FAQ: Pension 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.

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.

Here are some FAQ about pension payments. For more information, see the SPP Retirement Guide.

Q. How much will my pension be?

A. If you elect to receive a pension, the amount of your monthly payment will depend on which annuity option you choose, your age at retirement, your account balance, and the interest and annuity rates in effect when you retire.

Q. How does an annuity work?

A. A SPP annuity is the easiest way to access your SPP savings. Funds stay invested with SPP – no transfer fee – and the Plan assumes the investment risk and the obligation to pay a pension for your lifetime.

Your annuity choice cannot be changed after payments begin. Each option provides different death benefits. Annuities offered by SPP as well as their features are:

Life Only Annuity

This provides the highest monthly payment with no survivor or death benefits payable. All pension payments stop at death.

Refund Life Annuity

At death your beneficiary receives the remaining account balance. The death benefit is calculated by subtracting total payments received from account balance at retirement. You must specify a person(s) or estate as beneficiary. The beneficiary designation can be updated at any time before your death.

Joint and Last Survivor Annuity

At your death, your surviving spouse or common-law partner receives a monthly payment for the rest of his or her life. The continuing benefit for your joint survivor is 100%, 75%, or 60% of your monthly pension, as chosen at retirement.

Q. Can I transfer my money out?

A. At retirement time, one of the options is to transfer your account to a Locked-in Retirement Account (LIRA) or a prescribed RRIF with another financial institution.

Q. Can I get my money out in a lump sum?

A. If you have a small pension benefit of $20.88 or less per month at your retirement date, you may choose to take your money out in cash less a 10% withholding tax (sent to Canada Revenue Agency) or transfer your account into an RRSP.

Pay yourself first

By Sheryl Smolkin

Saving for retirement is hard. You fully intend to put away a percentage of every paycheque but mortgage payments, car payments and new shoes for your children get in the way. When you have a few dollars in your pocket after paying the bills, travel and the latest tech toy are powerful magnets.

But you can make saving much easier, by adopting one simple financial planning principle: “Pay yourself first.”

“Pay yourself first” as a cornerstone of investment philosophy was popularized in this country by David Chilton, the renowned author of The Wealthy Barber. Simply put, it means that before you pay your bills, before you buy your groceries, before you do anything else, set aside a portion of your income to save. The first bill you pay each month should be to yourself.

Decide on the purposes for which you want to save and the amount you want to save each pay period. Then arrange for automatic withdrawals by your bank or other financial institution.

Here are three reasons why paying yourself first makes sense:

  1. You are making savings a priority. You are telling yourself that your future is just as important as all of the current expenses you are responsible for.
  2. You are developing sound financial habits. Most people spend money in the following order: bills, fun, savings. By putting savings first, you put the money aside before you find reasons to spend it.
  3. You are building a cash buffer. Regular cash contributions are an excellent way to build a retirement nest egg. You can also allocate a portion of your savings for an emergency fund or to purchase a home. Paying yourself first gives you the freedom to choose.

You can even use the tax system to “Pay yourself first” and get a raise. If you are saving regularly in the Saskatchewan Pension Plan or a registered retirement savings plan, you can complete a T1213 form and request permission for your employer to deduct a lower amount of taxes at source,

By reducing your withholdings at source, you are paying yourself and not the Canada Revenue Agency first, and increasing your net take home pay. You are effectively giving yourself a raise all year long, not just once at tax time.

You can contribute up to $2,500/year to the Saskatchewan Pension Plan and contribution options include directly contributing from your bank account on a pre-authorized contribution schedule.

Developing the “Pay yourself first” habit can help you build up a substantial retirement nest egg. For example, if you deposit $2,500/year in the SPP and earn five percent over a 40 year career (age 25 to 65) you will have a lump sum of about $317,000 in your account.

For additional retirement or other savings, you can also direct your financial institution to transfer regular amounts to savings vehicles like tax free savings accounts and registered retirement savings plans.

Also read:

The Wealthy Barber

The Automatic Millionaire

The Richest Man in Babylon

Pay yourself first

Pay yourself first?

Pay yourself first

Sheryl Smolkin is a Toronto lawyer, writer and editor. She blogs for the Toronto star on moneyville.ca and can be contacted through her website. You can also follow her on Twitter @SherylSmolkin.

Talking to Katherine Strutt

Katherine Strutt podcast

Interview Transcript

My name is Sheryl Smolkin. I am a pension and benefits lawyer and journalist. Today I’m kicking off our series of interviews with the people behind the scene at the Saskatchewan Pension Plan. I’m talking to Katherine Strutt, the General Manager of the Plan.

Welcome Katherine. Thanks Sheryl.

Q. Who can join the SPP?

A. Anyone between the ages of 18 and 71 can join the plan no matter where they live or work. So while most of our members are from Saskatchewan, anybody from the rest of Canada can also join and be part of the plan.

Q. Why do Canadians need a pension plan? Most of us are eligible for CPP and OAS, plus anyone with a house effectively has a chunk of savings.

 A. Well, if you think of retirement savings in Canada as a three-legged stool, on the first leg you have Old Age Security which is a universal program. On the second leg you have the Canada Pension Plan which is a workplace-based pension. And those two are the foundation for most people’s retirement savings. The third leg is individual retirement savings and that’s where the SPP fits in.

So it’s important to have some personal savings and the SPP provides a vehicle which is easy to use and gives members a strong return at a very low cost. Your home is a very important part of your personal savings but you cannot necessarily rely on that as your main source of funds for retirement.

Q. With an alphabet of savings options, why do you think Saskatchewan residents and other Canadians should consider the SPP as part of their retirement savings strategy?

 A. Well as I said, the SPP is simple and easy. We provide members with a true pension plan. That’s the difference between us and a Group RRSP. And you can’t get that anywhere else on a personal basis. Members get access to a large institutional plan for a fee of about one percent or less.

This would compare very favourably to retail mutual funds which typically would charge anywhere from 2% to 3%.

Q. How much can each member contribute?

 A.  Each member can contribute up to $2,500 per year based on their own individual RRSP limits. They can transfer in another $10,000 each year from an RRSP, a RRIF or an unlocked pension plan.

Q. How does an individual know where to put his money first – pay off debt? SPP? RRSP? TFSA? It’s a challenge to figure all of these out.

A. It sure is, and it is certainly a very individual decision, but I believe it isn’t an either/or proposition. People can be paying down their debt the same time as saving for their retirement through the SPP. As their financial situation improves, they can increase their contributions to the SPP.

Q. What if a plan member can’t afford to make contributions because of unexpected other expenses?

 A. That’s where the SPP is so flexible. If people need to stop making contributions for a while and then start up again, they can do so without penalty. It’s very flexible and very easy to use.

Katherine, thanks so much for taking the time to talk to me today. I know both members and prospective members will be very interested in your answers to my questions. 

 

Katherine Strutt Interview, December 2010

Katherine Strutt podcast, December 10, 2010

Millionaire teacher’s first rule of Wealth

By Sheryl Smolkin

High School English teacher Andrew Hallam started investing when he was 19. In an excerpt from his book Millionaire Teacher published on moneyville.ca, Hallam talks about the benefits of starting to save early and the power of compound interest:

“…Buried in the dull pages of most school math books is something that’s actually useful: the magical premise of compound interest.

Warren Buffett applied it to become a billionaire. More importantly, so can you and I’ll show you how.

Starting early is the greatest gift you can give yourself. If you start early and if you invest efficiently (in a manner that I’ll explain in this book) you can build a fortune over time, while spending just 60 minutes a year monitoring your investments.”

Read more

November 2011 investment results

SPP’s net return to members (after administration expenses) for the month of November was 0.27 per cent for the balanced fund (BF) and 0.04 per cent for short-term fund (STF).

Canadian and U.S. equity markets ended the month close to where they began the month, while non-North American equities had more noticeable drops in value.  The Canadian bond markets had positive and stronger performance for the month than equities.

The turmoil in Europe was the most significant driving force behind equity markets, both domestic and international, losing ground over most of November.  In fact, the financial markets have posted mostly negative returns throughout 2011.  In the latter part of November there was some cautious optimism that Europe could finally develop a plan to escape the crisis and this helped markets recover much of what was lost over the month.

Returns to November 30, 2011

Index YTD return (%)
S&P/TSX Capped Composite -7.13
Dex Universe Bond 7.86
S&P 500 3.44
MSCI EAFE -9.23
DEX 91 day T-bill 0.92
SPP Balanced fund -0.44*
SPP Short-term fund 0.97**

*Gross return before administration costs. Year-to-date net for the BF -1.42 per cent

** Gross return before administration costs. Year-to-date net is 0.51 per cent for STF

FAQ: Contributions

Saving money can be challenging.  It is not always easy to be disciplined enough to regularly put money aside for retirement. And even when you are committed to making regular contributions, there are times when life gets in the way and other expenses must take first priority.

That’s why we try to make contributing as easy as possible for SPP members. In the FAQs below we explain more about our flexible contribution options.

Q.1 How do I make my contribution?

A. Contributions can be made in a number of ways:

  • Directly from your bank account on the 1st or 15th of the month by joining the pre-authorized contribution program.
  • By mail or at your financial institution using a contribution form.
  • Online or by telephone through your bank.
  • Authorizing payments from your VISA or MasterCard on a pre-arranged schedule.
  • Contributing online, by telephone or in person using VISA or MasterCard.

Q.2 Do I have to contribute the same amount each year?

A. SPP is designed to be very flexible and to accommodate your individual financial circumstances. There is no minimum contribution. Even contributing $10 per month will build your SPP account and provide you with additional pension at retirement. The maximum contribution was changed to $2,500 effective December 7.

Q.3  Can I transfer money into SPP?

 A. SPP accepts transfers, up to $10,000 per calendar year from RRSPs, RRIFs and unlocked pension plans.

Q.4  Are my SPP contributions tax deductible?

A.   SPP contributions are subject to the same rules as RRSP contributions.    Your SPP contribution is tax deductible by you or your spouse, if he or she contributed for you. The person claiming the deduction must have unused contribution room for RRSP purposes.

Q.5 Can my creditors access my SPP contributions for outstanding debt?

A. Your money is protected from claim or seizure except in the event of an order under a marital division or an Enforcement of Maintenance Order.

Q.6 Can I take my contributions plus investment earnings out of SPP?

A. SPP is a locked-in pension plan which means your account must stay with the Plan until you are at least 55 years old. In the event of your death, the money in your account will be paid to your beneficiary.

Within six months of joining SPP, you can withdraw your contributions if you decide that you do not wish to participate in the Plan. After six months, the funds are locked in.

Save early, save often

By Sheryl Smolkin

You are 26 years old and at the end of 2009, you completed your first year of full-time work, earning $50,000. Your 2010 tax assessment form said you have $9,000 in Registered Retirement Savings Plan room for 2011. You know saving for retirement is a good idea, but it seems so far away.

Why start saving early for retirement?

Government benefits like Canada Pension Plan and the Old Age Security currently pay about $18,000/yr. These amounts will increase by the time you retire but so will your income. If at the end of your career you are earning $150,000/year you will need about $2 million in tax-assisted savings to buy a pension equal to 60 per cent or 70 per cent of your final earnings.

But if you start saving a small amount each month now, you will have a substantial chunk of retirement savings available to you when you need it. As long as you have sufficient RRSP room, the Saskatchewan Pension Plan (SPP) allows you to contribute $2,500/year. You can also transfer in an additional $10,000 each year from your RRSP.

The following example show how much money you can accumulate by saving regularly in the SPP.

Example:

You begin saving at age 26, with 39 years until you retire at age 65. You contribute $2,500 yr. and your retirement savings earn an average of 5%* each year.

Retirement savings at age 65: $299, 499.44

Starting at age 45, you also transfer in $10,000/yr. from your RRSP, which earns an average of 5% each year until retirement at age 65.

Additional retirement savings: $347,192.52

Total retirement savings:         $646, 691.96

You can easily join by filling out a form on our website and providing a photocopy of your birth certificate or passport. Anyone ages 18 to 71 is eligible, whether or not they are Saskatchewan residents.

SPP also makes it simple to contribute to your account by allowing you to choose from any of the following methods:

  • By mail.
  • In person or by telebanking at your financial institution.
  • By phone using your credit card.
  • Online.

On the long and winding road to retirement you will encounter many detours including raising a family, buying a house and contributing to the cost of your children’s education. However, by joining SPP at an early age and saving regularly, you can look forward to a more secure retirement.

For more information, check out our website, RSS savewithSPP.com, “like” us on Facebook or connect with us on Linked in.

*The SPP average rate of return over 25 years has been 8.2%. All calculations are approximate and do not in any way warrant future returns.

Also read:

Invest early, invest often 

Planning your RRSP contributions: Gary, Kevin and Judith’s story

How saving early in your RRSP helps: Amy and Amanda’s story  

Is it easier to save for retirement if you start earlier in life?

Millionaire teacher’s first rule of wealth

Welcome to savewithSPP.com

Welcome to the Saskatchewan Pension Plan’s (SPP) blog – a new way for us to keep current members informed and reach out to prospective new members. Beginning December 1, we are going to be blogging regularly and you can also follow us on Facebook and LinkedIn.

We will be posting podcasts with interviews of people behind the SPP, frequently asked questions, financial tips and links to personal finance articles written by top authorities across the country.

In a Toronto Star article late last year, the SPP was described as “Canada’s best kept secret.” Our new social media initiative is designed to make sure that secret is a thing of the past.

The fact is, SPP is a program developed ahead of its time. This plan, started 25 years ago is what many jurisdictions now desire. Anyone between age 18 and 71 is eligible to join, regardless of where they live and whether they are members in other plans, as long as they have unused RRSP contribution room.

It is a fully-funded capital accumulation plan created by the Saskatchewan government to provide supplementary retirement income to individuals with little or no access to employer-sponsored pensions.

Last December the federal and provincial governments announced that the maximum contributions would increase to $2,500 and that contributions would be subject the RRSP contribution rules. Members may now also transfer up to $10,000 a year from RRSPs, RRIFs and unlocked RPPs.

As of December 31, 2010, the SPP had close to 32,000 members and over 11,000 members received a pension from the Plan.  The market value of the fund was $192.5 million.

 So far in 2011, 931 new people have joined the plan. Our goal is to register over 1,000 new members before the end of the year.

In a recent article in the August/September 2011 issue of the CGA Ontario magazine Statements, author Flavian Pinto called the SPP “another option in retirement planning and a possible model for a better future than we have now – a glimpse into the future of pension plans.”

You and your friends can be part of this future.

Help us to spread the word. RSS savewithSPP.com, “like” us on Facebook or connect with us on Linked in. Make sure your friends are “in on the secret” so they too can make the SPP part of their retirement savings strategy.

Katherine Strutt

General manager

Saskatchewan Pension Plan

Also read: 

Is this small pension plan Canada’s best kept secret?
Saskatchewan’s new pension plan – Canada’s first PRPP?
Pooled Pension Plans
Saskatchewan Pension Plan and Changes to the Income Tax Act