Category Archives: Interviews

People behind the scenes at SPP.

The CAAT is out of the bag – any employer can now join established “modern DB” plan

We often hear how scarce good workplace pensions are, and how many employers, notably those in the private sector, have given up on offering them altogether.

But, according to Derek Dobson, CEO and Plan Manager of the Colleges of Arts and Technology (CAAT) Pension Plan, there is an option for any Canadian employer that doesn’t want to go through the effort and expense of managing a pension plan for their employees. That option is CAAT’s DBplus plan.

Dobson tells Save with SPP that there are three main themes as to why some employers – with or without their own pension plan – might want to look at DBplus.

Running what is called a “single employer” defined benefit (DB) plan means the risk of ensuring there’s enough money invested to cover the promised benefits rests on the shoulders of one employer. In a multi-employer plan, however, many employers are there to shoulder the load – the risk is shared.

As well, he notes, it might be a chance to upgrade pension benefits. “A lot of organizations want to have access to something better for their people… some employers offer nothing, or a group RRSP. Now they can move to a modern DB plan,” Dobson explains. One study by the Healthcare of Ontario Pension Plan (see this prior Save with SPP post) found that most Canadians would take a job with a good pension over one that pays more, Dobson notes.

A final benefit, he says, is the ability that DBplus has to move all employees to a common retirement benefit platform. “In many organizations, you may find that one group of employees has nothing, one has a defined contribution plan, others have a DB plan that is now closed to new entrants… DB plus allows you to put everyone on the same platform,” he says.

Noting that another large pension plan – Ontario’s OPSEU Pension Trust – has launched a similar program for non-profit organizations, Dobson says the idea of leveraging existing pension plans to deliver pensions to those lacking good coverage “is great…the long and the short of it is that there’s a general belief that these larger plans want to put up their hands to help where they can.”

“It’s the right thing to do,” he says.

Why are pensions so important?

Dobson points out some key reasons. “The average person these days will live to age 90, and on average, they retire at age 64 or 65,” he explains. “That’s 25 years in retirement. So having a secure, predictable income, one with inflation protection and survivor pensions, and that is not being delivered for a profit motive – that’s why these plans are so powerful.”

Another great thing about opening up larger plans to new employers is that it addresses the problem of “pension envy,” Dobson says. Instead of pointing out who has a good pension and who doesn’t, now “everyone has access to one, to the same standard.”

Those without a pension have issues to face when they’re older, he warns. “The Canada Pension Plan and Old Age Security systems weren’t designed to be someone’s only source of income,” he explains. “We had a three-pillar system in the past – CPP, OAS, and the third pillar, your workplace pension plan and your private savings,” Dobson says. But a large percentage of Canadians don’t have pensions at work, and a recent study by Dr. Robert Brown found that the median RRSP savings of someone approaching retirement age is just “$2,000 to $3,000,” Dobson says. Yet the same study found Canadians are willing to try and save 10 to 20 per cent of their income for retirement.

Dobson says he is energized by the goal of bringing pensions to more Canadians. “It’s a way of making Canada better,” he concludes.

Here’s a video about how the CAAT pension plan delivers on benefit security.

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

If you don’t have a workplace pension, or the one you have offers only modest benefits, don’t forget the Saskatchewan Pension Plan. SPP allows you to decide what your savings rate will be, grows those dollars at a very low management rate, and can convert the proceeds to a variety of lifetime pensions when you retire. Check them out today.

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Guaranteed income even more valuable in times of market chaos: Alexandra Macqueen

Save with SPP recently had a chance to ask retirement expert Alexandra Macqueen, co-author of Pensionize Your Nest Egg  and a frequent financial blogger, for her thoughts on the state of retirement in Canada.

Q: Can you expand a bit about why annuities may start looking more appealing to retirees and and those who are soon to be retired? Is it because the markets are so volatile and negative due to the pandemic? And the idea that you have a steady lifetime income (with an annuity)?

I have two reasons for thinking annuities might start looking more appealing to today’s and tomorrow’s retirees ­– one practical and one more theoretical.

The first, practical reason is just that when markets decline precipitously – like we’re seeing now with the COVID-19 pandemic – then the value of a secure, guaranteed income that is protected from market risk is more appealing.

My own feeling is that over time, the economic effects from the COVID-19 pandemic will be viewed differently than the last big market event, the global financial crisis.

The 2008-09 financial crisis was much more constrained to a single (albeit big) sector: “finance.” The pandemic, in contrast, stands to upend so much more than the financial world and I think that, over the long term, it could reorient how we think about income and risk in retirement. Of course, it’s easy to make predictions; only time will tell!

The second, more theoretical reason is that the COVID-19 pandemic has changed what you might call the “volatility of longevity” – and somewhat counterintuitively, if longevity is MORE uncertain, people should be willing to pay MORE to hedge that risk.

If your house was at increased risk of burning down, for example, you would pay more for fire insurance – but you would also value that insurance more, because you know you were at increased chance of actually needing it!

So even though the COVID-19 pandemic might actually “decrease” life expectancy “on average,” it also increases the range of possible outcomes (I might live fewer years than before the pandemic, and the uncertainty about how long I may live has increased).

In theory (but maybe not in practice), this means people “should” be more willing to “insure” against the uncertainty, and annuities are the most efficient way to do so.

Q. Do you think people may stay away from equities and look more at bonds, GICs, and that sort of thing for the same reasons – fear of market volatility?

Yes, but with rates near zero – and potentially going even below zero – it’s hard to make bonds and GICs work for retirement income. You get security, but very, very low yields.

For people who are risk-averse (many of us!), the solution isn’t to load up on more equities. What are the alternatives? If you’re looking at products with similar guarantees to GICs, then annuities again should be on your radar screen – and annuity yields, especially at more advanced ages, compare very favourably to GICs.

Q. The ideas in your recent MoneySense article about people working later, and being less likely to retire early, were great. Do you feel work will be harder to find, jobs harder to keep, so it’s less likely that folks will leave at 55 because they may have nothing to go back to in this market? Could you expand a bit on why you think folks won’t retire the way they have been?

Here, what I’m thinking about is that for years I’ve heard people say, “if my retirement doesn’t work out, I’ll go back to work in some capacity.” But what if you’re not able to “go back to work,” because there’s no work to go back to?

It will take a long time for the effects of the pandemic to be felt in all areas of society, including work – but my thinking is that the “easy” fallback of “I’ll find work” will no longer be available. And if that’s the case, people may think longer and harder about leaving the work situations they’ve got. More uncertainty – about work, about income, about home values, about longevity – equals fewer changes and less risk-taking.

Q. We love the idea of more focus on debt, and less assumption on “harvesting” the value of the house. Hopefully this won’t lead to more reverse mortgages, but do you think we are seeing the end of the tendency for boomers to fund their lives with home equity lines of credit (HELOCs)? 

It feels like all eyes are on “what will happen with home values” right now!

There are two ways that “funding our lives with HELOCs” might end: home values might drop, so that the value isn’t there to “harvest,” and lending standards might tighten, so that HELOCs aren’t available even if the value theoretically is.

I’ve been hearing about tightening lending standards for HELOCs in recent weeks – meaning lenders may be “calling” the loan, or “tightening” the lending terms (often this looks like reducing the amount of available credit).

There doesn’t seem to be any consensus about the future direction of home prices. I feel as though for every article I read suggesting values will drop, I read another saying values will hold steady. And keep in mind that in Canada’s large markets, even a reasonably large “drop” in value will just take prices back a few years.

The rise in home values that we’ve seen in the last decade or so – particularly in the GTA and the GVA – have no historical precedent. I don’t think we, as a society, have collectively grappled with how to integrate what economists might call this “shock” into our personal financial plans. The growth in home equity is a positive shock, but a shock nonetheless! In this area, like in so many others, I think we will need to wait and see what trends emerge. It may be that lenders make the decision for homeowners to put an end to using your house “like an ATM.”

Q. Do you have any other thoughts?

My main thought is that it’s really important to recognize the diversity of situations that people entering retirement are in.

It’s very tempting to provide generalized advice based on preconceptions about what retirement is and what “retirees” are like. But retirees and soon-to-be retirees are an incredibly diverse group, with varying views on what they need and want in life, and retirees enter the retirement stage of life with highly varied situations, from their health status to their expectations about how long they’ll live and what they’ll do in retirement.

“Retirement” as we know it is a fairly young concept, and so much has changed since the idea of retirement was first introduced. We’ve collectively never been here before, with so many people transitioning into the retirement phase – which is itself changing under our feet. Thinking about and digging into what “retirement” means is what gets me up in the morning! I’ll never get tired of wondering what life has to offer.

We thank Alexandra Macqueen very much for taking the time to answer Save with SPP’s questions!

If you haven’t thought about including annuities in your retirement plans, a fact to be aware of is that if you are a member of the Saskatchewan Pension Plan, you will be able to choose from a number of life annuity options when it’s time to turn your savings into income. Check out SPP today!

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Time to use realistic yardstick to measure senior poverty: John Anderson

It’s often said that Canadian seniors are doing fairly well, and that the rate of senior poverty experienced back in the pre-Canada Pension Plan days has dropped considerably.

However, says Ottawa-based union researcher John Anderson, the yardstick used to measure senior poverty levels needs to be updated to international standards. He took the time recently for a telephone interview with Save with SPP.

Currently, says Anderson, a “Market Basket Measure” (MBM) system is used to measure the cost of living, a “bizarre” system that factors in the cost of housing, clothing, food and other staples by province and region. By this old system, it is reckoned that 3.5 per cent of Canadian seniors live in poverty, although recent tweaks to the measurement process will see this number jump to 5.6 per cent.

The intricate MBM system – unique to Canada — goes into arcane details such as “what clothes you should have, how many pairs of long underwear, what kind of food you should buy, how many grams of butter. And there’s a sort of built-in stigmatization of rural living; it’s assumed that you don’t need as much money to live in a rural area as you do to live in Toronto,” Anderson says. The opposite is often true, he points out.

LIM system a better comparator

Anderson says the rest of the world uses a different measurement, one that’s much simpler, Anderson explains. The low income measure (LIM) scale defines poverty as being “an income level that is less than 50 per cent of the median income in the country,” he says. “This gives you a very clean comparison.”

By that measure, a startling 14 per cent of Canadian seniors are living in poverty, which is more than triple that figure that MBM currently quotes. “When you think about it, it means they are making less than half of what the average Canadian earns,” he explains. “They are not earning a lot.”

Why are today’s seniors not doing so well? Anderson says there has been a decline in workplace pensions over the years. “The numbers are way down,” he says. As recently as 2005, there were 4.6 million Canadians who belonged to defined benefit plans through work. By 2018, that number had dropped to 4.2 million, “at a time when we have seen a significant increase in the population, and more seniors than ever before.”

Defined benefit plans are the kind that guarantee what your monthly payment will be. About two million Canadians belong in defined contribution plans, which are more like an RRSP – money contributed over a working person’s career is invested and grown, and then drawn down as income in retirement.

“Only 25 per cent of workers have defined benefit plans now. And only 37 per cent have any kind of registered pension plan. Most have nothing,” says Anderson. This lack of pensions in the workplace, and the tendency towards part time and “gig” work that offers no benefits, is a primary reason why senior poverty is on the upswing, he contends.

“The kinds of jobs people are in today have changed,” Anderson explains. “People are working more non-standard jobs, gig jobs, contract work. Many are not even contributing to the CPP.” They tend not to be saving much on their own with these types of jobs, so it means that “when they retire, if they work that way, they don’t get much of a pension.”

That will leave many people with nothing in retirement except Old Age Security and the Guaranteed Income Supplement, Anderson says. Neither the OAS or the GIS has “really kept up” with increases in living costs. The most anyone can get from these two programs is about $1,500 a month, for a single person, he says. “These major government pension plans have not yet taken a leap forward,” he says. “The government has improved the Canada Pension Plan, and people will benefit from that (in the future),” he explains, but these other two pillars should get a look too.

Looking forward

Anderson says by moving to a LIM-based measurement of poverty, governments could have a more realistic basis on which to make program improvements.

“We already have a form of universal basic income for seniors through the OAS and the GIS,” he says. “The monthly amounts these pay out need to be raised.”

The goal should be to raise income for seniors to the LIM target of 50 per cent of Canada’s median income which is $30,700 per person based on median after tax income for 2018.

He also thinks that the OAS should be an individual benefit, rather than being designed for couples or singles. “You get less per person with the couples’ benefit; people should get the same amount,” he explains.

He says seniors today face an expensive retirement, with possible time spent in costly long-term care homes. “Can I survive when I retire – this isn’t a question that our seniors should have to worry about,” he explains.

Anderson remains optimistic that the problem will be addressed. The Depression prompted governments of the day to begin offering OAS; experience during and after the Second World War led to the introduction of EI and the baby bonus. CPP benefits started following a serious period of senior poverty in the 1950s. “We have to do better, but maybe there’s a silver lining with the COVID-19 situation, and maybe government will take a closer look at this issue again,” he says.

We thank John Anderson for speaking with Save with SPP. John Anderson is the former Policy Director of the federal NDP and now a union researcher.

If you don’t have access to a workplace pension, consider becoming a member of the Saskatchewan Pension Plan. It’s an open defined contribution plan – once you’re a member, the contributions you make are invested and grown over time, and when you retire, you have the option of turning your savings into a lifetime monthly pension. Check them out today.

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

What do millennials think about retirement?

It’s clear to most of us – especially older Canadians – that younger people have a very different way of doing things. So that said, what do they think about retirement?

Save with SPP spoke recently to David Coletto, founding partner and CEO of research firm Abacus Data. His firm has carried out a lot of research on millennials – indeed, he has a book in the works – and he has noticed quite a few things about how younger people approach money and saving.

“No one young Canadian is going to be the same,” he says. As well, he adds, the current COVID-19 situation was not yet a factor when he carried out his research. However, he notes that the data suggests that some millennials are “as well off as the previous generation,” but others, less so. It really comes down to whether or not they live somewhere where they can afford a home, he explains.

There are reasons why housing affordability is an issue for millennials, he notes. For starters, housing prices in Canada’s major cities are near all-time highs. As a group, millennials do tend to have debt, and “the debt levels are much higher” than those of older generations, he explains. Dealing with heavy debt from student days, or the cost of raising kids, tends to “delay key milestones” for millennials.

“So much of their experience is different,” he says, “that it is difficult for them (millennials) to think of retirement when they are still focused on today. About one-third of this generation is struggling more than their parents did, and they will be less well off as a result.”

Abacus recently did some research with the Healthcare of Ontario Pension Plan that found, among other things, that 80 per cent of respondents would take a job that paid less money if it offered a pension.

Job security isn’t what it once was, Coletto explains. “There’s more freelance work, more part-time work – what we call precarious work, and less pensions available.”

When there’s no workplace pension, the onus for retirement saving falls on the individual. “It’s lower on the list for them, and saving (for retirement) is difficult to do,” he explains. “They are having to manage a lot of other expenses. And we are talking about the pre-COVID era, here.”

“It’s a big chunk that has to go to savings for a down payment, or to pay for a mortgage,” he says.

And it’s not just the workplace that has changed. Millennials are dealing with “a climate change crisis that is existential.” Some “are putting off having a family” over climate concerns, he says.

Millennials therefore tend to want to do things now, while they still can, instead of deferring life experiences and grand trips until they are older. “If the experiences won’t be there, or are not possible, what’s the point of trying to save? Especially when you can’t afford to,” asks Coletto.

Statistics show that only “one in four millennials put any money into an RRSP, and even those that do don’t have a lot of equity in them,” Coletto explains. And while Tax Free Savings Accounts are more attractive to younger people (due to the fact they aren’t locked in) take-up is pretty low there as well.

Absent personal savings, Coletto is concerned that the gap between those with pensions – such as their parents – and those without will create a real split. “There’s an inequality there which will continue to grow,” he predicts.

A way to avoid that scenario might be for Canada to adopt the Australian model for retirement savings, he explains. There, a percentage of every worker’s salary is automatically placed into retirement savings, no matter where you work. The money is then invested by large funds offering pooling and low-cost investing. Moving to an Australian model is “something that needs to be seriously discussed,” he says.

A final piece of advice from Coletto for millennials is this – look at what your parents did for their retirement, and see what you can learn from them.

We thank David Coletto for taking the time to speak with us.

There’s no question that access to a workplace pension is a great benefit for an employer to offer. The Saskatchewan Pension Plan can help. Please contact us for more details.

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Unless it’s mandatory, most people can’t or won’t save: Gandalf’s David Herle

Much is said and written about the need to get more people to save for retirement, particularly younger folks who typically lack a retirement program at work.

According to David Herle, Principal Partner at research firm The Gandalf Group, and a noted political and retirement commentator, it’s not just younger people who aren’t saving for retirement.

“We know that young people do not think about the end state of their lives,” he tells Save with SPP in a recent telephone interview. “They are focused on their more immediate needs.” Those needs include the cost of education, housing, and consumer debt.

When talk turns to millennials, the Saskatchewan-born Herle points out that their ability to save is hampered by the fact that there are “less jobs, and specifically, less good jobs with pensions and benefits” in today’s “gig economy.”

So not only are young people not saving, neither are old people. No one, he explains, has any extra money kicking around to save for retirement.

Herle says his firm’s research has shown repeatedly that the best way to get people to save is to make it mandatory, with no way to opt out. That way, he says, ensures money is directed to their long-term savings without the individual “having to think about it.”

Otherwise, he notes, getting people to save is challenging. “There’s not a lot of benefit from lecturing people,” he explains.

Asked if there are any public policy options to increase savings, Herle noted one idea from the past that could be revisited – payroll Canada Savings Bond purchases.

In the recent past, you could buy a Canada Savings Bond and pay for it via payroll deductions, a sort of “pay yourself first” option that did encourage some savings. “It might be worth considering bringing it back,” he suggests.

He points to the expansion of the Canada Pension Plan as “the most significant public policy development” in the retirement savings space. Ontario considered bringing in its own pension plan to supplement CPP, but the Ontario Retirement Pension Plan was shelved when CPP expansion got the green light a few years ago, he says.

The other trend he calls “troubling” is the lack of good pension plans in the workplace. For many years most people had a decent pension plan at work, the defined benefit variety which spells out what your retirement income will be. But employers “have started cutting pension plans,” moving to other arrangements, such as group RRSPs or capital accumulation plans where future income is not guaranteed.

He cites the recent labour dispute over pensions involving Co-op Refinery workers in Regina as an example of an employer trying to cut pension benefits for their employees. “If this happens, we could be seeing the end of the line for pensions,” he warns.

“Most people have lost the security of having an employer-sponsored pension plan,” Herle explains. There’s a large chunk of “middle and low-income earners” who are being expected to compensate for the lack of a plan at work with their own private savings.

“Our research found that those aged 55 to 65 – and this is not counting real estate – have more debt than savings. So this is people in the 10-year run-up to retirement,” he says. The lack of savings will force people to use home equity lines of credit, and the “reverse mortgage business is going to take off.”

Debt is restricting the ability to save, and CPP changes “won’t kick in in time for many people.” Herle says he has not heard of any plans to fix the other pillar of the federal retirement system, the taxpayer-funded Old Age Security program. Recent governments have tried to raise the age of entitlement, and a clawback program is already in place to reduce OAS payouts for higher income earners.

The outlook for retirement saving is “a very gloomy picture,” Herle concludes. He blames “a systematic societal failure… where the risk (of retirement investment) has been transferred to employees from employers.”

We thank David Herle for taking the time to speak to Save with SPP, and encourage readers to check out his podcast, The Herle Burly.

It’s true that paying yourself first – directing something to savings and then spending the rest – can work, especially if it is an automatic thing and the money moves before you can spend it. The Saskatchewan Pension Plan has flexible contribution options that include a direct deposit program; you can set it and forget it. SPP also has an option for employers to set up an easily administered pension plan for their employees. Check them out today!

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Life after retirement doesn’t need to be scary, says Life Two author Don Ezra

We all spend a lot of time worrying about retirement – can we afford it, will we enjoy it, will we feel like we’re on the sidelines of life – but very little is written about what that phase of life is actually like.

Save with SPP reached out to noted retirement expert Don Ezra, whose latest book, Life Two , explores what it’s like in that other place, life after work.

Q. You talk about the “u-curve” and how 70-year-olds are as happy as 20-year-olds, which is a great analogy. What are some of the reasons why retired folks are so happy?

Yes, retirement (which I prefer to think of as Life Two) really is the best time of life. Happiness studies in every country say the same thing: that this is the time when we tend to rate our happiness highest. There are so many reasons.

The neurological reason is that our brain chemistry changes, and we’re less stressed and less driven, and more inclined to be content, and see the glass as half full rather than half empty. Our measuring stick changes.

Even without the science, think of it this way. When we’re kids, we have no money. We have lots of time. When we work and raise a family, we start to accumulate money. But we’re very stressed for time, during Life One, our working life. It’s not until we retire, or at least stop working full-time, that we have both the time and the money to truly enjoy all of life. That gives us freedom!

So think of Life Two as a full life; a mature life rather than an immature one; a happy life rather than a stressful one.

That’s how we ought to reframe retirement.

Q. We love the casino analogy and the advice about investing (safety and growth). Why do you think so many people think they know enough about investing to do it by themselves without professional advice? Is there anything that could be done to help improve general investing knowledge?

It’s strange, really, isn’t it? We don’t think of ourselves as knowing enough about medicine or the law to practise it ourselves. And yet, as you say, so many people think they can do investing by themselves. It’s a field of study, a discipline that requires expertise, that’s all I can say. And I’m not convinced that general education can help the cause much, just as it wouldn’t with medicine or the law.

We do need to understand some fundamental aspects of medicine and the law – what it’s about, how it operates, how to explain our own circumstances to the professionals so that they can help us. (Because, yes, we are the experts on ourselves!) I think it’s the same with investing.

That’s what I tried to do with the analogy of the casino, because that’s something that most people can associate with: uncertain outcomes, with chances of making money and losing money. And then, very importantly, we should understand the ways in which investing differs from a casino. All of that leads to the general notion that there are two main financial goals. To some extent we’d like safety and predictability, and to some extent we’d like long-term growth. Typically the two are fundamentally opposed, and the more we want of one, the less scope there is for the other. So, the most important decisions regarding our financial selves are the ones that say how much safety we want and how much growth we want. The rest, the implementation to deliver our goals, can be left to the experts.

Q. We get more research, like the recent research carried out by the Healthcare of Ontario Pension Plan and Abacus Data that suggests that folks are afraid to retire, largely because they fear they can’t afford it. Is this because everyone has so much debt they can’t imagine living on less money. Are there other reasons driving this?

There are lots of reasons for the fear. In fact there are three main questions that people fear thinking about, and two are not financial at all.

The first is psychological: Without my work to define me, how do I define myself? A sort of: what would I put on my new business card? “Retired” is so negative. So … you need to learn how to find new motivation and redefine yourself.

Second: How will I fill my time? Linked to this: I have a partner, and we’re frankly not used to spending that much time together.

And third (and this is what surveys say is the biggest fear): Will I outlive my money? This is the one you’ve asked about, so let’s deal with it.

One reason is that most people have little idea about longevity. And to the extent they’ve ever thought about it, they tend to remember a number for life expectancy at birth. They don’t realize that life expectancy for the average retiree takes you much further than life expectancy at birth, because some people pass away before they retire. And they don’t realise that life expectancy is simply an average, not the limit of life.

For example … Suppose there’s a country for which life expectancy at birth is 80. That means it’s the average age at death. But some people pass away before they get to 65. They are the ones who keep the average as low as 80. Those who survive past 65 are, in general, a longer-lived group, and their average age at death may be more like 85. And in addition, that’s an average: half of them will outlive that age. But typically people in this hypothetical country, to the extent they think about lifespan at all, will believe they’ll be gone by 80.

Even if people realised this, it still wouldn’t tell them how to calculate an annual drawdown from their assets that ought to be sustainable over their future lifetimes. Most people tend to grossly overestimate how much they can draw down each year: they guess something like 10 per cent every year instead of a much lower number.

These are all technical reasons, of course, and they say nothing about one’s personal circumstances, like ongoing debt. Even without debt and a mortgage, people are still afraid of thinking about these things.

That’s why I wrote my book Life Two, first to reassure them that they’re not alone in their fear. In fact, even the experts have those three fears! And second, to show them how they can think through some of the issues and answer those questions for themselves. I can’t tell them, “Don’t worry, everything will be all right” – because that simply isn’t credible. What I try to do is show them how to relate the expertise to their own circumstances. And that should give them a feeling of control. It’s like driving a car. They’ll still have their own decisions to make – direction, speed – but at least it’ll put them in the driver’s seat.

Q. What’s the best thing you have experienced – maybe the nicest change – now that you are in Life 2?

Oh gosh, so many things! And that’s even though at first I felt totally discombobulated, like a tree that had been uprooted, and I didn’t know what kind of new tree I wanted to be, nor where I should plant my new roots. The long (for me) transition between Life One and a good Life Two is what caused me to start doing the research (hey, let’s learn from what others have experienced) that led to my Life Two book.

If I had to pick out just one thing, it would be very personal. It’s the totally unexpected gratification of hearing from readers of the book and the accompanying website that something I wrote or identified caused them to change their thinking or to take action that made life better for them. And they come from countries around the world – because of course the three fears are not country-specific. Every personal note makes my day, my week, my month – and together they make my life.

I suppose I could generalise and say that the discovery that, in your own Life Two, you realise things about yourself that you were unaware of, and which please you, is a very nice unexpected aspect.

Q. Why do you think it is so hard for working folks to visualize what it will be like to be retired?

I think it’s that we become so used to the routine of our Life One. And then we’re forced to change it. It’s that tree analogy. I experienced this myself.

For over 40 years I had planted my roots deep into soil that nurtured growth.  I loved the experience of life and work. It had a pattern, a rhythm, that I grew deeply attached to. Then that changed, when I retired. Harry Levinson, a pioneering professor of psychology at Harvard, had this piece of wisdom in one of his books; he said: “All change is loss, and all loss must be mourned.” Retirement was a big change. And mourning isn’t something we look forward to.

I needed to plant a new tree. But, as I said earlier, I didn’t know what kind of tree I wanted it to be, nor where exactly I wanted to plant it, nor if I would change my mind. The freedom to choose, freedom that I’d dreamed about, freedom that was the first word in our family Christmas letter that year … it was still new. And it took time – more than three years, in my case – before I had some idea about my personal answers to those questions. And even then, I remember thinking: some roots are growing in new soil, but they’re new roots and not yet deep; and only time will give them traction.

That’s why the questions “Who am I?” and “How will I fill my time?” are so scary, for many of us. As you can guess, the conferences that I speak at are attended by geeky types (like me!), and it’s terrific to see how pleased they are that someone actually talks about these touchy-feely issues.

Q. What’s the most surprising thing you’ve learned about retirement?

How much I like it. I’ve been flattered to be asked, many times, if I would take something on as a part-time role. No! Anything that imposes an ongoing obligation will send me back to a condition that I’m thrilled to have solely in my past, and I don’t want it in my future. Now I’m free and I’m happy. I had always thought that part-time work (yes, I really loved my work) would be something I’d love to do forever. And for a few years that was great. Now … my family says I work as hard as ever, but the difference is that it isn’t a job, it’s pursuing a passion.  Makes all the difference in the world. Freedom.

We thank Don Ezra for taking some time from Life Two for some questions from Save with SPP. Be sure to check out his website.

If you are saving for your own life after work, a helpful resource is the Saskatchewan Pension Plan. This plan, unlike most, isn’t related to anyone’s workplace. The money you contribute is grown by professional investors at a low cost, and at the time you retire you can receive it as a lifetime pension. Check them out today!

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

If you can’t join a workplace pension plan, PPP lets you build your own: Laporte

As a Bay Street pension lawyer, Jean-Pierre Laporte often wondered why some people – public sector workers, union members – had access to great pension plans at work when many other hard-working people didn’t.

“That’s when I got the idea of taking the existing pension laws, and repackaging them at a micro level so people in the private sector got access to a good pension too – what’s good for the goose is good for the gander,” Laporte, CEO of INTEGRIS Pension Management tells Save with SPP.

The result is the Personal Pension Plan (PPP®), a design that offers a tailor-made pension plan for participants. The PPP® is essentially a pension plan where the individual running the plan is also a plan member, he explains. It is a “combination pension plan” that offers both a defined benefit (DB) pension and a defined contribution (DC) pension – and “the ability to move between the two options,” he explains.

It runs just like a big public sector pension plan would, with a statement of investment goals, actuarial filings, regulatory compliance, and even an additional voluntary contribution (AVC) feature for consolidating existing RRSPs with pension assets, he explains. Its combination design “allows one to shift away from the… DB mode of savings and into a money-purchase, or DC mode every year, if necessary.”

This could be ideal for situations where an entrepreneur is running a PPP® at the same time as a business – if sales are down, the company can “gear down” and shift into a less expensive DC pension mode, and can “gear up” when better times resume, he explains.

This design “optimizes tax deductions across a number of dimensions” that can’t be done with other savings vehicles, such as RRSPs or conventional DB plans like the Individual Pension Plan (IPP).

PPP® contributions can be much, much higher than RRSP contributions, which are capped at 18 per cent of earned income. This can allow PPP members to transfer hundreds of thousands more dollars into their PPP than they could to an RRSP in the run-up to retirement, he notes.

Other PPP® features include a wider range of investment options (including direct ownership of real estate), the ability to top up the PPP® with special payments if returns from investments are lower than expected, the deductibility of investment management fees, interest if borrowing, the ability to “turn on” the PPP® early for early retirement, and more.

As well, while the PPP® may be funded by an individual’s company, the PPP® assets are separate – so they are creditor-proof and not factored into a corporate (or individual) bankruptcy. Those setting up a PPP® for a family business can sign up family members as members, transferring the pension savings along to future generations without any “wealth transfer” taxation, he explains.

“It is for all of these reasons that the PPP® crushes the RRSP as the option for saving for retirement,” Laporte says.

While the PPP® is not intended for everyone, it is an option for a fairly broad group, Laporte explains.

“The pool of potential clients is broader than just self-employed professionals and business owners.  This also works well for highly compensated key employees of larger corporations where the T4 income paid is well above $150,000 per year. This includes CEOs, CFOs, and COOs of large companies,” Laporte explains.

Laporte says he has long advocated for better pension coverage for everyone, particularly those who don’t have workplace pensions and may have to rely solely on funding their own retirement via RRSPs. He advocated 15 years ago for an expansion of the CPP, which he says is a step in the right direction. He says he got his idea for CPP expansion after learning about the goals of the Saskatchewan Pension Plan (SPP).

He says the goal of making retirement “fair for all Canadians” would be like an effort to “rise all boats” to a higher level.

We thank JP Laporte for taking the time to talk with Save with SPP.

The Saskatchewan Pension Plan is non-profit, low-cost defined contribution plan that can help you grow your retirement savings, and provides a variety of annuity options at retirement. Get in the know today!

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Rising future costs of long-term care will cause financial risks: NIA’s Michael Nicin

The National Institute on Ageing at Ryerson University recently prepared a report entitled The Future Co$t of Long-Term Care in Canada. The report predicts long-term costs may more than triple by mid-century.

Save with SPP reached out to the NIA’s Executive Director, Michael Nicin, to ask a few questions about how future increased care costs will impact the finances of retired Canadians.

Q. Your study shows that the cost of long-term care will jump to $70 billion by 2050, from $22 billion today. That’s a more than 300% increase. Should pension plans and retirement programs be factoring this possible huge cost increase into their design so people can pay their share in the future?

Depending on the pension plan type and member profile, pensions already act as a bulwark against this type of late life expense. Indeed, one can argue that that the costs to individual Canadians and public coffers would be assisted by more widespread pension coverage.

The bigger financial risk applies to Canadians without a robust pension or sufficient personal savings.

A 2016 report by Richard Shillington, for example, shows that Canadians with pension coverage have significantly higher income than Canadians who don’t. In 2011, median income for senior families with pension income was $55,400, compared to $31,400 for households without pension income.

The same report shows that median personal savings for Canadians aged 55-64, without pension coverage, is only $3,000.

So, while all Canadians could put more income to good use, the bigger issue with respect to long-term care costs is the two-thirds of Canadians who have no pension coverage at all, and haven’t saved enough on their own. Herein lies the bigger personal and social risk on long-term care affordability.

Q. There is also an indication that the burden on unpaid caregivers (such as family members) may nearly double to eight hours a week. I think there are tax credits and so on for this work, but is that enough? Could other things be done to help the caregivers?

The federal government, and a number of provincial governments, have indeed acted to provide some level of support to caregivers – ranging from tax-credits and work-leave protection for employed caregivers.

Federally, for example, Canadians caring for eligible spouse or dependant over 18 years of age, can claim up to $6,883 annually. At the moment, however, the tax credit is non-refundable, and as such doesn’t help caregivers who have no reportable income.

Some provinces offer work-leave protection, respite programs, and other sources of support to caregivers. For a full assessment of government support programs, Dr. Samir Sinha’s report, Why Canada Needs to Better Care for Its Working Caregivers, provides a good overview.

The bigger picture painted in our report on the future costs of long-term care shows that additional support will certainly be needed, but the fundamental challenge will be the availability of Canadians to continue to provide the level of support we’ve seen historically. Younger baby boomers had fewer children than previous generations of Canadians, which may mean fewer available family members to provide care. Likewise, Canadian families live farther apart from each other, making it impractical to physically support older family members. Women have also typically provided the bulk of unpaid care, but with women increasingly entering the workforce, there will again be fewer traditional sources of unpaid care. Indeed, at this level, concern for caregivers extends beyond the seniors’ care spectrum; it increasingly will affect economic and personal productivity.

To start then, governments should look to expand existing programs for caregivers. The federal government can start by making the tax credit refundable.

Employers may also need to step-up. Caregivers often juggle work obligations with providing care. And for those that have to leave work, the employer suffers the loss of an employee and the employee loses income. Caregivers tell us that they would like more flexible work arrangements, for example, so they can step away from a full workload without sacrificing the job altogether.

Q. From personal experience, the cost of LTC even today is pretty high. Here in Ottawa, it is about $2,000 a month for a publicly funded long-term care spot and around $5K plus for a private nursing home. Does your research say anything about the expected future costs of such services so we can show it on an individual basis (might make it easier to understand).

Our projected costs are actually rather conservative, in that they show what the status quo will look like if extended to a larger, ageing population. But in discussions with experts and in reviewing Canadian and global literature, the big cost risk associated with the future of long-term care is labour. Personal Support Workers are the front lines of health professionals who care for seniors, in their own homes and in nursing homes. Canada is already facing a shortage of PSWs and isn’t alone. Globally, there’s a shortage of PSWs, which likely means that a short supply and high demand will increase labour costs over time. This could certainly implicate costs for Canadians in the future, as recruitment and retention become more difficult in an ageing world. In the medium and long-term, then costs for care in the home and in nursing homes may grow beyond our projections.

Q. Would increased government funding for additional “subsidized” spots help stave off a future crisis? What else can be done today to prepare us for the future?

The NIA structured these reports as a series of three. The first two look at the current state of long-term care and project costs into the future, if we don’t shift practices, funding methods, and other aspects of how we deliver care to an ageing population. The third and final paper of the series is in progress now. In the final report, we’re working with a broad range of experts, government officials, and other stakeholders to identify real and potential means of delivering better care as lower or more contained costs.

But looking at best practices around the world, the countries that seem to be doing better than Canada have flipped spending in recent years and decades, pouring more resources into home and community care, as opposed to building more nursing homes, which cost more to build in the first place, and typically cost more to operate.

Q. What results from this research surprised you the most, and why?

Amongst the eye-opening projections on the future cost of long-term care and the current lengths of waitlists for home and nursing care, we can’t lose site of the fact that Canadians are already living longer, healthier lives than ever before. Centenarians are the fastest growing cohort in Canada. This is an incredibly positive trend that’s worth noting and celebrating. In a sense, the challenges we face now and on the horizon are partially the result of great gains in population health and longevity. We’re living longer, healthier lives. That can be surprising to anyone whose job it is to focus on problems and solutions, as we do at the NIA.

We thank Michael Nicin for taking the time to answer our questions.

It’s clear that we can all expect long-term care costs will be more than they are today when, in the future, we need them. If you have a retirement arrangement at work, be sure you are contributing all that you can towards it. If you don’t, consider setting up your own savings program. The Saskatchewan Pension Plan offers an end-to-end way for your to turn savings into future income; check them out today.

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

RBC Wealth Management survey sees rising living costs, unexpected expenses, as barriers to wealth for higher-income Canadians

A recent Royal Bank of Canada survey on wealth management, conducted by Ipsos, found there were a few new obstacles that were impeding even wealthy Canadians’ efforts to build wealth.

Save with SPP reached out to RBC Wealth Management to probe a bit more about these obstacles, and to ask if the study’s authors found any other surprises in their research. Their answers are here:

Q. Did the study and its authors find higher levels of debt to be a part of the “cost of living barrier” to building wealth, given the high record of household debt? Helping kids is also mentioned.

The study didn’t specifically ask respondents about levels of debt. After the rising cost of living, the next reasons that ranked highest on the survey were:

  • Unexpected expenses
  • Cost of raising children (survey did not specify what “helping kids” meant)
  • Home prices

Q. The survey says “traditional ways of building wealth” may not be doing the job like they used to. Is this referring to the volatile stock markets and the low-interest environment for fixed income? Are there any thoughts about new types of investment strategies/alternative categories that the study and its authors think could address this?

In the survey news release, Tony Maiorino, Head, RBC Wealth Management Services, says “regardless of income, many Canadians find themselves behind on their wealth goals as many of the traditional ways we build wealth have changed over the generations. With the added backdrop of market uncertainty, clients are voicing their concerns and looking for support using non-traditional methods of meeting their wealth goals.”

Howard Kabot, Vice-President, Financial Planning, RBC Wealth Management Services, elaborates, saying “things like tax strategies, insurance and retirement planning play a key role in building wealth today but I’m not surprised that so many respondents find them challenging. The financial landscape is always evolving and people have less time to research and learn about wealth management topics. Most clients need to explore a variety of tactics through a holistic lens to build and preserve wealth.”

The survey found that 81 per cent of Ontario respondents, 80 per cent of Albertans and 77 per cent of BC residents felt “building wealth now is more difficult than it was in previous generations.” Thirty-eight per cent of BC respondents (vs. 26 per cent for Ontarians and 20 per cent for Albertans) reported experiencing “poor investment performance.”

Q. Did the study indicate when respondents would use the services of a financial adviser like RBC? Did the study turn up any sense that people are having difficulty putting away as much as they would like for retirement, given the high cost of living, lower salaries, and maybe the lack of workplace pension plans?

The study found that three-quarters of higher-income Canadians were confident “they will reach their financial goals before retirement.” However, 41 per cent of the same group said they would “work with a financial expert to invest the money” if they experienced a windfall, such as an inheritance. Advisors might come in handy with things that “challenged” respondents, such as “staying on top of markets” (76 per cent) and “using… strategies to minimize taxes (71 per cent).”

The lack of a pension plan at work was cited by 20 per cent of those surveyed as one of the “unexpected expenses,” like the increased cost of living, raising children, lower salaries than expected and poor investment performance, that was a factor in respondents being less wealthy than they expected.

Q. Where there any other findings that surprised the authors?

The news release noted that it was surprising that respondents found it challenging to understand financial topics but still felt confident they would meet their financial goals.

The release noted that “of the 48 per cent of respondents who are not as wealthy as they thought they would be, almost three quarters (73 per cent) believe they will reach their financial goals before retirement.” This optimism seems to be at odds with their confidence when it comes to aspects of wealth management topics, with the majority agreeing the following topics are challenging:

  • Knowing which information to trust (78 per cent)
  • Staying on top of what’s happening in the financial markets (76 per cent)
  • Using tax strategies to minimize taxes (71 per cent)
  • Ensuring they don’t outlive their assets during retirement (70 per cent)
  • Understanding the use of insurance in a financial plan (66 per cent)

If you lack a workplace pension, and need a do-it-yourself solution for retirement savings, consider membership in the Saskatchewan Pension Plan. You can start small and gear up your contributions over time. At retirement, the SPP can convert those savings into a lifetime income stream – you won’t be able to outlive your savings. Check them out today.

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Why people aren’t saving – an interview with Doug Hoyes

As co-founder of Hoyes and Michalos, a debt relief firm, and a commentator on personal finance, Doug Hoyes has seen it all when it comes to debt.

And he has a straightforward view on why Canadians aren’t saving much for retirement, telling Save with SPP that these days, “people don’t save for anything.”

The savings rate, he notes, was as high as 15 per cent in 1980 and has plunged to “less than one per cent” today. In other words, people are saving less than a penny of every dollar they earn.

“People don’t save anything; it’s just not a thing we do anymore,” he explains. “I think the cost of living is high and job security is low.” The old “job for life” days are long gone, and people now expect to have multiple jobs through their working career, he explains.

“You are seeing sporadic employment, contract work – it is hard for people to put down roots and save. And house prices are rising sharply, and everything costs more. We’re not able to save, and we are seeing more people using debt to make ends meet,” he says.

Those who do try to save tend to be punished for their efforts – savings account and GICs pay interest in the low single digits, and if savers look to invest in mutual funds “there are high fees, and they take on risk,” he explains. Since low-interest lines of credit are so prevalent, for many people, debt has replaced savings, a practice that Hoyes says just isn’t sustainable in the long term.

Save with SPP asked how this lack of saving affects retirement plans.

“It’s become uncommon to have a pension plan (a traditional defined benefit plan) at work,” he says, “unless you work for the government. It’s just not a thing newer companies offer.” He says that from an employer’s point of view, “it is a hassle to set them up, and there is a potential for liabilities that need to be funded, and more money needing to be put in.” Sears and Nortel show the potential downside for employees and DB pensioners if the parent company runs into financial trouble, he notes.

So traditional pension plans in the private sector have generally been replaced with things “like a group RRSP, where there is zero risk (for the employer).” Employees are satisfied with a group RRSP because they “know they are not going to be there, at the same employer, for 50 years,” and a group RRSP is portable and easy to transfer, Hoyes explains.

With more and more working people dealing with debt, it’s not surprising to Hoyes that more seniors are retiring with debt, a situation he says can lead to disaster.

“In retirement, your income goes down, and while some of your expenses that were related to work go down, others will go up,” he explains. “Your rent doesn’t go down when you retire, so your cost of living is about the same.”

Retired seniors, living on less and still paying down debt, face other problems, he says. It’s more common for retirees to divert savings to “helping their adult kids.” Examples of this might include a divorced child moving home, or college and university graduates, unable to find work, staying home instead of moving out. So the seniors may use up their savings or borrow to help the children, “as any parent might,” but that drives them into a financial crisis, he explains.

With debt to pay and possibly little to no workplace pension, many seniors are heading back to work. Others, Hoyes notes, are starting to have to file for insolvency.

“Maybe you only have CPP and OAS coming in, and you have a $50,000 debt that you can’t service – you may need to file for bankruptcy and make payments through a trustee,” he explains.

We thank Doug Hoyes for speaking to Save with SPP.

If you don’t have a pension plan at work, consider opening a Saskatchewan Pension Plan account. It’s like setting up a personal pension plan. The money you set aside is invested for you at a low fee, and when you are ready to collect it, it’s available as a lifetime pension with several survivor benefit options.

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. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22