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.

April contest: Get to know SPP

Thank you to everyone who entered the March 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!

February 2012 returns

Markets continued relatively strong in February and as a result, SPP posted a return of 1.6% to the balanced fund (BF) and 0.007% to the short-term fund (STF).   The year to date return in the BF is 3.8% and in the STF is 0.043%.

As illustrated in the monthly asset class return values below, equities continued strong returns in February primarily due to positive economic data from the U.S.  The Canadian bond market declined 0.40 per cent in February. Yields were rising for bonds of all terms, but more notably for short and mid-term bonds. However, long term bonds fell the most in the month due to their higher sensitivity to interest rate movements. Provincial bonds fell as investors acknowledged the difficult waters many provincial governments will have to navigate in the coming years.

Market index returns for the month of February 2012 were:

Index YTD return (%)
S&P/TSX Composite (Canadian equities) 1.67
S&P 500 (C$) (US equities) 2.46
MSCI EAFE (C$)
(Non-north American equities)
3.85
DEX Universe Bond (Canadian bonds) -0.40

FAQ: Employer-sponsored plan

Small business owners can increase recruitment and retention success in a competitive labour market by strengthening their employee benefits package. Saskatchewan Pension Plan (SPP) is a smart, simple way to offer pension benefits to employees (full-time, part-time, casual or temporary).

Furthermore, there are tax advantages for employers who make contributions on behalf of employees. Having a pension plan shows you are committed to helping employees save money for retirement. As a true pension plan, money invested in SPP remains locked-in until retirement.

Here are some FAQ about adopting the SPP as your company’s retirement savings vehicle.

Q. How much will it cost me if I add the SPP to my employee benefits program?

A. SPP offers all the benefits of an employer-sponsored pension plan – but you bear no cost for plan administration.

Contributions can be made:

(a) By the employer as an employee benefit;

(b) By the employee through a payroll deduction;

(c) Or cost-shared by the employer and employee.

There are no sales commissions when members contribute or retire and there is no cost to set up your business plan.

Q. I’m very busy. Is SPP complicated to administer?

A. Administration is simple. SPP assists with the initial paperwork and implementation of the Plan. Employers can then receive monthly, quarterly or year-end reports that serve as the reminder for their next contribution. All employees between the ages of 18 and 71 may participate in the Plan, including full-time, part-time, casual and temporary staff.

After the intial set up SPP handles the distribution of receipts and statements to the employees.  The employer has no liability for the investment decisions or future pension obligation to their employees.  Investment instructions are provided by the employees and SPP directs and monitors the investment managers.

Q. Do I have to contribute every month?

A. You can tailor the plan to your company’s size and budget. Contributions to the Plan can be made monthly or any time of year. There is no minimum contribution, and no obligation to contribute every year. The maximum is $2,500 per year.

Q. Do all my employees have to participate?

A. Unlike plans that require a minimum enrolment before the benefits can be offered, SPP has no minimum. Even if only one employee is interested, you can start an SPP Business Plan – and you can just as easily add members to the Plan at any time.

Q. How is SPP treated for tax purposes?

A. SPP allows your business to put pre-tax dollars into investments for your employees. The employer contributions are deductible as a salary expense and employees may deduct the total contribution within RRSP limits.

Q. What happens if an employee leaves my company?

A. Should an employee leave your company for any reason, they simply take their SPP Plan with them, without any additional paperwork or sign-off for the employer. As Plan members, they can contribute to the Plan regardless of where they live or who employs them.

Q. Is there a waiting period until my employees can participate?

A. Many other pension plans require that an employee work at a company for a certain length of time before they are eligible to contribute. With SPP there is no waiting period; employees may begin participating at the employer’s discretion. Contributions belong to the employee as soon as they are invested.

Q. How do I tell my employees about SPP?

A. SPP will help employers with this.  Please contact SPP and arrange for someone to speak to your employees.  There are tools available on our website, including a wealth calculator, as well as opportunities to learn more about SPP on our blog (savewithspp.com), Facebook and LinkedIn.

Q. What do I have to do to get started?

A. Each employee will need to fill out a membership application, which is available online, and provide a copy of a proof of age document such as a passport or driver’s license.

Employees are then listed on the “Employer contribution statement” which is also available online.  Mail all the paperwork into SPP and we will set up the accounts for each of your employees and an employer number for you.

Contributions for your employees can be submitted by cheque, automatic payment or credit card.  Contribution amounts are flexible and voluntary and employers are free to use SPP as an incentive or bonus.

For example,  the employer may decide to match an employee $500 per year or may choose to offer SPP as a place for employees to deposit any bonus money. SPP is flexible and can be customized to fit your business!

Pension Plan vs. RRSP

By Sheryl Smolkin

Although you require RRSP contribution room to make contributions to the Saskatchewan Pension Plan (SPP), there are some fundamental differences between this pension plan and an RRSP.

One key distinction is that funds you contribute to the SPP are locked-in until you choose to retire from the plan between ages 55 to 71. This means that the money you need to supplement government benefits and other savings will be there when you need it for retirement.

In contrast, your RRSP accumulated contributions can be withdrawn at any time, subject to payment of income tax on withdrawals in the year of receipt. In addition, there are several programs that allow you to borrow and then repay RRSP funds including the Home Buyer’s Plan (15 year repayment), and the Life Long Learning Plan (10 year repayment).

However, by withdrawing RRSP funds or borrowing from your RRSP, you reduce long term growth potential in your account. The tax-free savings account (TFSA) may be better suited as an emergency fund or to save for shorter-term goals, as contribution room is not lost when withdrawals are made, and funds can be replaced in the next year.

The SPP also gives you flexible options for using your money when you retire from the plan. You may choose an annuity from SPP and be assured of receiving a pension for the rest of your life; transfer the funds to a locked-in account or prescribed RRIF with a financial institution; or choose a combination of the annuity and transfer options.

If you choose to allocate all or part of your SPP savings to an annuity option, funds stay invested with SPP; there is no transfer fee; and, the SPP assumes the investment risk and the obligation to pay a pension for your lifetime. RRSP accounts must be transferred to a life income fund before an annuity purchase can be made from an insurance company.

Saving in the SPP or a registered retirement savings plan should not be an either/or proposition. The SPP is an ideal basic building block for your retirement savings. And if you have more contribution room, you can still save and invest additional money in an individual or group RRSP.

Also read:

Pensions & RRSPs

Retirement Planning: 10 common mistakes

Griffiths: 6 reasons to avoid RRSP loans

Planning your pension

Want to save tax? Look to Saskatchewan