Category Archives: Interviews

People behind the scenes at SPP.

Is senior poverty linked to a lack of retirement saving or workplace plans?

An interview with Chris Roberts of the Canadian Labour Congress 

These days, it’s pretty common knowledge that many of us don’t save enough for retirement, and/or don’t have a savings plan at work. Save with SPP reached out to Chris Roberts, Director of Social and Economic Policy for the Canadian Labour Congress, to see how this lack of retirement preparedness may connect to seniors having debt and poverty problems.

Is the shortage of workplace pension plans (and the move away from defined benefit plans) in part responsible for higher levels of senior poverty/senior debt?

“Certainly old-age poverty rates and indebtedness among seniors have risen over the past two decades, while pension coverage has fallen (and DB coverage in the private sector has collapsed). Seniors’ labour-market participation has also doubled over those time period.

“It’s clear (from research by the Broadbent Institute) that falling pension coverage and inadequate retirement savings more broadly will deepen the financial insecurity and even poverty of many seniors. But while there’s been considerable research linking stagnant wages and rising household indebtedness, studies linking falling pension coverage with rising poverty and indebtedness among seniors are relatively scarce.

“Both rising poverty rates and growing indebtedness among seniors have several causes. Canada’s public pensions, especially Old Age Security (OAS) and the Guaranteed Income Supplement (GIS), provide a minimum level of income in retirement for individuals without private pensions or other sources of income. Part of the rise in the low-income measure of old-age poverty has been due to the fact that OAS is indexed to the consumer price index rather than the average industrial wage, causing seniors’ incomes to lag behind median incomes. Unattached seniors, especially women, are at particularly high risk of poverty, but so are recent newcomers to Canada who are eligible for only a partial OAS benefit.

“With respect to rising indebtedness, a declining number (according to Stats Can data) of senior-led households are debt-free. More Canadians are taking debt (especially mortgage debt) into retirement, and they’re shouldering more debt in retirement as well. At the same time, the total assets of senior-led families have also risen, and their net worth has grown even as debt levels rose. Indebtedness and net worth seems to have grown fastest (again according to Stats Can data) among the top 20 per cent of families ranked by income.

“So I think we have to be somewhat careful to avoid seeing rising senior household debt levels as driven solely or even primarily by financial hardship caused by declining pension coverage. There is certainly ample evidence (according to research by Hoyes Michalos) of a significant and growing segment of seniors that are struggling with debt and financial pressure. But rising debt levels among higher-income senior households likely have other causes besides financial hardship.”

Is a related problem the lack of personal retirement savings by those without pension plans?

“Richard Shillington’s study for the Broadbent Institute demonstrated that a retirement savings shortfall for those without significant private pension income will be a major problem for many current and future retirees. This shortfall has also been documented in the United States (see a study by the Center for Retirement Research at Boston College). While retirement contributions as a share of earnings have been rising (even as the household saving rate fell), these additional contributions have gone toward workplace pension plans; contributions to individual saving plans have declined, suggesting that those without a pension have not been able to save independently to compensate for not having an actual pension (see this article from Union Research for an explanation).”

Is debt itself a key problem (i.e., idea of people taking debt into retirement and having to pay it off with reduced income)?

“I think rising debt levels in retirement do pose risks, even if the challenges vary significantly with income. For low- and modest-income seniors, some forms of debt (e.g. consumer credit, payday lending) can be onerous and even unconscionable. For home-owners, even if mortgage debt is accompanied by rising home values and rising net worth, servicing debts while managing health-related and other costs on fixed incomes can be challenging for seniors. Debts acquired at earlier stages of the life-cycle will likely become a mounting problem in Canada, as, for instance, the student debt of family members (see article from Politico) and seniors themselves (see coverage from CNBC) is becoming an urgent problem in the United States.”

Apart from things like CPP expansion, which seems a good thing for younger people, can anything be done today to help retirees to have better outcomes?

“Increasing GIS but especially improving OAS will be important to improving financial security for seniors. For the reason discussed above, OAS will have to be expanded or indexed differently in order to stabilize relative old-age poverty. But in my view, there are also good reasons to expand it. Current as well as future seniors would benefit. OAS is a virtually-universal seniors’ benefit (about seven per cent of seniors have high enough incomes that their OAS benefit is clawed back by the recovery tax), and it’s particularly important to low- and modest earners, women, Indigenous Canadians, and workers with disabilities. It isn’t geared to employment history or earnings, so it’s purpose-built for a labour-market increasingly characterized by precarity, and atypical employment relationships (e.g. “self-employment,” independent contractors, etc). Modest income-earners with pensions would benefit from a higher OAS; these workers earn only a small workplace pension benefit, and unlike increases to CPP, their employers would be unlikely to try to offset the costs of a higher (tax-funded) OAS benefit. While growing along with the retirement of the baby-boom cohort, the cost of OAS (as a share of GDP) is projected to peak around 2033 before declining. And at a time when workplace pension plans, individual savings plans, and even the CPP increasingly depend on uncertain and sometimes volatile investment returns, the OAS is funded through our mostly progressive income tax system.”

We thank Chris Roberts for taking the time to talk to Save with SPP.

Given the scarcity of workplace pensions, more and more Canadians must be self-reliant and must save on their own for retirement. An option worth consideration is opening a Saskatchewan Pension Plan account; your money is invested professionally at a very low-cost by a not-for-profit, government-sponsored pension plan, and at retirement, you have the option of converting your savings to a lifetime income stream. Check it out today at saskpension.com.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Shelties, Duncan and Phoebe, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Aging study explores impacts of isolation, poverty and frailty as we age

An interview with Dr. Parminder Raina

A large-scale research study, called the Canadian Longitudinal Study on Aging (CLSA) has been underway for a few years now, and is expected to provide insight on why some of us fare better in our old age than others.

Save with SPP contacted Dr. Parminder Raina, a professor at McMaster University and director of the McMaster Institute for Research on Aging, who is leading the research along with Christina Wolfson of McGill University and Susan Kirkland of Dalhousie University. We wanted to find out what the study – which follows 50,000 Canadians who were aged between 45 and 85 at recruitment for 20 years – has found out thus far.

The CLSA’s Report on Health and Aging, says Dr. Raina, shows that “when you look at the overall picture, people are aging in a healthy fashion.” However, he says, subpopulation data shows “that poverty rates are higher in women, and depression rates are higher, probably because of the social isolation issues.

“So while the overall picture looks good, you see some patterns that are not as positive when you start to segment populations differently. So from that point of view, this is an important finding because many of the data that are out in Canada are not specifically able to look at health issues in women,” he states.

Dr. Raina says the study has also helped develop what he calls “a normative cognitive score tied to age. It’s similar to a growth chart for children, but instead tied to memory and cognitive function,” he explains.  Having the score means that a cognitive test with your doctor could “be compared to a normal value developed using the CLSA data,” he states. “We know that aging is a developmental process. At the early ages, there are lot of gains and few losses. But in old age, there can be more losses than gains. By developing cognitive norms, we are able to determine what is normal and what is not when it comes to cognitive changes as we age.”

Another area being explored is frailty. “The traditional sense is that frailty is limited to older people that as they come into their 70s and 80s, they become weak, they lose resilience and become frail. The belief is that is part of growing old. And some older people are frail, and others aren’t,” Dr. Raina says. “Part of our goal is to understand frailty and how does it manifest itself. Some of our initial analyses and results are indicating that frailty is as prominent, in a different way, in a 45-year-old as it is in a 75-year-old.”

Is that frailty seen in younger people “the same as the frailty we see in older people?” he asks. “The other question, which we will answer over the years, is the people who are already frail in some ways, are they more prone to be much more frail in later life? That actually changes the way we look at the whole area of frailty in older people. We need to look at it in a very different way. It might be an issue that cuts across the whole age spectrum.”

Save with SPP asked Dr. Raina if any of the findings thus far come as a surprise.

“Overall, Canada is doing quite well when it comes to aging of the population. However, we can’t paint everyone with the same brush. There are some populations who experience more challenges than others. We need to keep this in mind, especially when developing policies and programs,” he says.

Finally, we asked Dr. Raina what those of us who are older can do to stay in better health as we age. “The two things tend to drive many health issues are smoking and lack of physical activity. Keeping people socially engaged is also tied to healthy aging. So exercising more, eating well and staying connected to friends and family can have a major impact on how we age. Those are the things that will actually lead to some beneficial impact on the health and well-being of people as they grow older,” he says.

In May 2018, the CLSA released its first report on health and aging, which included some important findings, such as:

  • 95 per cent of older Canadians rate their own mental health as excellent, very good or good
  • Women are more likely than men to express feelings of loneliness and social isolation, and that there is a notable correlation between feelings of loneliness and the prevalence of depression among older Canadians
  • 44 per cent of older Canadians report that they provide some level of care to others, and caregiving rates are at their highest (almost 50 per cent) among individuals aged 55-64
  • Driving a motor vehicle is the most common form of transportation for older Canadians regardless of age, sex, geographic location, health or functional status

Save with SPP thanks Dr. Raina for taking the time to answer our questions.

Poverty, as we learned, is a factor that influences health and aging. If you don’t have a workplace pension plan and are saving on your own for retirement, a good option to consider is the Saskatchewan Pension Plan. Find out more today.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Senior reliance on food banks evidence of a hunger crisis: OAFB

 

Are we looking at a hunger crisis for Canadian seniors? Recent research from the Ontario Association of Food Banks (OAFB), called The 2018 Hunger Report suggests that with more than half a million Ontarians accessing food banks each year, including a growing number of seniors, the crisis is already here.

Save with SPP contacted Amanda Colella-King, OAFB’s Director of Communications & Research, to find out more about the report.

Q. Were you surprised by the findings?

“In reviewing the data, we were surprised that there was such a significant increase (10 per cent) in seniors accessing food banks over the previous year. This is a rate nearly three times faster than the growth of Ontario’s senior population.”

Q. What did you see as the most significant finding in this research?

“I think the most significant finding is just how hard it is for so many seniors and adults to afford their basic necessities each month.  The workforce has changed significantly over the last decade, from secure well-paying jobs to more precarious contract or part-time positions that often do not provide benefits or retirement savings assistance, like a pension plan. This often results in adults having to spend their savings during downtime or rough patches, rather than put money away for retirement. 

Alongside this, government support programs for seniors have remained relatively stagnant over the last 15 years, while the cost of living has continued to rise. This has made it increasingly more difficult for seniors to afford even their most basic necessities each month. 

As the job market continues to change and the cost of living continues to rise, we believe that more seniors will have no other choice but to turn to food banks for support.”

Q. Does a lack of retirement savings/ pensions from work/ low retirement income fuel this crisis, is it a driver? Are there other drivers?

“Hunger is a symptom of a much larger problem: poverty. Low income, whether due to precarious employment or insufficient social assistance or retirement support, alongside the rising cost of living means that adults and seniors are having trouble affording their most basic necessities each month, like rent, transportation, medicine, and food. 

One of the largest expenses faced by adults and seniors is the cost of housing. In the last year, nearly 90 per cent of food bank visitors were rental or social housing tenants who spent more than 70 per cent of their monthly income on housing.”

Q. What are your next steps with this research – will you share it with government?

“Yes, the Ontario Association of Food Banks regularly meets with government officials to discuss its research and recommendations for change. The 2018 Hunger Report was also sent directly to all MPPs in the province and discussed during Question Period, Dec. 4, 2018 at the Ontario legislature, Queen’s Park. 

The OAFB will continue its research and expects to release a number of new reports over the upcoming year on food bank use and poverty trends in the province. It collects real-time data on food bank use across the province throughout the year. This information is used to inform our research and the evidence-based recommendations for change that we advocate for to the provincial and federal governments.”

Q. Can you tell us a bit about the OAFB?

“The OAFB is a network of 130 direct member food banks and over 1,100 affiliate hunger-relief agencies, including breakfast clubs, school meal programs, community food centres, community kitchens, and emergency shelters. Together, we serve over 501,000 adults, children, and seniors every year. For every $1 donated, we can provide the equivalent of three meals to someone in need.”

We thank Amanda Colella-King for taking the time to answer our questions.

Having retirement income over and above what the government provides is an important factor for retirees. If, like so many Canadians, you lack a retirement plan at work and aren’t sure how to invest in an RRSP, the Saskatchewan Pension Plan may suit your needs. You determine how much to contribute, up to a maximum level of $6,200 annually, and the SPP does the rest. The government-sponsored, not-for-profit SPP invests the money efficiently and effectively and also provides, at retirement, ways to convert your savings into a lifetime income stream.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Pension plans are a sure way to deliver retirement security: Dobson

For Derek Dobson, the fact that Canadians “are struggling to put money toward their retirement goals” is a “monumental issue” that needs to be addressed.

Dobson is CEO and Plan Manager of the Toronto-based Colleges of Applied Arts & Technology Pension Plan. At the end of 2017, the CAAT Plan had $10.8 billion in net assets and served more than 46,000 working and retired members.

Dobson tells Save With SPP that the statistics show that “there has been a decline in the percentage of working Canadians who have access to a pension savings program” in most Canadian workplaces. He says that the decline of workplace pensions started in the 1960s when the Canada Pension Plan started, a trend that has continued for decades.

But that trend can and should be reversed, he says. These days, it is harder to attract and retain valuable employees, and workplace pensions play an important role. “Employers are competing for workers again,” he explains. He says CAAT’s new defined benefit (DB) plan design, DBPlus, open to any organization, is getting inquiries from large and small employers. “We had a tree service company owner, with a staff of four, call us up about joining, because he found his people would leave to get jobs where there is a pension.”

Both CAAT and another Ontario jointly sponsored DB plan, OPSEU Pension Trust, have developed pensions that expand access to well-run defined benefit pensions that are easy for members and employers. Recently Torstar and its employees joined CAAT Pension Plan’s DBplus. When the matter was put to a vote, 97 per cent of the members of the Torstar plans voted in favour of the merger.

“Along with other pension plans, we are trying to get the message out that a measure of the health of Canada is how good its standard of living is in retirement,” Dobson explains.

People, he says, visualized getting old around age 75 and then passing away soon after. “Their jaw drops when we show them that it is highly likely they will live until their high 80s or early 90s,” he says. “They could easily live for 25 years of retirement. With improving longevity people need to think more about their financial security in retirement.”

Yet, he notes, those without pensions at work aren’t saving much on their own. The average RRSP balance in the country is only around $65,000 at age 65. That’s not going to be sufficient to keep people at a reasonable standard of living for 25 years, Dobson says.

Saving for retirement on one’s own is not easy, he says. While financial literacy courses help, retirement savings is a complex challenge for most. Canadians already are having to manage their debts, so “having a picture of what they want their future to be like” is difficult. “They want a good standard of living in retirement, but they don’t know where to start, or where to find value across so many choices.” And that can be so overwhelming that people “are not getting started putting money toward their retirement goals.”

Pensions in the workplace work because it is an automatic savings program, Dobson explains. “Your contributions come off your paycheque, so you don’t have to think about it,” he says. But decades later, he says, CAAT members notice that they are receiving a pension comfortably and the value is strong as they receive about $8 in benefits for every dollar they contributed, a fact that “resonates” with them, Dobson says.

The importance of having an adequate pension is something Dobson is passionate about; it is his hope that more and more employers will take advantage of the new and easy defined benefit offerings available to extend retirement security to more Canadians.

We thank Derek Dobson for taking the time to speak to Save With SPP.

If you are saving on your own for retirement and want someone else to do the heavy lifting of retirement asset management and decumulation – turning savings into lifetime monthly income — the Saskatchewan Pension Plan may be the plan for you. Check it out today.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Retirement “think tank” group looks for smart solutions for retirement security

The National Institute on Ageing is a relatively new university-based think tank focused on leading cross-disciplinary research, thought leadership, innovative solutions, policies, and products on ageing.

The NIA brings together thinking not only on the money side of retirement, but the health side as well.

So says the NIA’s Dr. Bonnie-Jeanne MacDonald, PhD and FSA (she is also resident scholar at Eckler Ltd.), who recently took the time to speak with Save with SPP. “A happy, healthy retirement is not just about money,” Dr. MacDonald notes, adding that NIA hopes to tap into university, government and other worldwide research to come up with “better ideas that will help Canadians as they age.”

One aspect that Dr. MacDonald has done much research about is the “decumulation” phase of retirement, the period when savings from the work years are used to finance life after work.

“Retirement planning used to focus on saving up until age 65,” she explains. You would then start spending and travelling, with “the old assumption (being) that you would begin to need less money as you aged, that you wouldn’t be spending as much by age 90.”

However, Dr. MacDonald notes, this type of thinking overlooked the possibility that retirees might eventually need to pay for age-related healthcare costs, including living in a nursing home.

In reality, many retirees in their 60s and even 70s “can still earn money, and can choose to downsize, or reduce spending. Their expenses are flexible,” Dr. MacDonald explains. “Once you are 80 to 85, there is less flexibility, expenses are increasingly less ‘voluntary’ (namely the costs arising from declining health) – so it is at this age when having a steady stream of income becomes much more necessary for financial security.”

What she calls “shifting socioeconomic customs” have driven changes in the way retirement money is spent and the effect it has on individuals and families.

“Society has shifted, women are now working more and are not able to provide elder care without accruing considerable personal expense,” notes Dr. MacDonald. Even still, the majority of caregivers are women. The NIA’s report on working caregivers, authored by Dr. Samir Sinha, a geriatrician and Dr. MacDonald’s colleague at the NIA,  shows that women are not only more likely to be working caregivers, but that they provide much more care to their elderly relatives than do men. What’s more, the typical age at which women provide care overlaps with peak career earning opportunities and with their own family building, which in turn causes a knock-on effect on their lifetime earnings and income potential. Financial independence in older age has significant ripple effects, beyond just the individual.

In the past, it used to be more likely that the family would look after elderly parents, helping to feed them, socialize them, prepare their taxes, transport them, and so on. And while 75 per cent of elder care is still done by the family, increasingly people are finding they have to or want to pay for their own care as they enter their late 80s and 90s. And while family caregivers play an important role in the lives of the elderly, people generally prize their independence. But independence also comes at a cost. “It costs a lot of money to replace (the care provided by family), it has become extremely expensive for nursing home care.,” says Dr. MacDonald.

While some retirees can afford to cover the costs of their own care, those who can’t must be assisted by the government, she explains. “The overall effect of this is that some older people aren’t decumulating their savings as expected. They are holding onto their money; they are concerned about the future,” she adds.

Dr. MacDonald is the author of a recent paper on this topic for the C.D. Howe Institute called “Headed for the Poorhouse: How to Ensure Seniors Don’t Run Out of Cash Before They Run Out of Time.” The paper suggests the creation of a government-sponsored LIFE (Living Income for the Elderly) program that would provide additional life income beginning at 85.

“LIFE would provide longevity insurance to Canadian seniors at their most vulnerable time of life… giving them choice, flexibility and income security at advanced ages,” she writes in the paper.

In an article for the Globe and Mail written last year, she suggests women – who live longer – consider not starting their CPP benefits until they are older. “Starting CPP benefits at the age of 70 instead of 65 will increase a person’s CPP by 42 per cent,” she notes in the article.

NIA is looking at other ways to boost income security for older retirees. One way, says Dr. MacDonald, would be to find ways “for people to stay in their own homes longer.” Another way would be to allow family members providing care to be paid. Currently rules generally allow paid caregiving by strangers, but not by someone’s daughter,” she notes.

We thank Dr. MacDonald for taking the time to talk with us.

Remember as well that before decumulation can occur there needs to be retirement savings. The Saskatchewan Pension Plan offers a flexible savings program for individuals.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Interview with HOOPP’s Darryl Mabini

Factor high healthcare costs into your retirement savings strategy: HOOPP

One of the biggest problems retirees can face is unexpected, major healthcare costs in retirement – and that possibility should be factored into retirement savings.

So says Darryl Mabini, Senior Director, Growth & Stakeholder Relations for the Healthcare of Ontario Pension Plan (HOOPP). HOOPP is a $77.8-billion public sector defined benefit pension plan serving healthcare workers in Ontario.

HOOPP recently produced a four-paper series called Retirement Security – Is it Attainable? One of the four papers, called Seniors and Poverty – Canada’s Next Crisis found that 12.5 per cent of Canadian seniors – and a startling 28 per cent of senior women – live in poverty.

A factor behind this, the series suggests, is the lack of good workplace pension plans (the defined benefit type, which provides pensions based on a percentage of your earnings, is rare outside the public sector) and inadequate personal retirement savings.

“People saving for retirement don’t factor in the healthcare costs when they get older,” explains Mabini. While Canadians are proud of their universal healthcare system, he notes, they “are not aware of what it doesn’t cover.”  Some long-term care costs are not covered by provincial plans and can cost thousands a month, he notes. Treating chronic diseases and illnesses can also be expensive in retirement, particularly if you don’t have health benefits, says Mabini.

So retirement income – having enough of it – is critical. “We found that about 40 per cent of Canadians are covered by a workplace pension plan. For the other 60 per cent, it is do-it-yourself; they are saving on their own,” Mabini says. But doing it on your own is hard – the savings are voluntary, not mandatory, and no one tells you how much you actually need to save to be able to afford retirement, he explains.

“Our research found that the amount people have saved is heavily impacted around age 85, once long-term care costs are factored in,” he says. Those who are age 85 and older are at risk for having insufficient income, and because of their longevity; it is usually women who come up short on retirement income, Mabini notes.

“The problem is that those without a good workplace pension plan tend not to save on their own,” he says. They think CPP and OAS will be sufficient, he adds. “The most you can get from CPP, and few get it, is about $12,000 a year at age 65. With OAS, it is about $8,000.” While $20,000 a year may sound OK for a retiree, it isn’t enough when facing long-term care costs of thousands a month, Mabini says.

If you don’t have money to cover healthcare costs, you have to depend on government income supplements and other programs which are not always readily available, he notes.

“There needs to be more education about the importance of retirement savings, and the risks of not having a workplace pension,” he says. “Saving on your own can work, but putting away two per cent of what you make is not adequate for some people. People need to realize the risk of senior poverty.” If you are saving on your own, Mabini recommends setting an income replacement target, making savings automatic and ideally mandatory, pooling, and having a way to turn those savings into a lifetime income string.

The full findings from HOOPP’s Retirement Security series can be found here.

We thank Darryl Mabini for speaking to Save with SPP. The Saskatchewan Pension Plan provides an excellent way to save for retirement if you don’t have a workplace plan, and it offers annuities to turn your savings into a lifetime pension. Find out more at www.saskpension.com.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Budget, financial plan are keys to battling debt: Jamie Golombek

Canadians are struggling with record levels of personal debt. Figures from early 2018 show household debt has topped 170.4 per cent. This means the typical Canadian owes $1.70 for every dollar they earn.

Save With SPP recently asked noted personal finance expert Jamie Golombek, Managing Director, Tax and Estate Planning for CIBC Financial Planning & Advice, for his views on how to avoid the pitfall of debt, how to dig out from under it, and how to make saving part of your overall plan.

“The first thing people need to do is have a written budget,” says Golombek. “The budget needs to show the cash that is coming in, and the monthly expenses that are going out.” This simple step will give people a better handle on their cash flow, he says.

His second tip was to “plan ahead for major expenses.” Setting money aside for big ticket items, as well as emergencies, such as layoffs or major home repairs, helps you avoid being “caught by surprise later,” Golombek explains.

His third suggestion is to try and “distinguish between your wants and needs, especially when it comes to major expenditures,” he says. That’s a big issue, because we live in a society where people expect instant gratification, rather than saving up and then buying the things they really want later, he explains.

Golombek speculates that we are in this high-debt situation because of two main factors – housing prices in various Canadian cities and towns have skyrocketed, while interest rates have “plummeted to a near 60-year low.” That’s creating the temptation of buying when debt is relatively cheap, he explains. But credit card interest can still be in the 20 per cent range, he adds.

As well, he says, “there are so many easy ways to spend money these days.” There are apps that hook your phone up to your credit card, so you can pay by tapping the phone, or using a thumbprint. Spending, he says, has never been easier.

How to dig out from under it?
“The best way to go is to have a financial plan, one that looks out to the long term. Take a look at the big picture for the next five, 10 or 20 years,” he explains. Things like time off, education, retirement and also debt reduction should be part of your plan. “This plan will tell you how much you can afford to spend, and how much you need to save,” he says.

We thank Jamie Golombek for talking to us – and remember that if you are planning to save for retirement, a good place to invest is the Saskatchewan Pension Plan.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Interview with Randy Bauslaugh: The one fund solution*

 

Click here to listen
Click here to listen

Hi. My name is Sheryl Smolkin, and today I’m interviewing Randy Bauslaugh for a savewithspp.com podcast. Randy is a partner at the McCarthy Tétrault law firm, where he leads the national pensions, benefits, and executive compensation practice. He has been involved with many of the leading pensions and benefits cases over the last 30 years, and he is also a member of the Saskatchewan Pension Plan.

Welcome, Randy. I’m so glad you could make time for us in your busy schedule.

Thanks. I’m happy to give back to the SPP.

That’s terrific. Randy has recently written an article titled Dumb and Dumber: Individual Investment Choice in DC Plans. That’s what we’re going to talk about today. 

Q: Randy, that’s a very provocative title for an article. Tell me about the independent research supporting your thesis that giving investment choice to plan members in defined contribution RPPs is riskier from a legal perspective and a bad idea from a financial performance perspective.
A: Sure. The research comes from various sources – research institutions, academics, news articles and a lot of that relates to the financial performance side. Also, on the legal side, I had a student a few years ago take a look, and there were 3,500 class actions relating to defined contribution plans particularly in the US and those were just relating to DC plan fees.

I think you can pick up any standard textbook on pensions and it will tell you that defined benefit plans have a low legal risk but potentially fatal financial risk. That’s because they guarantee the retirement payments. However, they always say DC plans have low financial risk, because the employer just contributes a fixed amount, but very high legal risk, because there are so many different ways of getting sued.

Q: Then why do DC plan sponsors typically provide a broad range of investment options for plan members?
A: Well, I don’t really know. I have some theories. Before the mid-1980s, most plans did not provide choice, and then it sort of became trendy. I think a lot of employers just believe that choice empowers their employees, or maybe it’s just because after all, who wants just one TV channel.

I also know for a fact that aside from individual empowerment or incentives for the financial industry, there are a lot of plan sponsors out there who think either they have a legal obligation to provide choice or they are somehow reducing their legal exposure if they do provide choice when exactly the opposite is true.

Q: What legal risks does offering multiple investment options raise for DC plan sponsors?
A: Well, one thing a client once said to me is, “Well, what about the (Capital Accumulation Plan) CAP guidelines? I need to provide choice to comply with the CAP guidelines.”  Financial market regulators put out something called Guidelines for Capital Accumulation Plans. Take a look at the table of contents and you’ll find a whole lot of ways of being sued under a DC plan that offers choice. I’ve got a slide presentation that just identifies 48 different ways in which plan members have sued their employers only over fees.

The other thing people should do is read the second paragraph of those guidelines. It says it applies where you’re giving two or more choices, so it doesn’t apply if you’re not giving any choice.

Q: Is providing only one investment option, such as a balanced fund, a set-and-forget strategy for plan sponsors, or do they still have active management and monitoring responsibilities?
A: They still have the active management and monitoring responsibilities. It’s definitely not just “let’s turn it on and forget about it.” Ideally, a DC plan should be managed like a defined-benefit fund. You may do a profile of what your current particular employee group looks like and then the investments can be shaped to that group’s profile, but you still need to manage it on a regular basis.

One of the advantages of a single fund is that you get professional management of the whole fund, not members making their own investment choices for their own little pots. Once you set it up, you should still review it every month or at least every quarter just to make sure that that fund has got an appropriate mix for your group.

Q: Why is a one-fund approach less expensive from a fees perspective for both plan sponsors and plan members?
A: Well, usually you can get economies of scale that will keep the fees down, because you’ve just got one big pot and not multiple little pots. I know that recently a lot of DC fund providers have dramatically reduced their fees for, say, balanced funds and other investment vehicles but some of the other esoteric funds are still pretty expensive. When you’ve got all these little individual accounts, you still have lots of transaction and other fees that are tied to those accounts. That tends to make them a bit more expensive than a pooled arrangement.

Q: Doesn’t having one or more investments managed by several investment managers better diversify a DC plan member’s portfolio and promote better overall returns?
A: Well, you can get that in a no-choice plan, as well, because you could have many managers that are managing different parts of the bigger pool. But the difference is you now have scale, and you’ve got professional management of the money.

Most plan members are not good at investing. In fact, only 7% or so of DC members can actually beat the rate of return of the average DB plan. One of the more interesting statistics that came up in the research was that only 3% of their professional advisors can beat the average rate of return of the average DB plan.

Q: What is a default fund, and what percentage of DC plan members typically invest in the default fund?
A: About 85% of the members in DC plans don’t make any choice at all. If they don’t make a choice, they end up in the “so-called” default fund. It’s a fund that you get into in default of making an election. Employers have to keep track of who is in the default fund because it’s not really clear whether it is just as a result of a decision or simply putting off investment of their money. It may actually be the plan member’s choice to go into the default fund.

In some surveys many members have said  that they thought the default fund must be the best fund because that’s the one the sponsor set up for people who don’t make decisions. Increasingly, what we’re seeing out there today, though, is people defaulting into what’s called a target date fund.

A target date fund is based on your age when you go into it, and as you start getting close to your retirement age, it will move your portfolio from largely stocks to largely bonds. That’s not a bad idea, because once you retire, the theory is you don’t have the capacity to make more income, so a loss just before retirement is undesirable.

One of my clients actually allows employees to choose their target date funds, and  they found that a number of people were choosing three of these target date funds because they weren’t sure if they were going to retire at age 55, 60 or 65. So they put a third of their money in each in case they retire early or later, which is probably the absolute worst thing they could do.

Q: How long have you been a member of Saskatchewan Pension Plan, Randy?
A: Probably about 10 years. I was at another firm some years ago, and they had a pension arrangement, and then when I came to this firm and they don’t. I just think SPP is a great idea.

I  know a lot of people … Even my own professional financial advisor questioned how I got into the SPP and asked whether I was born in the province. No, I wasn’t. It’s open to anybody, and it works just like an RRSP. Anyway, every year I just keep moving the maximum amount from my RRSP to the SPP, and I make the maximum contribution every year. I’m glad to see it’s gone up.

*This is the edited transcript of a podcast recorded in April 2018.

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.

Interview: Evelyn Jacks talks taxes*

 

Click here to listen
Click here to listen

Today I’m interviewing Evelyn Jacks for SavewithSPP.com. Evelyn is the founder and president of Knowledge Bureau, a virtual campus focused on professional development of tax and financial advisors. She was recently named one of Canada’s Top 25 Women of Influence. She is also one of Canada’s most prolific and best-selling authors of 51 personal tax and wealth management books, and a highly respected financial commentator and speaker.

Every year there are income tax changes and they impact individuals filing personal tax returns. First of all, I’d like to highlight some of 2017 changes that listeners should keep an eye on when they’re getting ready to complete their tax return.

Q: Evelyn, taxpayers with children are going to see a major change in tax credits for 2017. Can you bring us up to date on what these changes are? 
A: Yes, absolutely. The most notable changes found in the past are that the children’s arts amount which was the non-refundable tax credit on the Federal tax return has been eliminated and in addition, the refundable tax credit for the children’s fitness amount is gone.

On the employer’s side, the government has also discontinued a 25% investment tax credit for child care spaces of March 22, 2017. These are quite significant changes, especially because on the federal return, there are no other places, with the exception of disabled children, to claim minor children.

Q: What has happened to tax credits for tuition, education, and textbook amounts?
A: Again here, we’re seeing some significant changes. As of January 1, 2017, only the tuition credit can be claimed on the Federal tax return and then only if the total exceeds $100 in the year. What’s happened is that the finance department has removed the monthly education amount of $400 for full time students and $120 for part-time students, as well as the monthly text book amount, which was $65 for full-time students and $20 for part-time students.

However, when you look at the tax return you are still going to see references to the tuition education and textbook amount found in Schedule 11. That’s important because, students can still carry forward any unused amount from all three components of this credit from prior years.

The other thing I should mention is that the provinces all have education credits but that’s changing too, so, in Saskatchewan, for example, there has been an elimination of both the tuition and education credits as of July 1, 2017. Therefore, on the Saskatchewan provincial return you can only claim those credits for half of the year.

Q: Now, the public transit credit is also gone. What’s the effective date on that? 
A: On the Federal side, we saw that credit eliminated as of July 1, 2017. So again, it’s a situation where you’re going to have to keep your receipts and make the claim, just for half the year in 2017.

Q: In your view, what was the Liberal government’s rationale for eliminating these credits, and what did taxpayers get in return?
A: Well, the government is really undergoing quite a significant tax reform at the moment. When they came in with their first tax changes after the election, one of the first things they did was reduce the middle-income tax rate, for income between about $46,000 and about $92,000, from 22% to 20.5%. In addition,  they created an upper income tax bracket increasing the tax rate from 29%-33% on income over $202,800. The third thing they did was they introduced the more generous child benefits.

In fact, that benefit has recently been indexed for the beneficiaries starting in July 2018. If your family net income is under $35,450 then you’ll be able to receive over $500 a month for each child under the age of 6, and around $450 a month for each child age 6-17. These are quite lucrative amounts but they require the filing of a tax return and the combining of net family income.

Q: The eligibility for medical tax credits for fertility treatments has been expanded retroactively. Please explain those changes and what actions taxpayers who are impacted should take to realize the full benefit of these changes.
A: Yes, starting in 2017 and subsequent years, the expenses for medical treatments to conceive a child will be deductible even if the treatments are not required because of a medical condition, which was the criteria in the past. If the expenses ocurred in a year from 2008 forward they can still be adjusted, because we have a 10 year adjustment period that we can take advantage of.

Q: What, if any, other surprises might tax payers have when they start filling out their 2017 tax return?
A: Well, there are a lot of things that change every year including indexing of various tax credits, tax rates and claw back zones. But I think the one big change that I’d really like to point out is the caregiver credit. It’s new for 2017, and it replaces three credits from the past: the family caregiver tax credit, the caregiver tax credit, and the tax credit for infirm dependents. So now one caregiver can get credit.

The second thing is that there are two different amounts: one that I call a mini-credit of $2,150, and one that I’m going to call the maxi-credit of $6,883. So on the mini-credit side you must claim this. It’s the only credit you can claim for an infirm or disabled minor child. But not necessarily one who receives a disability tax credit, but someone who is infirm as it relates to normal development of other children on both a physical or a mental basis.

A person that can claim this mini-credit is someone for whom you are a claiming a spousal amount or an equivalent to spouse amount. Now, the maxi-credit generally is claimed for an eligible dependent who is over the age of 18. But in some cases, if you have a spouse with a low income, you can claim a top-up credit of up to $1,683.

So you’re going to have to take a close look at Schedule 5 on the tax return and at net income allowance, particularly for low income earning spouses, to make a complicated tax calculation. What you need to remember is that your dependents no longer need to live with you. You cannot claim this amount for someone age 65, who is healthy, which is what you could do before under the caregiver amount.

Q: It sounds very complicated. Can taxpayers typically rely on their tax software to guide them and ensure they get all the credits and deductions they are entitled to? In what circumstances do you think that they should seek professional advice?
A: Well, you know, I’m a big fan of tax software because these programs, first of all, take the worry out of the math for you, and some of the math calculations, particularly as you are calculating federal and provincial taxes is very complicated. But the tax program is not necessarily going to prepare the tax return to your best advantage. There are lots of ways to do the math correctly. What you are aiming for is to calculate to your family’s overall benefit, and to do some tax planning as well.

For example, there are a number of carry-forward provisions that people may not be aware of, or they don’t enter properly. You can carry forward charitable donations to up to five years. You can carry forward capital losses in stock market investments indefinitely to offset capital gains in your future.

The other thing is that starting in 2017, you absolutely have to file the refund titled T2091, a designation of principle residence form, even if you sell a tax-exempt principle residence. Anyone who sells property starting in 2017 has to fill in this complicated form. The tax software may or may not tell you about that, and if you miss it you could be issued a penalty of up to $8000. That could really hurt.

Q: What are the most frequent errors or omissions tax payers typically make when completing or filing their income tax return?
A: Any expense that is discretionary, so, I’m thinking of child care expenses and other kinds of expenses where people have out-of-pocket costs. Moving expense are really lucrative, for example. Also, missed medical expenses are very common.

Q: If you had three pieces of advice to offer tax payers to help ensure they file a correct tax return, and get all the credits and deductions they are entitled to, what would they be?
A: The first thing is to catch up on any delinquent filed returns. The option to benefit from the long available disclosure program is actually changing and it will close for some people, effective March 1, 2018. So if you chronically ignore your filing obligations, not only will you be unable to avoid tax-evasion policies, you may not be able to avoid interest relief in some harsher cases. That’s really important. Catch up if you’re behind.

The second thing is to make a RRSP contribution by March 1st this year because that RRSP contribution will reduce your family net income, which will increase things like your child’s health benefits, your GST credit or other refundable or non-refundable tax credits. The RRSP contribution is your ticket to bigger benefits or bigger tax refunds.

The last thing I would say, the average income tax refund in Canada is $1,735, which is a lot of money. That’s just your overpayment of taxes. Most people don’t realize that’s an interest-free loan that you give to the government. Turn that around, and put that money to work for you. Invest it in a TFSA because that’s going to allow you to earn tax- free investment savings for your future, or if you have children in the family, why not take advantage of the lucrative Canada Education Savings Grants and the Canada Learning Bonds by investing in an RESP. There’s lots of ways for people to leverage the money that they pre-paid to the tax department.

That’s really helpful Evelyn. Thank you very, very much. It was a pleasure to chat with you today.

Thank you so much for giving me the opportunity.

***

This is an edited transcript of an interview recorded 2/07/2018.

Canadians can receive easy-to-understand interpretations of breaking tax and investment news by subscribing to Knowledge Bureau Report at www.knowledgebureau.com.   Look for the Newsroom Tab. You can also follow Evelyn Jacks on twitter @evelynjacks.

 

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.