Talking to Gordon PapeSeptember 6, 2012
Hi, my name is Sheryl Smolkin. I’m a lawyer and a journalist. Today I’m pleased to be continuing the Saskatchewan Pension Plan’s new series of interviews with financial experts. My guest is Gordon Pape.
Gordon is an author of over 40 books, a newsletter publisher, journalist and all around financial guru. He writes regular columns for the Toronto Star and moneyville.ca among dozens of other media publications.
At age 75, he has just released a new book called Retirement’s Harsh Realities and it doesn’t look like he is planning to retire anytime soon. Today we are going to talk about annuities, and why an annuity purchase can be an important strategy for making your money last as long as you do.
Q. Everyone contemplating retirement has two key questions. How much will I need and how can I be sure I won’t run out of money? How would you answer these questions?
A. How much you need depends on the individual and the type of lifestyle you want to lead after retirement. A study done by Statistics Canada a few years ago found that people in their 70’s were spending about 95% of what they spent when they were in their 40’s. Yet conventional wisdom says you only need about 70% of your pre-retirement income if you want to maintain your standard of living. Based on those numbers it suggests that in fact you need more.
You need to look at your expenses in retirement and your sources of income such as CPP, OAS, an employer-sponsored pension plan if you have one and personal savings. There is no magic number.
You need to plan for the fact that people are living longer. Something to consider especially after the age of 80, is putting some money into a life annuity. It’s not a great place to put your money right now because interest rates are so low, but once the economy starts to pick up again and interest rates start to rise that’s the time to lock in a life annuity that guarantees you an income for as long as you live.
Q. Tell me how an annuity works.
A. You’ve saved money in a RRSP, you’ve converted it to a RRIF at 71 and the government requires that you draw down a minimum amount from that fund each year. As the years go by, unless you’re able to invest at a rate that keeps up with the rate of the minimum withdrawals, the value of the fund is going to eventually drop.
By the time you get to your early to mid 80’s, the depletion rate is too fast. You might consider using a chunk of you RRIF or all of it to purchase a life annuity from an insurance company, in exchange for a flow of income for the rest of your life.
The down side is you don’t have the money anymore. You won’t have an estate you can leave but it will be cash flow for the rest of your life
Q. Why have annuities fallen out of favour recently?
A. Low interest rates and the fact that people don’t like the idea of giving up their capital. They like to be able to control their money, so they can leave something behind for their children. When you buy an annuity you lose that possibility. However, you can buy annuity that guarantees the income for a certain period of time so if you die within the period your children will get some money.
Q. When is the best time to buy an annuity? Why?
A. The longer you wait, the more money you’ll get from the annuity. The company will pay you less money at 65 than 80 because your life expectancy is longer. If you can maintain a rate of return in your RIF around 6% then the optimum time would be within your 80’s.
Q. What questions should retirees and prospective retirees ask when they are shopping for annuities? What different kinds of annuities are available?
A. Research the amount of money that the various insurance companies are offering. There are tremendous variations in the rates that they are offering for the same kind of plan. There are annuity brokers who will do this for you and find you the best offer. There is no one company that consistently pays more than others. Desjardins has come up quite often, but not all the time.
It also depends on the type of plan – i.e. one company may offer money for a straight annuity with no guarantees, where as another company may offer a better rate for a joint and last survivor annuity which means it carries on until the last spouse dies
You also need to give some thought to the company itself – the solvency of each financial institution. There is an insurance fund that covers people in the event that their insurance policy goes belly up, but the fact is that you don’t want that to happen and don’t want to be forced on a fund that has limitations on it.
Q. What does it cost to use an annuity broker and who pays them?
A. The fee will be paid by the insurance company that you eventually do the business with. It’s like a mortgage broker.
Q. If someone came to you for financial advice, what portion of his assets would you advise that he put into an annuity?
A. It will depend on the individual and how large an estate they want to leave.
Q. What are the downsides of annuities?
A. The solvency of the company. Also, if you don’t get inflation protection, over a length of time obviously the purchasing power of the income that you receive is going to decline.
Inflation protection is expensive, in the sense you will get a lower monthly payment than if you do not have inflation protection. On the other hand it will guarantee that as the rate of inflation rises over the years, so will the annuity.
There are also “impaired annuities” for annuitants with a terminal illness. The annuity pays more because the purchaser has a shorter life expectancy.
Q. Would you invest in one yourself?
A. No, not at this point. I am managing my money well enough, and my wife and I have sufficiently large RRIFs that we don’t feel we need to buy that kind of insurance at this time of our life. Down the road when I am in my 80’s I may take a look at it.
Thanks Gordon. It was a pleasure to chat with you. I think Saskatchewan Pension Plan members will be very interested in your comments about annuities. They have the option of purchasing a competitively-priced annuity from the plan until age 71.
Talking to Jonathan ChevreauAugust 2, 2012
Hi, my name is Sheryl Smolkin. I’m a lawyer and a journalist. Today I’m pleased to be continuing the Saskatchewan Pension Plan’s series of financial expert interviews with Jonathan Chevreau.
Jonathan was the personal finance columnist for the Financial Post from 1996-1998 and then for the National Post since its launch in 1998 until this year. He has recently been named Editor of MoneySense magazine.
Although he has authored or co-authored seven non-fictional financial books, his most recent work is “a novel about one couple’s turbulent journey to financial independence” called “Findependence Day.” And that’s what we are going to talk about today.
Q. Is the expression “Findependence Day” a Chevreau original or has it been used before by others?
A. I would say it is a Chevreau original although at one point there was an unrelated film called Findependence Day. I just looked at the American Independence Day, played around with financial independence and came up with “Findependence Day.” The title came first, and then I thought I should write a book to go with it.
Q. You are known as a financial writer who writes serious articles and books about complex financial matters. What made you decide to write a novel?
A. I think like a lot of journalists there was always a secret closet novelist lurking because it seems like a more creative, long-term project than bashing out daily columns. Then there is always the example of David Chilton’s The Wealthy Barber.
Q. Although Findependence Day is clearly fiction, some of your characters and concepts seemed very familiar to me, so I have to ask you:
- Is Didi Quinlan of the television program Debt March based on Gail Vaz- Oxlade’s show ‘Til debt do us part?
Well like most fictional characters it’s a composite, I would say she’s was certainly one of three or four people, keeping in mind the book was also written for the US market. We have a lot of financial reality TV shows now. When I talk to American journalists they’re convinced I am talking about Suze Orman. But I would say that Gail is probably the single closest model.
- Were you thinking of Stewart McLean’s Vinyl Cafe when you created “The Vinyl Cave?”
Actually, that was based on Kate Dunn’s Vinyl Museum around the turn of the century. Then Peter Dunn had two Vinyl Museum stores in Toronto – one was close to where I lived on the Lakeshore.
- Did you draw on Finance Professor Moishe Milevsky’s characterization of people as either “stocks” or bonds” as discussed by the financial advisor Theo in the book?
I think I actually did credit Moshie’s book in the fine print or in “Theo’s library”at the end of the book.
Q. In the opening chapter, television host Didi Quinlan tells the young couple Jamie and Sheena Morelli that she is going to drill two words into their skulls: guerilla frugality. Is this phrase also a Chevreau original and what does it mean?
A. Yes it is original. I came up with that expression in a column long before I wrote the book. To me it’s like guerrilla warfare. In order to save and invest you have to first get out of debt, and then you have to continue to be frugal in order to build wealth. What I mean by the term is “guerrilla warfare on the economic consumption front.”
Q. Another thing Theo, the financial planner in the book advocates is developing different streams of income on the road to financial independence. Does that mean moonlighting or working at more than one job? Is that practical for hard-working, busy parents?
A. Ideally you can always give yourself a raise. You can get a raise from your boss or change jobs and earn a higher amount. You can aIso take on extra work to earn another $10,000 or more on nights and weekends but this may be stressful and perhaps not the optimum approach if you have a young family.
Ultimately as you know anybody who is a retiree probably does have multiple streams of income – two or three pensions, government benefits and private savings in a RRIF. But when we’re in the wealth accumulation phase, if both partners are employed we tend to be dependent on one or two different sources of income.
You have to go from one or two salaries to these multiple sources of income when you become financially independent and ultimately when you are in full stop retirement.
Q. If you could identify one or two key messages in the book for people striving to achieve financial independence, what would they be?
A. If your goal is financial independence or findependence, the means is guerilla frugality. The two go together. So be frugal first to get rid of your debt and second to build wealth. These are the key takeaways in order to achieve what I call Findependence day.
Q.Have you reached your Findependence day, and if not what is the magic number?
A. I used to put anywhere from 57-64 on my blog, the Wealthy Boomer. Right now I’ve joined MoneySense magazine at 59 years old. I guess my partner and I have achieved financial independence of sorts, but we want to achieve a higher level. I am at the stage of working now because I want to, not because I have to. And as you know everything gets better the longer you wait.
I enjoy what I do and I don’t find there’s a big distinction between what I do evenings and weekends and what I do during the day. I’m up reading all this stuff on twitter and social media and I might as well get paid for it as long as I enjoy it and I’m healthy. The thing is, at some point, I may not have a willing client, or a willing employer even if I want to work to 70 or 75. At some point we all must have financial independence because our body or our minds won’t permit us to earn the single employment stream that most people rely on.
Thanks Jonathan. It was a pleasure to talk to you today. I read your book cover to cover and learned a great deal. I actually joined the SPP to get “another stream of income” although I have an employer-sponsored pension plan. If they haven’t already done so, I’m sure many SPP members will be interested in ordering the book from your website.
It was a pleasure Sheryl. There’s actually a question and answer about the Saskatchewan Pension Plan in the June issue of MoneySense.
Talking to Derek FosterJuly 5, 2012
Hi, my name is Sheryl Smolkin. I’m a lawyer and a journalist. Today I’m pleased to be continuing the Saskatchewan Pension Plan’s series of financial expert interviews, talking to Derek Foster author of six books including The Idiot Millionaire.
After spending his 20s backpacking across Europe, Australia and Asia, Derek left the rat race at age 34 when his investment strategy made him a millionaire. Today we are going to talk about his latest book, The Worried Boomer.
Q1. Derek, you retired six years ago at age 34 and started a new career as a financial writer and motivational speaker. Was this all part of the plan? Did you ever imagine you would be so successful?
There was no a plan at all. The only thing I did was to begin investing religiously just before I started university. I put away $200 a month and it kept growing and growing. But as far as writing a book, once I retired I thought it was an interesting story so I wrote a book and it became a national best seller. I thought this was kind of great so I wrote a few more books.
Q2. Because you are your own boss, you have more time to spend with your family and do things you enjoy. How much time do you spend writing and speaking in a typical week or month?
It really varies depending on the season. I find I do a lot of my writing in the fall after summer vacation is over and the kids are back at school. But if I was to average it out, I would say probably around ten hours a week.
Q3. Everyone I talk to is worried that they will run out of money before they run out of time. How did you figure out how much money you had to save in order to retire at such a young age?
I think a lot of people put the cart before the horse. In other words, if you ask people how much money they need to retire, many will respond “oh you need a million dollars or two million dollars.”
But if you ask “how much money do you need to live on now?” they’ll generally say $50,000 a year or $100,000 a year. The interesting thing is that they tell me the annual income they need to live right now, but for retirement they fixate on this big lump sum of money.
I think you need an annual income when you retire. So essentially all you have to do is build up an annual income stream and once it equals what your expenses are going to be, you can stop working.
Q4. You have five children. You own a four bedroom, four bathroom house in Ottawa and your family has taken trips almost every year since you have retired on less than $40,000/year. How can you afford this lifestyle? What don’t you do?
I think the main thing I don’t do is that I don’t work. It’s going to sound kind of strange, but working is the most expensive way to make money in Canada. When you’re working at a regular job, you pay Canada Pension, you pay employment insurance, you also pay income tax at the top marginal rate. And those are just the direct costs of working.
There are a whole slew of indirect costs of working. You might need to pay for a wardrobe, union dues, commuting costs, parking costs or child care expenses if you’re at that stage in life. So I basically realized that working was too expensive and I couldn’t afford it so I stopped working.
That was a big part of it, and the other thing too is that I’m not really a “stuff” guy. I don’t find I buy a lot of gadgets. For example I’ve never owned a cell phone. In my twenties I spent a year travelling around Australia and New Zealand. I had the time of my life and all my worldly possessions were contained in one backpack. So I think that’s another part of it as well.
Q5. How would you respond to people who say that they are already living so close to the line that there is nothing left over for savings?
I think sometimes people look at saving enough money for retirement as if they have to achieve the whole thing all at once. Make it simple. Start with $2 a day. Take a toonie every day from your change and throw it into a jar. At the end of the month you’ll have sixty bucks. Keep doing that month after month. If you started when you were twenty and stopped at the traditional retirement age of sixty five, you’d end up with something like $628 000 just by saving toonies which is a pretty good start. If you up that to $5 a-day you’ll have one and a half million dollars which is very good start. So start small.
Q6. You invested in the stock market to make your million, yet so many people over the same period lost almost everything. What’s your secret? How do you pick stocks?
I am not really that smart a guy so what I did is I tried to copy other people. The absolute best investor in the world is a guy by the name of Warren Buffet, and I read a lot of what he had to say about investing and copied him.
And the approach, which is really quite simple, is invest in only companies that are easy enough for a six year old to illustrate with a crayon. You want companies that sell the same boring product year after boring year. An example would be Colgate toothpaste. I mean if I invest in Colgate toothpaste all I have to rely on is that you’re going to keep brushing your teeth, and I think that’s a fairly safe bet.
Now if you look at the company they’ve paid uninterrupted dividends since 1895 so basically for 117 years, anybody who has ever owned Colgate stock has received their dividends. Which is great, so focus on those kinds of companies. Forget the casino approach where you’re looking for the next hot thing. I mean ten years ago a lot of people chased Nortel and that didn’t work out very well. Again, keep it simple.
Q7. The Worried Boomer is a primer on various types of financial instruments in which people can invest their retirement savings for retirement, but you also devote a chapter to the Saskatchewan Pension Plan. What do you think are the advantages of saving in the SPP instead of in an RRSP?
There are a couple different advantages. The first one is it’s very easy. I enjoy sitting down and reading annual reports and considering where to invest, but surprisingly some people don’t enjoy that. But the SPP allows them to just make a contribution and forget about it. It’s basically a set and forget kind of plan, which is good for a lot of people.
The second factor that I really like is that the costs are really low. If you invest in traditional mutual funds you’ll pay much higher fees than you will with the SPP. The differences can be huge. We’re talking tens, and in some cases hundreds of thousands of dollars difference just by saving on the fees.
And the third factor is that it has a very good long-term track record. I think returns have averaged around 8% over the last 25 years which is really, really good. Also in the 2008 stock market downturn the SPP fund it went down much, much less than the overall markets did.
Q.10 Do you think your savings will last for the rest of your life or do you anticipate having to going back to work for someone else some day?
No I don’t anticipate having to go back to work because I rely on dividends. Let’s suppose my money is a seed and I’ve planted a tree with it. Now the traditional investor lets his tree grow for a few years and then he wants to chop it down for fire wood and make a big gain. I am not doing that.
What I’ve done is I’ve planted a tree that’s bearing fruit every year. Every year I harvest the fruit. The next year I do it again. That’s essentially what I’m doing with the dividends. The money just keeps re-appearing every year. It’s almost like I have a little printing press downstairs, down in my basement where I’m able to print new money every year as I need it. So no I don’t really anticipate ever really running out of money.
Thanks Derek. It’s been a pleasure talking to you. I’m sure listeners will be inspired by your story and look forward to hearing more about you and your family’s financial adventures in the years to come. The worried Boomer and Derek’s other five books can be purchased from his website at www.stopworking.ca.
Talking to Ellen RosemanJune 7, 2012
Hi, my name is Sheryl Smolkin. I’m a lawyer and a journalist. Today I’m pleased to be kicking off the Saskatchewan Pension Plan’s new series of interviews with financial experts. My first guest is Ellen Roseman.
Ellen is a journalist and author of five books who has been advocating for the consumer rights of Canadians for the past 35 years. She is a Toronto Star columnist, a fellow blogger on moneyville.ca and she has her own blog “On Your Side.” In January, she was featured on an episode of CBC Marketplaces called “Canada’s Worst Customer Service: Store Edition.”
But Ellen is also passionate about financial literacy and she has been teaching courses in investing and personal finance in the University of Toronto’s Continuing Studies Department since 2004. She also does Financial Basics workshops at Ryerson University. Financial literacy is what we are going to talk about today.
Q. Ellen, why do you think Canadians are so uneasy about their money skills?
A. We don’t learn much about money in school. In the past we used to learn from our parents but today many parents are uneasy about their money management skills and they’re not sure how to bring up their kids with good habits. It has also become a lot more complex and intimidating. For example, look at the number of retirement plans and many of the tax rules are getting more complicated
Q. How important is it to educate our children about money? When should parents start?
A. It’s probably good to start at a young age – like when children are younger, they tend to think that using the ATM is like the lottery and it’s free. You can also go to the grocery store and explain how much different items cost. It’s a delicate balance, but I think it’s a good idea to get your children used to using money and open a bank account at around 6, 7 or 8 years old.
Q. What resources are available to parents to help them educate their children about money?
A. The Canadian Banker’s Association put together a whole network of websites including their own and those of other financial institutions called “There’s something about money.” There are also a lot of financial institutions that have children’s resources on their own websites like Canada Saving’s Bonds. In addition, all the big banks are pretty good about having places where kids can read up and play money games. The approach is almost as entertainment rather than true education, because they learn through being interactive and playing
Q. The Federal Task Force on Financial Literacy recommended over a year ago that provincial and territorial governments put financial literacy into the formal education system. To what extent, if any has progress been made in the implementation of this recommendation?
A. British Columbia led the way even before the Financial Literacy Task Force because they have a compulsory course in Grade 10 and they make great use of the Financial Consumer Agency of Canada’s resource called “The City.” It’s interactive and it lasts for about 18 or 20 hours. Teachers use it in their classes
Manitoba and Ontario decided rather than one course in high school, they wanted to integrate financial education throughout the school system. So starting at about Grade 3 or 4 and going all the way to the end of high school, they introduce it it into things like math, economics and other courses. This process is harder and takes longer.
It’s going quite well in Manitoba, but Ontario is having some problems. A lot of teachers don’t feel very comfortable about teaching about financial issues.
Q. In one column you suggested that financial literacy means saying no to business interests in the schools. Can you tell me a little bit about why this is a concern and what the alternatives might be?
A. We already have a lot of business interests targeting schools. For example, Visa Canada wants to introduce a course about responsible spending. The course is totally sensible but the sponsor is aiming to get kids indebted by the age of 18, continuing for the rest of their lives
The Canadian Banker’s Association has a program where they send banker’s into schools to talk to students about money just as a one-time thing. But there is a little too much emphasis on RRSPs which really isn’t relevant to 16 or 18 year olds. There should be more about basic budgeting skills, deciding between a want and a need, and making sure not to overspend.
Q. Even if financial literacy programs become standard fare in high schools, how can we ensure the programs are engaging and interesting for young people so they don’t just tune out?
A. Make it relevant to people’s lives and the issues they’re experiencing at the moment.
Children in high school have some immediate needs. They need to know about the cost of post secondary education and how much that will be in dollars and cents. Who is going to pay for it? How do you manage a student loan? How do you pay for transportation? What’s the cost of all the gadgets they buy? Why it doesn’t make sense to buy with a credit card if you’re still paying it off a few years later and yet you’re ready to move onto the next device.
Q. You have been teaching basic investment concepts to adults for many years. What do you tell them about the role of a financial advisor, and the questions they should ask before signing on with one?
A. It’s very important for people to have a good financial advisor. Five to 10% of Canadians can actually be their own financial advisor but the rest need some financial advice.
Many of the people out there dispensing financial advice are working for big banks and other financial institutions. They are basically sales people who get incentives to accumulate as many assets under management and they encourage them to borrow to invest. Their whole expertise is about the accumulation phase, which is building up assets towards retirement but there’s a big gap once people retire or are about to retire. Many financial advisors are not skilled in how to keep more after-tax income in your pocket.
Check their references to make sure they’re registered. Do online research
Make sure they listen. If they’re diagnosing and recommending before they get to know you that usually means it’s some kind of off the shelf solution instead of a custom approach.
Finally, don’t get too friendly with them. Once your lives get too intertwined it’s pretty hard to fire them. Friendship should never interfere with a business relationship.
Thanks Ellen. It was a pleasure to chat with you. I know Saskatchewan Pension Plan members will be eagerly awaiting the release of your new book 99 Ways to Fight Back and they will also want to check out your Toronto Star articles and your blogs on moneyville.ca and ellenroseman.com.
Talking to Tim CalibabaApril 12, 2012
My name is Sheryl Smolkin. I’m a pension and benefits lawyer and journalist. Today I’m continuing with our series of interviews with the people behind the scene at the Saskatchewan Pension Plan
Tim Calibaba has an extensive background and experience in many aspects of the financial services industry going back more than 30 years. In 2009 he received a designation from the prestigious Institute of Corporate Directors, Rotman School of Business, University of Toronto.
Currently he is serving as a member of the Board of Trustees for the Saskatchewan Pension Plan. He is also on the Boards of Directors of both Stone Investment Group and independent wind energy firm, Kineticor Renewables Inc.
Today Tim is going to answer some questions about how the Saskatchewan Pension Fund is invested.
Welcome Tim. Thanks Sheryl.
Q. Tell us a little more about your investment background and experience.
A. Well, I’ve been in the mutual fund industry for many years. I started my own business back in 1986 in Saskatchewan. At that time we were just a small Saskatchewan based-company only operating in that province. Since then we expanded over a 20 year period from British Columbia right through to Ontario.
When we sold our business and merged with Berkshire Investments we had 400 advisers across Canada and over $4 billion in assets under management. As an independent mutual fund dealer, we were primarily focused on looking for the best investment managers for our clients’ money.
Q. What role do the Trustees have in investing funds deposited by SPP members?
A. Well, the first thing the Board has to do is set what is called the Investment Policy Statement. So we make a decision about where we want the funds allocated to from the standpoint of various countries, the portion in stocks, bonds, real estate – that sort of thing.
We set the policy and then we search for the best managers to fulfill that policy and make those investments on behalf of our customers. Then we basically follow through on the selection and monitoring of those managers.
Q. What style of investing does the Board adhere to?
A. The Board has always had a very diversified style. One of our two managers is Greystone and that company has a growth style. The other manager is Leith Wheeler in Vancouver which has more of a value investment style.
As part of those styles then we also allocate to different countries, so we have a portion invested in international funds and the U.S. We feel that diversification is very important with a combination of styles and allocation of assets on a global basis.
Q. How does the Board monitor and get advice on investments?
A. The Board meets quarterly and at every quarterly meeting we have our independent consultant Aon Hewitt who does the management research for us. They review the manager’s performance – not just of our managers but of other managers that are available to pension funds and they report to us every quarter how our managers are doing and if there is any changes at their firms we should be worried about. And at every meeting we bring in one of the managers as well as Aon Hewitt so we can talk to them face to face.
Q. How has the SPP balanced fund performed as compared to market benchmarks over its 25 year history?
A. It’s actually done very well. It’s had a performance of 8.2% for 25 years which is pretty outstanding and approximately one percent better than the benchmark. Part of the reason is the low cost and efficient operation.
With the expense ratio around one percent it obviously helps the investors.
Q. Why do you think SPP is a good investment to build retirement savings for members?
Well first of all, I think you have to look at the 25 year history. A fund that has been around that long and has done that well has obviously proven itself and that’s important if you are looking for a place to invest your money for retirement.
We have also have a low management expense ratio, as I mentioned before. We have a very diversified style with the two different management styles and we are diversified internationally with a real estate and bond component. So I think overall we have a very strong portfolio. With the balanced approach it does help to minimize the effects of the ups and downs in the market.
We also have a pension plan available to small business owners that is very low cost and very simple for any business, whether Saskatchewan based or outside of Saskatchewan to participate in.
Thanks very much Tim. I appreciate that you were able to take time from your busy schedule to talk to us today.
Talking to Mark StockfordMarch 8, 2012
My name is Sheryl Smolkin. I’m a pension and benefits lawyer and journalist. Today I’m continuing our series of interviews with the people behind the scene at the Saskatchewan Pension Plan.
I’m pleased to be talking to Mark Stockford. Mark is an independent insurance broker with 4 employees. He offers his staff the Saskatchewan Pension Plan as part of their employee benefits package.
Hi Sheryl, thanks for having me.
Q. How long has your group been part of the Saskatchewan Pension Plan?
A. I believe we first started in March 2003.
Q. Why did you decide to get involved with SPP?
A. Well, we wanted to provide our employees with an RRSP program allowing them the opportunity to accumulate retirement funds at a faster rate. We match their contributions and hopefully it improves employee retention.
Q. So why did you select SPP as opposed to a Group RRSP from a financial institution.
A. I believe in supporting the local and provincial economy and this is a local, provincially operated pension plan.
Q. How many of your employees are enrolled?
A. We have all our employees involved. When they are first hired there is a six month waiting period and then we offer it to them. To date, everyone who has had the chance has jumped at it.
Q. You mentioned that you match contributions. Tell me a little more about that.
A. It’s an employee benefit I want to offer to my employees, so on a monthly basis we have money taken out of our account and 50% is charged back to the employee via payroll deduction.
Q. You said you contributed $50/month when the contribution limit was $600/year but you are in the process of upping that?
A. Yes. We have been advised by SPP that they can now accept annual deposits up to I believe $2,500, so to make it easy we’ve gone to $200/month. We are paying $100 of that, so each employee will have the benefit of $2,500/year.
Q. Some employers may find the amount of paperwork they have to fill out to administer a pension plan overwhelming. Does this apply to the SPP?
A. Actually it’s very simple. Originally when we signed up for it was a one page application each employee filled out, and Kindersley insurance supplied a monthly withdrawal authorization form to SPP along with a void cheque.
Since then it’s just been a matter of us sending emails to the SPP contact regarding any changes. SPP supplies the statements and income tax receipts for each employee. All I have to do is provide the information on the T4s for the employees. SPP makes it very easy for me, as the employer.
Q. What feedback have you had from employees regarding the opportunity to participate in SPP at work?
A. They’ve been very happy with it. Any time we’ve offered it to employees there has been no question that they have all wanted to participate. We don’t make it compulsory. It’s something they can do if they want.
It seems to be a good RRSP option. The returns in the past have been good. It’s been a little bit slower in the last few years with the economy but it’s been good.
Q. Have you disucced your participation with other employers, and what kind of a reaction do you get from them?
A. I’ve spoken to some people in town. Some seem interested. Some are already doing it. Of course, there are others who don’t see the benefits. But I feel the benefits to my operation are great. The employees like working here. They see the benefit and its one more reason not to leave Kindersley insurance.
Mark, thanks so much for taking the time to talk to me today. I’m sure other employers and their employees will be very interested in the reasons why you offer the Saskatchewan Pension Plan to your employees.
You are welcome, Sheryl.
What Derek Foster, “The idiot millionaire” says about Sask Pension Plan….February 24, 2012
Derek Foster retired at the age of 34 despite spending his 20s backpacking across Europe, Australia, and New Zealand – and living a number of years in Asia. He has written six books including “The Idiot Millionaire” and most recently, “The Worried Boomer.”
On February 13, 2012 he was interviewed by Patricia Lovett-Reid Senior Vice President with TD Waterhouse Canada Inc. for Business News Network. When asked for one tip that is not out there in mainstream personal finance, here’s what he said:
“Join a pension plan. Why doesn’t everybody join a pension plan? There is a pension plan available called the SPP run out of Saskatchewan and anybody in Canada can join it. It’s a no-brainer as far as I’m concerned. Have a few eggs in that basket here, a few over here, a few over there….
…The reality is that a lot of people don’t belong to a pension plan and they are going to have to create some sort of income stream in retirement. There’s talk of OAS changing, who knows what will happen to CPP? The SPP is another stream of income. If you put all these baskets together, eventually you have enough to live fairly comfortably.”
Shouldn’t YOU join SPP?
Talking to Warren WagnerJanuary 26, 2012
My name is Sheryl Smolkin. I’m a pension and benefits lawyer and journalist. Today I’m continuing our series of interviews with the people behind the scene at the Saskatchewan Pension Plan. I’m talking to Warren Wagner, Chair of the Saskatchewan Pension Plan Board of Trustees.
Warren is currently the Regional Director for Saskatchewan of the Canadian Diabetes Association and previously for 35 years he was a Regional General Manager with the Canadian Imperial Bank of Commerce.
Thank you Sheryl.
Q. Warren, what is the Board’s role in the operation of the SPP?
A. Like other pension plans we have a Board of Trustees that is responsible for insuring that the plan acts in accordance with good governance and fiduciary responsibilities. So really our responsibility is to make sure that the members of the plan have their interests protected and the goals and objectives of the plan are carried out.
Q. How are Board members appointed?
A. The Saskatchewan Pension Plan’s Board is appointed on the recommendation of the province’s Minister of Finance. The appointments are then made by an order-in-council of the Saskatchewan government.
Q. How long is the term for each member?
Typically it is three years. Usually people serve on the Board for one or more terms, hopefully to provide their continuing experience and knowledge of the plan.
Q. The SPP is 25 years old this year. What do you think are some of the most important developments over the past 25 years?
A. Good question. First of all, I think the fact that it has been in operation for 25 years is probably one of the most important features of the plan. In the financial industry there are a lot of plans, investments and programs that have come and gone, yet the SPP has proven to be durable, fairly stable and predictable.
When you look at the plan’s history and performance over the past 25 years, the SPP has returned in excess of 8% each year with nominal management fees. So you have a plan that is strong, simple to understand, well-managed and provides the opportunity for people and small businesses in the province of Saskatchewan and beyond to invest for the future.
Q. What is the Board’s vision for the SPP over the next 25 years?
A. What we really see is the opportunity for SPP to expand on the good things it is doing for the individual contributors today but also to become the small business plan of choice going forward.
There are about 70,000 small businesses in Saskatchewan, as an example, and the majority of these do not have a pension plan for their employees. The reality is that employers would like to have something to help their employees, but they need something that is simple, easy to understand, inexpensive and a plan that is not going to require a tremendous amount of their time to administer.
We’re happy to say the SPP meets all those criteria so we think that there is an excellent opportunity for the plan to grow by providing this good pension opportunity for both individuals and small businesses.
Q. Now the contribution levels were increased at the end of 2010. Do you envisage that going forward further increases might be in the cards?
A. At this point we are still very pleased that the contribution level was increased from $600 to $2,500 a year, which is a very significant increase. We’re just in the process of digesting that at this time. However, we have had discussions internally about the need to either look for indexing of that limit or requesting a staged limit increase over the next few years.
Thanks so much for answering my questions today. I’m sure both members and prospective members will be impressed with the sound governance structure in place at the Saskatchewan Pension Plan.
Talking to Katherine StruttJanuary 5, 2012
My name is Sheryl Smolkin. I am a pension and benefits lawyer and journalist. Today I’m kicking off our series of interviews with the people behind the scene at the Saskatchewan Pension Plan. I’m talking to Katherine Strutt, the General Manager of the Plan.
Welcome Katherine. Thanks Sheryl.
Q. Who can join the SPP?
A. Anyone between the ages of 18 and 71 can join the plan no matter where they live or work. So while most of our members are from Saskatchewan, anybody from the rest of Canada can also join and be part of the plan.
Q. Why do Canadians need a pension plan? Most of us are eligible for CPP and OAS, plus anyone with a house effectively has a chunk of savings.
A. Well, if you think of retirement savings in Canada as a three-legged stool, on the first leg you have Old Age Security which is a universal program. On the second leg you have the Canada Pension Plan which is a workplace-based pension. And those two are the foundation for most people’s retirement savings. The third leg is individual retirement savings and that’s where the SPP fits in.
So it’s important to have some personal savings and the SPP provides a vehicle which is easy to use and gives members a strong return at a very low cost. Your home is a very important part of your personal savings but you cannot necessarily rely on that as your main source of funds for retirement.
Q. With an alphabet of savings options, why do you think Saskatchewan residents and other Canadians should consider the SPP as part of their retirement savings strategy?
A. Well as I said, the SPP is simple and easy. We provide members with a true pension plan. That’s the difference between us and a Group RRSP. And you can’t get that anywhere else on a personal basis. Members get access to a large institutional plan for a fee of about one percent or less.
This would compare very favourably to retail mutual funds which typically would charge anywhere from 2% to 3%.
Q. How much can each member contribute?
A. Each member can contribute up to $2,500 per year based on their own individual RRSP limits. They can transfer in another $10,000 each year from an RRSP, a RRIF or an unlocked pension plan.
Q. How does an individual know where to put his money first – pay off debt? SPP? RRSP? TFSA? It’s a challenge to figure all of these out.
A. It sure is, and it is certainly a very individual decision, but I believe it isn’t an either/or proposition. People can be paying down their debt the same time as saving for their retirement through the SPP. As their financial situation improves, they can increase their contributions to the SPP.
Q. What if a plan member can’t afford to make contributions because of unexpected other expenses?
A. That’s where the SPP is so flexible. If people need to stop making contributions for a while and then start up again, they can do so without penalty. It’s very flexible and very easy to use.
Katherine, thanks so much for taking the time to talk to me today. I know both members and prospective members will be very interested in your answers to my questions.