By Sheryl Smolkin
For many years you have been focused on saving and investing for retirement by maximizing contributions to the Saskatchewan Pension Plan (SPP) and other retirement savings vehicles. As you plan for retirement, you need to consider the best way to shift from accumulation mode to the decumulation phase of retirement savings.
You may choose an annuity from SPP and receive a pension for the rest of your life, transfer the funds to a locked-in account with a financial institution, or choose a combination of the annuity and transfer options. If your account balance is small you may be able to have your account paid to you in a lump sum instead of receiving monthly payments.
SPP members may begin receiving benefits from the Plan any time after age 55 and must be retired from the Plan by the end of the year in which they reach 71. At SPP, “retirement” simply means you are receiving pension payments. You can still be employed and receive a pension from SPP.
SPP annuity options
All SPP annuities pay you a monthly pension for your lifetime. The amount of your monthly pension is based on your account balance, your age at retirement, interest and annuity rates in effect and the age of your joint survivor (where applicable). SPP annuity income qualifies for the pension income credit and for pension income splitting. Each annuity option treats death benefits differently.
If you decide to purchase an annuity, your individual account balance is transferred from the SPP contribution fund to the SPP annuity fund and a pension contract is established. The annuity fund holds investments in high quality long-term bonds.
Here are the kinds of annuities offered by SPP:
Life only annuity
This annuity provides you with the largest possible monthly pension for your life. When you die all payments stop.
Refund life annuity
This annuity pays you a monthly pension for the rest of your life. When you die any balance remaining in your account is paid to your beneficiary in a lump sum. If you name your spouse as beneficiary of your account, CRA allows death benefits to be transferred, tax-deferred, directly to his or her SPP account or to an RRSP, RRIF or guaranteed Life Annuity. Tax-deferred transfer options are also available if the beneficiary is a financially dependent child or grandchild.
Joint survivor annuity
The joint survivor annuity also pays you a monthly pension for the rest of your life. If you choose this option you must name your spouse as survivor. When you die, monthly payments continue to your spouse. If your spouse predeceases you, the payments stop with your death. Benefits are based on your age and the age of your joint survivor.
Pros and cons of SPP annuities
When you opt for an annuity which pays a fixed monthly benefit, you are buying peace of mind. You know how much you will receive and you can budget accordingly. Because you purchase the annuity directly from SPP, there are no commissions or referral fees and you can be sure you are getting competitive rates.
Essentially, SPP assumes the risk associated with the investment and you receive pension payments for your life time.
With interest rates at historic lows, you may be reluctant to opt for an annuity. However, it is important to keep in mind that your benefit reflects an integrated blend of cash flows:
- Interest on your money.
- A portion of your contributions back.
Example: August 2012/Joint survivor is the same age as retiree/lump sum of $100,000*
|Age 55||Age 60||Age 65||Age 70|
|Life only annuity||$451||$494||$554||$637|
|Joint survivor annuity 100%||$406||$434||$473||$529|
* Your annuity benefits will reflect your own age, interest rates and the balance in your contribution account.
If you are considering retiring from SPP, call the toll-free line
(1-800-667-7153) for an estimate of your monthly pension based on the various annuity options available and your personal information.