Consolidating your retirement savings accounts can save you money, time

March 30, 2023

Do you have several registered retirement savings plan (RRSP) accounts?

When Save with SPP thinks back to the mid-1980s, when our first RRSP was started, we probably have had about 10 providers up to now. Presently, we are down to two. Sometimes it was because we bought RRSPs through a specific bank, sometimes we moved our self-directed RRSP from one provider to another.  That made us wonder. Is it better to have multiple RRSP accounts, or should we all try to consolidate them into one?

The MD Financial website lists four reasons why consolidation may work in your favour. MD Financial assists Canadian physicians with their retirement savings.

First, an article on their site explains, “it’s simpler to manage accounts at one institution.” And since most financial institutions charge fees, maybe one fee is better than many, the article adds.

It’s also easier to review all your investments if they are all in one place, the article notes.

“When all of your RRSP assets are visible in one spot, you can more easily confirm whether your investments are right for you,” the MD article notes. “This is especially true as you start to withdraw from those accounts to create income, or as you approach the end of the calendar year in which you turn 71, when RRSP assets need to be converted to a registered retirement income fund or used to purchase an annuity,” the article continues. Working from one account will make getting your retirement income flow less complicated, the article adds. “With multiple sources of savings to draw on, consolidating your RRSP assets with one financial institution can make it easier to manage your retirement income cash flow,” the article explains. “That way, you’re making RRSP withdrawals from just one institution,” the MD article reports.

An article from a few years back by Terry McBride of the StarPhoenix makes some similar points.

“Having separate RRSP accounts with various banks is not a very efficient way to achieve safety through diversification. By consolidating and using just one self-directed RRSP, you can hold marketable bonds, exchange traded funds (ETFs) or guaranteed income certificates (GICs) issued by any number of banks, trust companies or credit unions. You can have as much diversification and Canada Deposit Insurance Corporation coverage as you want. Savings in mutual fund management fees from consolidating can more than offset your self-directed RRSP administration fee,” notes McBride.

It will also make it easier for your executor if they have only one financial institution, rather than multiple ones, to deal with, the article adds. And as well, the article concludes, you will save a few trees (or emails) by not having as many statements to read.

The Motley Fool blog makes another interesting point about fees — if your various retirement accounts all are charged different fees, it may makes sense to consolidate within an account that has lower fees.

“Costly fees will hamper the growth of your savings,” the blog warns.

An article on the Marketwatch website says consolidation is a great way to put little pieces of pension from various jobs in your career into one spot, prior to retiring.

“While putting everything together, you may remember accounts you had completely forgotten about, such as a 401(k) (similar to a Canadian group RRSP) from an employer you were with for only a few years, or a pension benefit you may be eligible for based on the company’s requirements,” the article adds.

Do you have your retirement savings in multiple places? If you’re a member of the Saskatchewan Pension Plan, you can consolidate them within SPP. Under SPP’s rules, you can transfer in up to $10,000 from an RRSP each calendar year. Transferred funds will be invested by SPP at a low management fee, typically less than one per cent, and you’ll be able to keep an eye on your account whenever you want via My SPP. Check out SPP today!

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Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


March 27, 2023

Which is best for retirement savers — an RRSP or a TFSA?

Writing in the Toronto Star, Ghada Alsharif takes a look at the question of choosing the right vehicle for you when it comes to retirement savings.

She says both a registered retirement savings plan (RRSP) and tax-free savings account (TFSA) can help you save on taxes while you save for retirement, but that they work differently.

“RRSPs offer a tax deduction when you contribute but you pay tax when money is withdrawn. On the other hand, TFSAs offer no upfront tax break but you don’t have to pay tax on withdrawals. Both accounts help you reach your savings goals faster than a regular savings account because both grow tax-sheltered,” Alsharif explains.

Her article quotes Jason Heath of Objective Financial Partners as saying that choosing between the two options may be decided by how much you make.

If, Heath states in the article, you have “high income it’s a good time to contribute to a RRSP if you expect to pull the money out at a lower tax rate in the future. That’s not often the case for a young person who’s just getting started at their first job or is working part time, doing schooling and getting established in their career.”

A TFSA is better for lower income earners, who are taxed less on their income. Funds within the TFSA grow tax-free and aren’t reported as taxable income when they come out, the article explains.

A chart in the article shows the correlation between income and which savings vehicle people choose. The TFSA is preferred by the vast majority of those earning $49,999 or less, the Star reports. It’s more of a 50-50 choice for those earning between $60,000 to $89,999, but RRSPs predominate among those earning $90,000 and above.

“The drawback to contributing to a RRSP is someday you’re going to pay a tax on those withdrawals. That’s why it’s important to make sure when you’re putting money in, you’re getting a large tax refund to make it worth paying tax on the withdrawals someday,” Heath states in the article.

Our late father-in-law had an interesting use for his TFSA. When he was required to make withdrawals from his registered retirement income fund (RRIF), he would pay the taxes on the withdrawal, and then reinvest the balance in the TFSA. The income from the TFSA would gradually increase and is of course tax free.

A problem with both the TFSA and the RRSP is that you can tap into the money before it’s time to withdraw it as retirement income. There are tax consequences for raiding your RRSP piggy bank, but none with the TFSA. A nice way to avoid dipping into your savings is by opening a Saskatchewan Pension Plan account. SPP is locked-in, meaning you can’t help yourself to your savings until you’ve reached retirement age. Your future you will appreciate that!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.

Make your costly food last longer with these tips and tricks

March 23, 2023

We hear of the term “sticker shock” when it comes to buying big-ticket items, like a new car, or a new home.

But lately, it’s been “grocery shock” when you pay $200 and put only three or four bags into the trunk in the grocery store parking lot. Grocery prices are crazy high — so Save with SPP did a little digging into ways to make those expensive groceries last a little longer.

At The Food Network, we are told that U.S. research has found that we waste “between 15 and 25 per cent of the food we purchase… imagine throwing one out of every four grocery bags right into the trash!”

The trick, reports Toby Amidor, is in storing the food you buy correctly. Amidor reports that precious eggs can last up to five weeks in the fridge, provided you put them in “the coldest part of the refrigerator.”

“Do not store them in the door (it’s the warmest part of the refrigerator),” Amidor writes. Instead, store them near the back of the fridge and in their original container.

We remember having fridges that had little egg holders built into the door, years ago! Guess that design didn’t make it into the 21st century!

Other tips from The Food Network include the idea of storing nuts in the fridge or freezer, rather than in a cupboard or on the countertop. “The fat within the nuts can go rancid more quickly once the package is opened,” the article explains. They’ll last longer if you keep them cold, The Food Network reports.

Across the pond, The Express expands on the idea of what foods shouldn’t be stored on your fridge door — milk, cream, butter and cheese should all be inside the fridge and not stored on the door; cheese should go inside a compartment, the article advises.

The folks at Reader’s Digest suggest you should wash berries “with a mix of vinegar and water (think a 1:3 ratio)” before popping them in the fridge. “This disinfects against mould, (and) can lengthen shelf life by weeks,” the article suggests. Be sure to rinse the berries in water after you’ve used the vinegar/water mixture to clean them, the article adds.

Leftover lettuce “should be stored in a bowl with a paper towel on top, then sealed with plastic wrap.” The paper absorbs any moisture in the lettuce leaves, keeping them from turning brown as quickly, the article explains.

Squirt an avacado with a few drops of lemon juice to keep it from going brown as quickly, the team at Reader’s Digest adds, and carrots will last longer if you store them in a container with a little water inside.

A second article in The Express provides a tip on how to “revive” stale bread. Rather than chucking it out, you should “douse the stale bread with water and then (put) it in the over at 200 degrees C for five minutes.” The result is “flakey and delicious” bread, warm from the oven, instead of more garbage/compost.

Food is an expensive commodity that we seem happy to waste, reports The Barbecue Lab. Food waste, the publication reports, “makes up 20 per cent of landfills in the U.S.” An incredible “$48.3 billion of food… is thrown away or wasted worldwide,” the article continues. That’s 1.3 billion tons of food worldwide, the article adds, noting that “one third of all food is wasted,” including 25 per cent of the groceries we buy.

Our late mom used to tell us to “use everything up” in the fridge before buying more groceries. This is a practical approach, and if you are stumped for ideas, do a web search to find recipes for the ingredients you are trying to use up.

Do what you can to stretch your food dollars through better storage, and you may find you have a few extra toonies and loonies kicking around for your efforts. A great place to direct those savings is an account with the Saskatchewan Pension Plan, a voluntary defined contribution plan that’s open to any Canadian with unused RRSP room. Join the 32,000+ who look to SPP to grow their savings — your future you will thank you!

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Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


March 20, 2023

Expensive housing costs has a growing number of adult kids living with their folks

The current high rate of inflation is driving up borrowing costs, making today’s costly houses even more out of reach for first-time homebuyers.

And that’s leading to a growing number of young people having to live at home with the folks, even into their 30s, reports The Daily Hive.

Writer Sarah Anderson notes that “close to a million households in 2021 were `composed of multiple generations of a family.” That represents seven per cent of Canada’s total population, the article reports.

A significant number of young people live with their parents, the article continues.

Citing Statistics Canada information, the article notes that “the share of young adults aged 20 to 34 living in the same household with at least one of their parents was unchanged from 2016 to 2021,” and is 35 per cent.

What’s different is that the “kids” living at home are getting older, the article reports. “Forty six per cent of young adults who lived with their parents (in 2021) were aged 25 to 34, compared to 38 per cent in 2001,” The Daily Hive reports.

The article lists six programs the feds are offering to try and make it easier for younger folks to get into the housing market, including a new tax-free savings account for prospective home buyers.

The article also mentions a new program that provides up to $7,500 in tax credits for those making their homes “multi-generational,” but makes it clear that this is most likely designed for younger homeowners who want to create a living space for their parents in their home, rather than the other way around.

Daniel Foch of the Canadian Investor Podcast is quoted at the end of the article as saying more needs to be done to get young people into their own homes.

“Canada could ultimately be heading for a low-ownership housing model as more people are marginalized out of ownership. This really signals that we’re starting to see the end of the Canadian dream of homeownership unless something changes,” he tells The Daily Hive.

Saving up for a down payment is a big priority for many young people. But putting aside a little money for retirement as well is never a bad idea. In these days of higher inflation, where groceries and gas seem to cost a small fortune, it may be a little tougher to find those dollars to save. But you can always start small.

The Saskatchewan Pension Plan, open to any Canadian with registered retirement savings plan room, lets you make tax-deductible contributions at any level you choose (up to $7,200 annually), either by setting up SPP as a bill for online banking or by using a credit card. If money’s tight, keep contributions small — you can always ramp them up later! Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.

Why everyone is using watches, apps to count steps

March 16, 2023

We had just finished off a one-hour line dancing class the other day when a friend excitedly pointed out that her watch had counted X thousand steps for the hour.

Golf buddies of ours also seem to have embraced this new trend — their watches not only count strokes, distances, calculate golf handicaps and so on, but now, count steps. So it’s Y thousand steps per round of golf.

Save with SPP, as a known technical luddite, decided to take a closer look at why everyone seems to be into this new trend.

According to the Health Prep blog, step counters “have become increasingly popular over the past decade,” and are “great tools for increasing your overall fitness level and encouraging healthy habits.” The counters are typically either built into your smart watch, or are devices you wear on your wrist or attach to your belt, but they all do the same thing — “they measure the movement of the individual’s body to calculate the number of steps they have taken,” the article explain.

Some of the smart watches also measure “heart rate, calories burned and sleep patterns,” the article notes, adding that the devices can lead one into more exercise and ideally, fitness and weight lost.

Okay, so it counts your steps — how many should you be shooting for?

An article on the Mayo Clinic website says the average American walks 3,000 to 4,000 steps a day, but that a popular step counter target is 10,000 a day.

But, the article advises, rather than shooting for that target right out of the box, you should first get a handle on what your average “step day” looks like. “It’s a good idea to find out how many steps a day you walk now, as your own baseline. Then you can work up toward the goal of 10,000 steps by aiming to add 1,000 extra steps a day every two weeks,” the article notes.

This makes great sense. How can you “improve” your walking if you don’t know how much you were doing before you got the watch?

The article says that increased walking has many health benefits, including reducing the risk for heart disease, obesity, diabetes, high blood pressure and depression.

An article on the Live Science blog explores the benefits a little further. It’s good for the average person because the step counting data received is “intuitive and understandable to the layperson… easy to measure, objective, motivational and help(s) to facilitate behaviour change.”

U.S. guidelines suggest that 150 to 300 minutes a week of “moderate intensity exercise,” like walking, is the recommended level for adults. If the activity is “vigorous intensity,” (perhaps running, say) the recommended adult level is 75 to 150 minute a week, the article says.

An article on the Inverse blog expands on the idea of knowing what your baseline daily step count is before shooting for the magic 10,000 figure.

The article contends that 10,000 steps is not a scientific target, but the result of a marketing campaign for an early Japanese step counter.

“The gadget was named Manpo-kei because, in Japanese, it translates to “10,000 steps meter,” the article notes. “But the idea of 10,000 steps as an `ideal’ wasn’t exactly based in science. Rather, the Japanese character for “10,000” resembles a person walking — so it’s commonly thought, though hard to prove definitively, that the seeming similarity is the humble origin story of a now much-vaunted fitness target,” the article adds.

The article reiterates what we’ve seen elsewhere, that the typical person only walks 2,700 to 4,400 steps a day, so rather than trying to double or triple their typical day’s walking, they should increase it incrementally.

Save with SPP walked for exercise while working in downtown Toronto. At our least fit level, we could walk perhaps four blocks in an hour. We gradually increased our distance (speed) and by the end of our time there could walk maybe 10 blocks in the same period of time. Start with what you can handle, and gradually increase your goal.

It’s a similar story with retirement saving. Start by putting away an amount you can afford — we started with $25 a month in the mid-1980s. As you earn more, ratchet it up, and by paying yourself first, you won’t even notice that you are putting away hundreds, and eventually thousands, away. A great destination for those hard-earned savings is the Saskatchewan Pension Plan. Check them out today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


March 13, 2023

South of the border, near-retirees fear changes to government benefits

Our friends south of the border — those of them who are nearing retirement — are worried that their government-backed Social Security system might not be there for them when they need it.

That was one of the findings of the Allspring Global Investments Annual Retirement Survey; a media release from Allspring walks us through the survey results.

The survey found that retirees with guaranteed sources of income — such as their Social Security, a pension plan, bank account or annuity — have a “more positive outlook on retirement” than those with savings vehicles without guarantees, such as investment accounts, tax-free savings accounts (IRAs) or capital accumulation-style retirement savings accounts. Those who have not yet retired, the media release notes, worry about the solvency of the Social Security system.

Another finding that may resonate with Canadians as well was the idea that American retirees are concerned about “drawing down retirement (funds) tax-efficiently.” More than half of those surveyed hired an advisor to help with tricky taxation related to receiving Social Security and Medicare, and 71 per cent say they want to learn more about taxation.

One of the most eye-opening findings was that “you either reach your savings target, or you don’t.”

“The survey found that a retirement savings plan can help keep workers on track, but it represents several assumptions,” Allspring’s media release states. “Retirement expenses vary widely, while many retirees participate in part-time work and others stop working earlier than expected. Many will adjust their spending—by force or by choice.”

In plainer terms, your retirement spending must align with your new (and usually lesser) retirement income. You can’t sustain a system where you spend more than you take in.

The Allspring research draws a rather surprising conclusion from this, noting that “each year of early retirement before 65 significantly increases the chance of running out of money in retirement,” but also that “even working 10 hours a week after 65 significantly decreases the risk of running out of money in retirement.”

Among the conclusions of the research was that “women, African Americans and Hispanics” are experiencing a wealth gap. “The financial services industry needs to do better in serving these groups,” the media release notes, adding that only 69 per cent of women (versus 87 per cent of men) are “confident their savings will last.” As well, the release states, African Americans generally were more impacted by the pandemic and now expect their retirement will be delayed by two years.

The article makes the point that those with guaranteed income have a more positive outlook. Here in Canada, the chief retirement benefits (Canada Pension Plan and Old Age Security) are lifetime benefits. But if the rest of your income is being drawn down from a registered retirement income fund (RRIF), or you are living off savings, the risk of running out of money is certainly possible.

A solution available to members of the Saskatchewan Pension Plan is the annuity. SPP offers several different types, but all of them will result in a monthly payment that you’ll receive on the first of every month for life. It’s an option worth considering for some or all of your SPP savings when you reach the “time to collect” stage. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.

Making tiny, “atomic” changes can help build good habits: James Clear

March 9, 2023

We often hear about the benefits of breaking big projects into more achievable, tiny steps.

In his book Atomic Habits, James Clear applies that same sort of thinking to the age-old challenge of changing our bad habits for good ones.

“Too often,” he writes, “we convince ourselves that massive success requires massive action. Whether it is losing weight, building a business, writing a book, winning a championship or achieving any other goal, we put pressure on ourselves to make some earth-shattering improvement that everyone will talk about.”

Instead, he writes, we should focus on making small improvements. “Improving by one per cent isn’t particularly notable — sometimes it isn’t even noticeable — but it can be far more meaningful, especially in the long run,” he notes. “The difference a tiny improvement can make over time is astounding.”

But, he says, you have to stick with your one per cent change plan. “In order to make a meaningful difference, habits need to persist long enough to break through” what he calls the Plateau of Latent Potential. Then, the hard work you’ve put in will begin to be noticed by others as an overnight success, he adds.

He also says our focus should be less on goals, but on the system we need to reach them. A good way to do this is to change our thinking. “The goal is not to read a book, the goal is to become a reader,” or a musician, or a runner, Clear notes. “The most effective way to change your habits is to focus not on what you want to achieve, but on who you wish to become,” he explains.

He breaks down what he calls “the habit loop” by noting that every habit consists of a cue, a craving, a response, and a reward. An example would be walking into a dark room and flipping of the light switch, he explains. We aren’t even aware of such habits, and becoming aware is key to changing them, he notes.

The book shows how to develop a Habits Scorecard — an outline of all the things you do each day, your habitual behaviour. Rate all your habits as good, bad, or neutral, and you will have “begun to notice what is going on” with them, he suggests.

To develop a good habit, Clear explains, you need to make it obvious, attractive, easy and satisfying. To lose a bad habit, make it invisible, unattractive, difficult and unsatisfying.

A later chapter talks about “stacking” good habits — “when I see a set of stairs, I will take them instead of using the elevator,” or “when I serve myself a meal, I will always put veggies on my plate first.” Making a habit more obvious can be achieved by placing your guitar in the middle of the living room if you want to play more often, or keeping a stack of stationery on your desk so you remember to send more thank-yous, the book notes.

On the bad habit side, “if you’re watching too much TV, move the TV out of the bedroom,” or to cut back on video games, “unplug the console and put it in a closet after use.”

Reframing hard-to-do habits helps you want to do them more, Clear writes.

“Many people associate exercise with being a challenging task that drains energy and wears you down. You can just as easily view it as a way to develop skills and build you up. Instead of telling yourself `I need to go run in the morning,’ say `it’s time to build endurance and get fast.’”

Later chapters show how to shape your habits in easier stages, taking five specific phases if you want to become an early riser, or a vegan, or to start exercising.

This entertaining book concludes with a recap of the principles for changing habits or setting new goals — “the secret to getting results that last is to never stop making improvements. It’s remarkable what you can build if you just don’t stop…. Small habits don’t add up. They compound. That’s the power of atomic habits. Tiny changes. Remarkable results.”

This is a great read, very inspiring, and highly recommended.

If you haven’t started saving for retirement, starting with a small first step may be a good way to get rolling. The Saskatchewan Pension Plan is open to any Canadian with registered retirement savings plan room, and you can contribute any amount you want up to $7,200 per year. So you could start small, say $25 a month, and then ramp it up over time. This automatic approach will make retirement saving an easy habit to adopt. Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.


March 6, 2023

Tips and tricks for retirement savers facing scary markets, inflation

Writing for Yahoo! Finance, Ella Vincent notes that these times of up-and-down markets and rising inflation are worrisome for savers.

She offers a variety of tips and tricks, some of which we have “Canadianized” as she is aiming her advice at a U.S. audience.

First, she writes savers nearing retirement should be thinking more about risk than they do about chasing growth.

Ken Moraif of Retirement Planners of America tells Yahoo! Finance that “risk control is incredibly important in our view. We have a philosophy that says you should only take as much risk as is necessary to accomplish your financial goals. Risk control is the number one thing to determine how much risk is appropriate for you and proceed accordingly.”

Diversify your portfolio so you aren’t “all in” on any one investment category, the article advises.

Moraif tells Yahoo! Finance that you should also review your investment philosophy. A “buy and hold” strategy, where workers “buy and hold stocks until they retire,” may not be effective as you move into retirement, where the goal is preserving capital versus growing it.

Buy and holders need to develop a “sell” strategy, Moraif states in the article. Reducing equities is sometimes away to cushion yourself from stock downturns while conserving your principal, he explains.

Next, consider tapping into your retirement account later. Here in Canada, that could mean continuing to work until you are 70 before starting your Canada Pension Plan benefits, with the idea being you’ll receive a greater monthly benefit the later you start.

If you didn’t start saving for retirement while you were young, you can try to catch up in your 1950s by maximizing your contributions to retirement savings programs. Here north of the 49th that means things like filling up registered retirement savings plan room with an eye on maxing out. A Tax Free-Savings Account (TFSA) is also handy in retirement, so if you haven’t got one rolling by your 50s, you will have a lot of room there to use as well.

If you’re in a retirement program at work, be sure you are contributing to the max, the article adds.

Let’s sum this up. Don’t place your bets on one horse when it comes to financial markets; diversify to avoid risk. Your investment philosophy should be more about conserving capital than trying to grow it. Consider starting retirement benefits later so you get more — that usually means working longer too.

Don’t panic if you weren’t a saver in your 20s and 30s — there is still time in your 50s to try and max out your retirement savings vehicles like RRSPs and TFSAs. Be sure to join any retirement savings program through your work and contribute as much as you possibly can.

It’s a lot to take in.

There’s another way to go that’s open to any Canadian with RRSP room, and that’s the Saskatchewan Pension Plan. It’s a voluntary defined benefit pension plan where how much is contributed is defined by you, the member. You can chip in up to $7,200 a year, and can consolidate any other bits and pieces of retirement savings by transferring up to $10,000 a year in from other RRSPs. SPP will grow your savings and at retirement, you have the option of a lifetime annuity — a supply of monthly payments that never runs out! Check out SPP today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.

A look Down Under, where the workplace retirement system is an all-DC “super”

March 2, 2023

While here in Canada it’s up to employers to decide whether or not to offer a retirement program, Australian employees are covered by an all-defined contribution (DC), all employer-funded system of superannuation funds, or “supers.”

This Australian superannuation system now has more than $3 trillion (Australian) in retirement assets under management,

Save with SPP reached out to the Association of Superannuation Funds of Australia (ASFA) by email, and ASFA’s CEO, Dr. Martin Fahy, was kind enough to provide answers to our questions on how retirement savings are handled down under.

Q. Does the Australian superannuation system involve mandatory pension plans for all workers, with contributions made exclusively by the employer? And without any contributions from either the government or (required) contributions from individuals? (we are imagining that employees might be allowed to top up the contribution to their supers).

A. Yes, the Australian superannuation system requires employers to make mandatory contributions (known as Superannuation Guarantee contributions) to their employee’s superannuation. Currently, 10.5 per cent of wages are paid by the employer to superannuation. Individuals can make additional contributions (both before and after tax) within limits/caps prescribed by government.

Not all workers are covered by the system. For example, self-employed individuals and some contractors (dependant on the nature of the work arrangement) do not receive Superannuation Guarantee contributions.

Q. Thinking of things like the pooling of investments and the lower management fees large funds can charge, what are the chief advantages of the DC model? Can people move from job to job without transferring their supers or are transfers simple to make?

A. Individuals can choose to keep their super in the same fund when they move roles – it is not tied to their employer.

Access to professional investment management at wholesale rates, and the ability to participate in investment opportunities that would otherwise be unavailable to individuals, is one of the chief advantages that a scaleable DC model provides. Australia’s DC system is characterized by strong governance, regulation and prudential oversight. Retirement outcomes are dependent on the level of contributions (which are mandatory and the rate of which is increasing) and investment performance over time (with funds required to meet annual performance benchmarks to continue operating). Workers are not exposed to more extreme problems that have arisen in some defined benefit (DB) systems, such as reductions (or in the worst cases eradication) of workers’ entitlements due to failures in assets/liability matching or fiscal tightening.

Recent changes to the Australian system “staple” a worker to their superannuation fund, so that they maintain a single fund unless they choose otherwise (either to switch to a new fund or maintain multiple funds). This alongside other reforms and higher levels of consumer awareness has reduced account proliferation and the incidence of unintended multiple accounts being held by individuals. This will lead to reductions in fees paid by individuals and improve long-term retirement outcomes.

Q. This system appears to have succeeded on many fronts, but the percentages of Australians with pension coverage must be close to 100 per cent. If this is true (probably the best coverage in the world), what are the other great things about the Australian super model?

The Australian retirement income system is a “three pillar” system:

  • Pillar 1 Government funded Age Pension
  • Pillar 2 Compulsory superannuation
  • Pillar 3 Voluntary savings (both inside and outside of superannuation)

As the superannuation system matures (that is, as more individuals have had the benefit of superannuation at higher contribution rates for their entire working life) the role of compulsory superannuation in providing retirement income is becoming primary. Most retired Australians today still receive some form of means tested government-funded Age Pension (a safety net payment set around the poverty line), however this is increasingly a part-pension due to higher levels of superannuation savings. One of the most remarkable (current and projected) achievements of the Australian superannuation system is its role in maintaining Age Pension payments around 2.5% of GDP over coming decades, well below what is being spent by international counterparts.

Q. Here in Canada, funds in a registered DC plan must, by the time the plan member is 71, either be converted to a life annuity or transferred to what is called a registered retirement income fund, a fund that mandates annual withdrawals (minimums). Taxes are deferred until the withdrawal stage. How does Australia handle decumulations? Are there rules similar to that?

A. There is no compulsion to convert to an annuity or allocated pension. However, there are incentives in place within the system to encourage this (for example, a zero-tax rate on investment earnings in pension phase, vs a 15 per cent rate in accumulation phase). The previous government legislated a Retirement Income Covenant that requires superannuation fund trustees to consider their retirement phase offerings and make them appropriate for their members. Last year funds submitted their initial strategies to the prudential regulator on this front and are now in the process of updating products and services in line with this.

Once in pension phase there are minimum withdrawal requirements. This is one mechanism to ensure that accrued savings are utilised for their intended purpose – retirement income that enables individuals to live a comfortable retirement.

Our thanks to Dr. Fahy and ASFA for their time and help. Here’s a link for more information on Australia’s superannuation system.

If you don’t have an employer-sponsored retirement program, or want to augment what you have, the Saskatchewan Pension Plan may be a program worth investigating. As an open DC plan that is not sponsored by your employer, SPP shares some similarities with the Australian system — it’s a large, pooled fund, which keeps investment management costs down, and as in Australia, portability is built in when you change jobs — you won’t have to transfer your benefits from one employer-sponsored plan to another. Check out SPP today!

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Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.