lead to a burst pipe.

Flood Insurance Topic #4: Flooding Due to a Leaking Roof

This type of flooding normally happens when water enters your home through a damaged roof and starts damaging your dwelling, starting from the top floor.

  • Originates on your roof starting from the top floor/attic
  • Reasons can vary from lacking roof maintenance and natural wear-and-tear to roof damage due to falling trees or ice
  • Low to medium degree of damage

Insurance perspective: Insurance companies know that, often, flooding via a leaking roof is a consequence of poor maintenance or an old roof. If you have a leaking roof, make sure that it does not fall into the category of insufficient maintenance. However, if your roof has been badly damaged due to hail, a falling tree, ice, etc., you have a good chance to get your insurance claim paid.

But if you live in a condo and have a leaking roof that has resulted in some damage within your unit (e.g. when you live on the top floors), it is important to understand that your own condo insurance covers only content damage within your unit. The roof itself is covered by commercial condo insurance that your condo corporation owns.

Chances that the insurer will pay your claim: Medium – if an insurer decides that it is a lack of maintenance that led to the leakage, you are on the hook for all the costs.

What could you have done upfront to avoid potential issues? Make sure that you maintain your roof in a good condition. Fixing or upgrading your roof prior to getting home insurance may result in insurance savings. Insurers like properties with upgraded elements (e.g. roof, plumbing, etc.) as opposed to older, not upgraded properties.

In addition to the above, when purchasing water damage and flood insurance:

Pay attention to deductibles: Make sure that you understand what your deductible for flooding-related accidents is. Some providers have very high deductibles ($10,000 or even $30,000 and higher) while others do not. In the first case, you might be on the hook for tens of thousands of dollars before your insurer even jumps in.

Know and document your expenses: Should you face an extensive water-related incident in your place and submit a home insurance claim, there will be a question of a claim payout. It is not in the interest of an insurance company to overpay for insurance claims – these are purely expenses for insurers. Thus, make sure that you have confirmation for all major spending associated with your home.

Last Resort: Government Flooding Programs
In addition to the home insurance, there is another potential safety net that you could use in some cases. It by no means it substitutes your home insurance, but it is important to know this source of help.

Below you will find an overview of provincial disaster financial assistance programs for Canadians.

Alberta, Emergency Management Agency
British Columbia, Disaster Financial Assistance
Manitoba, Disaster Financial Assistance
New Brunswick, Disaster Financial Assistance
Newfoundland and Labrador, Disaster Financial Assistance Program
Nunavut, Emergency Management
Nova Scotia, Flood Assistance
Prince Edward Island (PEI), Emergency Measures Organization
Northwest Territories, Disaster Financial Assistance
Ontario, Disaster Recovery Assistance
Quebec, Financial Assistance for Disaster Victims
Saskatchewan, Provincial Disaster Assistance Program
Yukon, Emergency Measures Organization

*These insights are shared with permission from InsurEYE, the largest Canadian insurance review platform that also helps Canadians to find house and condo insurance.

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Part 1: What you need to know about CPP disability benefits

Employed and self-employed Canadians must pay into the Canada Pension Plan or Quebec Pension Plan* throughout their working career. The standard age for beginning to receive your CPP retirement pension is the month after your 65th birthday. However, you can take a reduced pension as early as age 60 or begin receiving an increased pension after age 65.

But many people do not realize that if they are under age 65 and become disabled, they may be eligible for taxable monthly CPP disability benefits.

Eligibility
To qualify for a disability benefit under the Canada Pension Plan (CPP), a disability must be both “severe” and “prolonged”, and it must prevent you from being able to work at any job on a regular basis.

  • Severe means that you have a mental or physical disability that regularly stops you from doing any type of substantially gainful work.
  • Prolonged means that your disability is long-term and of indefinite duration or is likely to result in death.

Both the “severe” and “prolonged” criteria must be met simultaneously at the time of application. There is no common definition of “disability” in Canada. Even if you qualify for a disability benefit under other government programs or from private insurers, you may not necessarily qualify for a CPP disability benefit. Medical adjudicators will determine, based on your application and supporting documentation, whether your disability is both severe and prolonged.

Benefit levels
For 2017, the average monthly CPP disability benefit for new beneficiaries is $952.51 and the maximum monthly amount is $1,313.66. If you are receiving a CPP disability benefit, your dependent children may also be eligible for a children’s benefit. In 2017, the flat monthly rate your child can receive is $241.02.

If you are aged 60 to 64 and you think you might qualify for a CPP disability benefit, you may also want to apply for a CPP retirement pension. While you cannot receive both at the same time, you may qualify to begin receiving a retirement pension while you wait for your CPP disability benefit application to be assessed, which usually takes longer.

If you are already receiving a CPP retirement pension when your application for a disability benefit is approved, Service Canada will switch your retirement pension to a disability benefit if:

  • You are still under the age of 65.
  • You were deemed to be disabled, as defined by the CPP legislation, before the effective date of your retirement.
  • You have been receiving your CPP retirement pension for less than 15 months at the time you applied for your disability benefit; and
  • You meet the minimum contributory requirements.

Should your disability benefit be approved, you must pay back the retirement pension payments you received. According to Service Canada, the retirement pension payments are normally from your first disability payments.

Waiting period
It takes approximately four months for a decision to be made from the date your application and all the necessary documents is received. See how disability benefit applications are assessed. A Service Canada representative will call you to explain how your application will be processed, the type of information required and answer any questions.

Medical adjudicators may also ask for additional information or ask you to see another doctor who will evaluate your medical condition. How long it takes for them to receive the requested information will impact the time it takes for your application to be processed.

If you are eligible under the terms of the Canada Pension Plan (CPP) legislation, your disability benefits will start the fourth month after the month you are determined to be disabled. You may receive up to a maximum of 12 months of retroactive payments from the date your application was received.

While on CPP disability benefits
Without having any effect on your CPP disability benefit, you can:

  • Do volunteer work
  • Go back to school to upgrade or complete a degree, or
  • Take a re-training program.

You can earn up to a certain amount without telling Service Canada and without losing your benefits. For 2017, this amount is $5,500 (before taxes). This amount may increase in future years. If you earn more than the amount allowed, you must contact Canada Pension Plan.

Your CPP disability benefit may stop if:

  • You are capable of working on a regular basis.
  • You are no longer disabled.
  • You turn 65 (it will automatically be changed to a CPP retirement pension)
  • You die (it is important that someone notify Service Canada about your death to avoid overpayment).

What if my claim is refused?
If your claim is refused there is a reconsideration and appeal process. (See Part 2 in this series).

*This article focuses only on CPP disability benefits and does not further explore similar disability benefits available under the QPP.

 

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Employees less satisfied with workplace health programs

As the battle continues south of the border to create a viable program that will allow the majority of Americans to access some form of health care insurance, Canadians continue to rejoice in the foresight of Saskatchewan’s Tommy Douglas, the father of Medicare in this country.

But many elements of health care like drugs, dental care and para-medical practitioners (i.e., physiotherapists and psychologists) are not universally covered by government programs. According to the Canadian Institute for Health Information (CIHI), total health expenditures were expected to amount to $6,299 per Canadian in 2016, with about 30% of these expenditures coming from the private sector.

Employer-sponsored plans fill a significant portion of that gap. That’s why employee perceptions of their workplace supplementary health plans and how companies juggle priorities to meet these expectations is so significant.

The 20th Anniversary of Canada’s premier survey on health benefit plans, The Sanofi Canada Healthcare Survey reveals surprising facts. According to a press release released by the company, the 2017 study highlights that barely half (53%) of employees say their health benefit plan meets their needs extremely or very well, down from 73% in 1999 when the question was first asked.

Surveyed employees would also like more flexibility in their benefit plans, and strongly support coverage for products or services that typically are not covered today, such as screenings to determine personal health risks, coaching sessions from health experts and adult vaccinations.

A clear majority (70%) — up from 58% just a year ago — would also consent to their benefit plan’s insurance carrier accessing their personal claims data (for instance, the drugs they are taking) in order to receive personalized information to help them manage their health (for example, information about their personal conditions). 

Traditional versus flex 
Currently, 77% of employees report having traditional benefit plans, which define what is covered and the levels of coverage. However, 54% of employees would prefer a flex plan, where employees can choose types and levels of coverage. Health spending accounts (HSAs), which provide employees with a certain amount of dollars every year to spend as they wish on allowable health-related items or services, are another way to bring some flexibility into benefit plans.

Employees with HSAs are more likely to agree that their plans meet their needs very or extremely well (60% versus 50% among those without HSAs). Currently, 31% of employers offer health spending accounts, increasing to 47% among employers with 500 or more employees.

“Today’s challenge is to find the balance between flexibility and complexity in an environment where more flexibility is being demanded,” notes Jonathon Avery, Director of Product, Group Benefits, Manulife Survey Methodology. “Technology has simplified doing business in virtually every industry, and has the power to make suggestions for plan members and guide their actions based on previous interactions and personal claims behaviour.” 

Chronic disease gaps and personalized treatment
Year after year, employers significantly underestimate the presence — and therefore likely the impact — of chronic disease in the workplace. More than half of surveyed employees (57%) report having at least one chronic disease or condition (such as depression or high blood pressure), climbing to 72% among those aged 55 to 64. Yet plan sponsors estimate that just 32% of their employees have a chronic condition.

More than a third (37%) of employees with chronic conditions take three or more medications on a regular basis and are therefore the most frequent users of drug benefits plan. A convincing 73% of them would be interested in coaching from a pharmacist to learn more about their medications and conditions, if this were covered by their benefit plan.

While the science is still in early development, 67% of employees are interested in a simple form of genetic testing (using a cheek swab) to help doctors prescribe drugs that are the most likely to work for them. This increases to 76% among those taking three or more medications.

Interest levels are high to participate in the following health risk screenings: for cancer (83%), heart disease (80%) and diabetes (71%). As well, employees are likely to take advantage of coverage for vaccinations to prevent disease, particularly for tropical diseases associated with travel (79%) and shingles (68%).

Positive ripple effect of wellness
More than four out of five (86%) employees say they work in environments that encourage wellness are satisfied with their jobs, compared to 62% among employees working in environments that do not encourage wellness. Employees in wellness-oriented work environments are also much more likely to agree that their health benefit plan meets their needs extremely or very well (62% versus 43%).

However, barely half of employees (53%) agree their current work environment or culture encourages health and wellness, down from 62% in 2012. For their part, 64% of employers feel their corporate culture encourages wellness, down significantly from 90% in 2012, and 51% report offering specific wellness programs (such as onsite flu shots) or policies (such as flexible work hours). Just 31% of employers plan to invest more in health education or wellness in the next year, down from 51% in 2012 and 68% in 2011.

Danielle Vidal, Director of Business Development, SSQ Financial Group says, “With results that are clearly more favourable in workplaces that encourage health and wellness, it’s disappointing to see a decrease in the number of organizations that encourage wellness.” Vidal also questions whether employers are taking a sufficiently holistic view.

You can download the executive summary and full report here.

 

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Keeping the cottage in the family

If your family has a cottage you probably have idyllic memories of swimming in the lake, roasting marshmallows around a campfire and picking berries in the woods. But these days with two-parent working families rarely taking more than a week or two of vacation together each year, cottage visits may be limited to the occasional long weekend. And for many people it’s a stretch to cover rent or mortgage payments for their primary home without taking on the expenses and upkeep of a second one.

That’s why when parents bequeath the family cottage to their adult children, it can be a mixed blessing, particularly if one or more of the siblings no longer resides in the same geographic area as the rest of the family. In these circumstances, experts recommend that co-owners negotiate and sign a cottage agreement that contains formal rules and regulations for how everyone uses and pays for the cottage.

Some of the topics covered may include:

  1. Who pays what: Like any other home, typical cottage expenses may include mortgage payments, insurance, heating, hydro, taxes and major repairs. Add this up and decide how to split up the bills. Will the split depend in part on frequency of use or does everyone have to pay their share? What if major repairs are required like a new roof or a new dock?
  2. Occupancy: Address when each family gets to use the cottage alone. If Jane opts for the first two weeks in July, does she get the same two weeks every year? How are long weekends split up? Does an adult parent have to be present if a teenager wants to bring up a bunch of friends?
  3. Management: Who pays the bills and manages the paperwork? In what condition should occupants leave the cottage when they return home? Do bed linens and towels have to be washed and dried? Who will open and close the cottage and take care of routine maintenance like cutting the grass?
  4. Decisions: What if owners disagree? Who will mediate their differences? What happens if one or two siblings want to renovate but others do not want to contribute? Can one owner force a sale if he wants out and the co-owners are not prepared to purchase his share?
  5. Succession: Can a sibling will her share to a spouse (who may later remarry) or only to their offspring or another owner? What happens if one of the owners is divorced?

There may also be tax considerations and probate fees on death, that can place a burden on beneficiaries, particularly if the property has increased in value since it was purchased. Furthermore, if a vacation home is in the U.S., it may be subject to U.S. estate tax.

Therefore whether you are planning to will a property to your children or you are one of a group of siblings negotiating a cottage agreement, it is wise to consult a knowledgeable lawyer before you sign on the dotted line.

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Why you should closely monitor your bank account

I love online banking because I like to visit my money every day to make sure it’s still all there. So imagine my surprise when the RBC account I share with my mother and sister went within a couple of days from half a million dollars in arrears to a balance of +$500,000!

My sister discovered the deficit initially when in late May she tried to take out a small amount of cash for my mother and she was locked out of the account.

In fact, in mid-May at our request CIBC Investors Edge had processed a transfer of $512,000 from the RBC account to our CIBC investment account. This was the proceeds of sale from my mother’s condo. But then CIBC initiated a second transfer of the exact same amount on May 29th and since there was only a few thousand dollars in the RBC account to pay monthly bills, we were left with a huge negative balance.

When I contacted CIBC, our IE representative told us that as a result of “a bank error” thousands of May transfers into CIBC IE were duplicated and that the problem would be rectified within a day. Meanwhile, RBC said not to worry, because the second transfer out would be sent back and the negative balance in the account would be reversed as we do not have overdraft protection. However, just to make sure I was advised to notify any vendors with automatic withdrawals that their cheques may bounce temporarily.

That occurred within hours and our RBC account was unlocked. But the next day CIBC IE also “fixed” the problem by transferring $512,000 back into the RBC account, leaving us with a hefty, unwarranted surplus! Much as I was tempted to blow town and take an around-the-world cruise, I dutifully reported the new error to our CIBC IE representative. He said the second mistake would be quickly rectified.

Shortly after, I also got a call from the CIBC Director of Executive Client Relations apologizing for the inconvenience and assuring me the $512,000 erroneously deposited to our account would be out of the RBC account on Friday June 2nd. It took until June 6th for the extra $512,000 to disappear.

In spite of our conversation I still can’t figure out how similar mistakes possibly involving thousands of clients were never communicated to clients up front or investigated by the mainstream media. I was told CIBC had no idea there had been a computer glitch until their clients started reporting the mistakes.

This comedy of errors was reversed in a few days and the only residual effect that I am  left with is a great story. But it could have been much worse if I wasn’t able to track the errors online and quickly make the necessary calls to understand and correct the errors.   And it was also time-consuming and embarrassing to have to make multiple calls and stop payment on the monthly payment to my mother’s nursing home.

So the moral of the story is: Check your recorded bank account transactions frequently either in person or online. If something looks wrong it probably is. The sooner you intervene and get it fixed, the less chance there is that an error will go unnoticed, affecting both your cash flow and your credit rating.

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Canadians anticipate longest retirement

A global survey from HSBC reveals that Canadians anticipate some of the longest retirements, but they are among the least likely to seek information to guide financial decisions.

According to the study, Canadians expect to retire at 62 and live to the ripe old age of 85 on average, resulting in one of the longest retirement windows amongst their global peers (global averages: 61 and 81 years, respectively). However despite expectations of a long retirement, Canadians are amongst the least likely to say they actively seek information to guide their financial decisions (42% vs. global average of 56%).

HSBC’s the Future of Retirement: Shifting Sands, a new global retirement report captures the views of 18,414 people across 16 countries and territories worldwide including 1,003 in Canada. The complete Canada report is available at www.hsbc.ca/retirement.

“Our latest research suggests that the good news is Canadians can anticipate that they will enjoy a longer retirement and lifespan than many of their global peers. The less than great news is that they’re not actually planning for it,” said Larry Tomei, Executive Vice President and Head of Retail Banking and Wealth Management, HSBC Bank Canada.

“Interestingly, technology is really changing the way people plan and save for retirement; and while about one-third of working age people in Canada expect new technology will help make it easier to save for retirement because they can do research online, use an online retirement calculator or try out a robotic financial advisor, the data makes clear that many western nations are falling behind in terms of taking full advantage.”

How Canadians compare to their global peers
Technology is changing the way people save for retirement. About one-third of working-age people in Canada agree that new technology makes it easier to save for their retirement. This is well below the global average (47%), with a much higher proportion of working age respondents in China (77 %) and India (69%) than in France (17%)  Argentina (28%) and the UK (30%) agreeing that technology is helping them save for retirement.

Only 29% of working age people in Canada think they will be financially comfortable when retired (global average: 34%), with those in India (69%) and Indonesia (61%) the most likely to think this, and those in France (10%) and Australia (21%) the least likely.

Property is still viewed as a good way of saving for retirement, with 38% of working age people in Canada saying they think it delivers the best returns albeit well below the global average of 47 %. This is not yet fully reflected in retirement plans, with only 16% of working age people in Canada expecting property to help fund their retirement.

Canadians have a comparatively low risk appetite, with just over one in five (21%) saying they would be very willing to make risky investments to ensure their financial stability, and 22% saying they’d risk financial losses (global averages: 34% and 28%, respectively).  In comparison, the highest proportions of working age people willing to take such risks are in China (61%) and Taiwan (47%), and the lowest are in France (10%) and the UK (15%).

Just over one half (55%) of working age Canadians say they will continue working to some extent in retirement; 66 per cent would be willing to defer their retirement for two years or more to have a better retirement income; and 44% would work for longer or get a second job to sustain their saving for retirement.

Millennials expect to retire at age 61, Generation X at 63 and Baby Boomers at 64 (global averages: 59, 61 and 64 years, respectively). Millennials in Canada expect to live to age 86, while Generation X expect to live to 83 and Baby Boomers to 85 (global averages: 79, 81, and 84 years respectively).

About half (52%) of people surveyed in Canada believe that Millennials have experienced weaker economic growth than previous generations, while 54% agree that Millennials are paying for the economic consequences of older generations, such as the global financial crisis and rising national debt (global average: 52% and 58% respectively). And while 46% of people in Canada say that Millennials don’t know how good they have it, enjoying a better quality of life than any generation before them, this is below the global average of 54%.

Health cheque
The rising cost of healthcare is another important issue. Almost three-quarters of working age people believe that retirees will have to spend more on healthcare costs in the future, and 61% are concerned about being able to fund their healthcare. Thirty-three percent of working age people worry about the availability and affordability of healthcare, compared to the global average of 25%.

Practical steps
HSBC draws the following insights and practical actions drawn from the research findings, which may help today’s retirement savers plan a better financial future for themselves.

  1. Be realistic about your retirement.
  2. Consider different sources of funding.
  3. Plan for the unexpected.
  4. Take advantage of technology.
Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.