Category Archives: Personal finance

Crystal ball gazing: Jobs 2030

By Sheryl Smolkin

26Jun-newjobscrystalball

January 2014 figures reveal that although the national youth unemployment rate was 13.9%, Saskatchewan’s youth unemployment rate of 7% was the lowest in the country.

Nevertheless, young people realize that selecting a course of post-secondary study and a future career are critical decisions that will impact their job satisfaction and family lifestyle for many years to come.

Jobs like web designer, social media specialist and computer game designer did not exist 35 or 40 years ago when new grads were faced with similar decisions. And it is all but impossible to predict what novel opportunities will be available in future and how to train for these new roles.

Nevertheless, the registered educational savings plan company Canadian Scholarship Trust partnered with 40+ leading experts across Canada to collect their insights on the future of their industries and worked with foresight strategists to create hypothetical job descriptions for positions that may be available 15+ years from now.

The Inspired Minds initiative is a “digital job fair” for the year 2030 that imagines a series of jobs you have never heard of but may be available sooner than you think. Here are five of those jobs I find the most interesting, plus the kind of training you may need for these positions.

  1. Nostalgist
    The nostalgist will be an interior designer specializing in recreating memories for retired people. The wealthy elderly of 2030 will have the luxury of living in a space inspired by their favourite decade. Nostalgists will recreate the setting of their preferred time and place for seniors wishing to relive their past, from a small-town 1970s living room to a 1980s university dorm room.A degree in social science would provide a good background for this job, because knowing how people work and the conditions that enable success will be vital. Training in systems thinking and administrative procedures will also be important, so some courses in management sciences will be valuable.
  2. Tele-surgeon
    Using a combination of robotic surgery tools, scanning and sensing technologies and high-speed networks, tele-surgeons will operate on people in faraway locations.Most communities will have a small surgical team in the local medical centre, but in emergency cases drones (pilotless flying devices) will be used to airdrop a tele-surgery unit into villages or seasonal camps, as this can be faster than moving a patient by helicopter.Tele-surgeons will need traditional medical and surgical training, but expand their skills to include robotic surgical assistants. They will have be familiar with robotic technology and comfortable performing surgeries through a variety of different video systems
  3. Rewilder
    The old name for this job was ‘farmer’. However, the role of the rewilder will not be to raise food crops, as this will be done more and more in highly efficient skyscraper-like greenhouses known as vertical farms. The rewilder’s job will be to undo environmental damage to the countryside caused by people, factories, cars, and intensive one crop monoculture farming (which occurs when only crop is planted over a large area of land).All the traditional requirements of farming will be needed for this role, including managing land and crops, but managing wildlife will also be a necessary skill. Rewilders will be paid not for how successful their crops are, but according to the diversity and health of their land. Degrees in wildlife management, agriculture and environmental sciences will all be relevant.
  4. Garbage designer
    Environmental damage and the build-up of landfills (places where garbage is dumped) have made recycling a norm. However, recycling relies on the idea that the things that we make will inevitably create waste. A new form of recycling that will likely become popular in 2030 is ‘upcycling’.Upcycling is the practice of turning waste into better quality products; for example, old toothbrushes into bracelets, or old magazines into woven place mats or pots for plants. Garbage designers will be key to ensuring the success of upcycling.Garbage designers will need a strong background in materials science and engineering. An interest in industrial design will also be ideal. Familiarity with manufacturing practices and trade will help them identify key points where they can make the most impact.
  5. Healthcare navigator
    A health care navigator knows how hospitals work and they are trained to help patients and their families cope. The navigator teaches patients and their loved ones about the ins and outs of a complicated medical system. The navigator also helps people to manage their contact with the medical system with the least amount of stress and delay.Most navigators are former nurses, but a new generation of navigators is on the rise. These navigators will combine their knowledge of the healthcare system with the skills of a social worker. A good navigator will be able to match the patient’s family with the right people at the right time — whether it’s a doctor, pharmacist, home-care worker or a nurse.

For information about the full list of 2030 job descriptions developed as part of the Inspired Minds project, take a look at the CST careers website.

It remains to be seen which of these career options will actually become a reality. However, the aging workforce, climate change, global mobility and digital technology will certainly mean that young people entering the workforce in 2014 will have a host of new opportunities we can only imagine in the decades to come.

CPP post-retirement benefits a good deal

By Sheryl Smolkin

SHUTTERSTOCK
SHUTTERSTOCK

If you decide to start collecting CPP at age 60 but have to continue paying into the plan because you go back to work, your additional post-retirement contributions can significantly increase the amount of monthly pension you receive even while you are still working.

Since 2012, CPP recipients over age 60 who earn employment income must still contribute to the plan until age 65 and may voluntarily make contributions between ages 65-70 if they are earning an income.

Between age 60 and 70 your contributions will generate additional CPP benefits called post-retirement benefits. You don’t need to apply for these additional benefits. They will automatically be added to your monthly cheque following each year after age 60 you contribute.

A sample calculation prepared by Government Benefits Consultant Doug Runchey who worked for 32 years with Human Resources and Skills Development Canada illustrates how post-retirement contributions can add up.

His example is based on a person who in 2014 at age 60 starts collecting a maximum CPP pension of $702 ($1,038 minus the early retirement reduction of 32.4 per cent).

However in January 2015, this individual decides to go back to work. He subsequently earns the maximum pensionable amount of $52,500 (2014 figures) for the next five years before he stops working completely. Using the 2014 maximum CPP contribution level, between ages 60 and 65 he will be required to contribute $2,425.50 each year to the plan (a total of $12,127.50).

Beginning in 2015 at age 61, his pension will be increased each year by an annual, cumulative post-retirement benefit that adds up to $1,350 by age 65.

As a result, his pension of $702 per month at age 60 will increase in yearly increments to $814 monthly at age 65. Therefore, he will receive approximately $2,490 in CPP post-retirement benefits between age 60 and 65. If he lives for another 20 years until age 85, the post-retirement benefit will put an additional $27,000 in his pocket.

“By accruing additional CPP post-retirement benefits of $1,350 per year between age 60 and 65, the person in this example will earn an 11.13 per cent return on the $12,127 in contributions he made for the period,” Runchey says.

He also says that the notional return on post-retirement CPP contributions by a taxpayer earning the CPP maximum pensionable amount each year who chooses to work and contribute to CPP until age 70 will be even higher.

However, Runchey notes that if this taxpayer was self-employed and required to pay both the annual employer and employee contributions ($4,850) from age 60 to 65, the total return on his five years of post-retirement contributions will be cut in half, to 5.56 per cent.

Post-retirement benefits earned in one year are added to benefits beginning in January of the following year, but eligible contributors may not receive the payment until April or May with a retroactive payment to the beginning of the year.

The amount of CPP post-retirement benefits that you can earn between ages 60 and 70 depends on your earnings and the number of years you continue to work and contribute. A Service Canada PRB Calculator will help you calculate how contributing after you begin receiving CPP benefits but before you stop working will increase your CPP benefits at retirement.

If you are over 65 and want to stop contributing to the CPP, you must complete the CPT30 form and give a copy to your employer. If you are self-employed, you must complete the appropriate section of the CRA CPP contributions on Self-Employment and Other Earnings and file it with your income tax return.

You can change your mind and begin contributing to the CPP again but you are allowed only one change per calendar year.

Also read:
Working and aged 60 or older
Canada Pension Plan Post-Retirement Benefit – Born in 1950
CPP Post Retirement Benefits – DR Pensions Consulting

Splitting your pension on marriage breakdown

By Sheryl Smolkin

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SHUTTERSTOCK

 

When a family splits up, pensions accrued by one or both spouses (including the Canada Pension Plan) and the family home may be the most valuable family assets. This blog discusses the Saskatchewan rules for pension credit-splitting of non-government pensions.

If both partners live in Saskatchewan their pensions (including the balance in their Saskatchewan Pension Plan) form part of family property. The Family Property Act establishes as a general rule that each legally married spouse, common-law spouse and same-sex spouse is entitled to an equal share of their family property, subject to various exceptions, exemptions and equitable considerations set out in the legislation. For example, property acquired before the commencement of the relationship is exempt from distribution.

The court may divide the family property or may order that one spouse pay the other spouse enough money to equalize their shares. Alternatively, the spouses may make an agreement about how to divide their property. The agreement will be binding if it is in writing and each spouse has received independent legal advice.  If a member has named the soon to be former spouse as a beneficiary, that person will continue to be the beneficiary unless the member files a change with the plan.

Under the Saskatchewan Pension Benefits Act, pensions can be divided in a number of ways:1

  • If the member of a defined benefit (DB) pension plan is not yet receiving a pension and is not eligible for an unreduced benefit, the other spouse can have a lump sum transferred from the plan to a locked-in retirement vehicle like a locked-in registered retirement savings plan or another registered pension plan. The lump sum is calculated by assuming the member terminates membership in the pension plan. This calculation typically results in a very low value for the pension (ignoring possible early retirement benefits, future increases, etc.).2
  • If the member of a DB pension plan is not yet receiving a pension and is eligible for an unreduced benefit, the non-member spouse can either take an immediate lump sum transfer (see 1 above) or he/she can defer the division and the non-member can also receive a pension when the member retires.
  • If the plan member spouse is receiving benefits from a DB plan or an annuity from the SPP, the non-member spouse will receive his/her portion of the pension payment directly from the administrator. By default this pension is only paid in accordance with the form of pension elected by the member at retirement (i.e. life only, joint and survivor benefit) and therefore may not continue after the member’s death. However, the plan has the option of converting the spouse’s share to a pension payable on his/her life (not all plans offer this option). In addition, the plan may offer the non-member spouse the option to take his/her portion as a lump sum.
  • RRSPs (both locked-in and not locked-in) and defined contribution (DC) pension plans (including the Saskatchewan Pension Plan) do not need to be valued on marriage breakdown.

This is because, unlike with a DB plan, RRSPs and DC pensions are simply tax-deferred investment accounts and so the value at any point in time is equal to the account balance. For this reason, a valuation is not necessary to determine the pre-tax value for these assets.

However, in many cases, a proper income tax adjustment should be calculated. For more details on the reason for the income tax adjustment, see the question ‘Does the value of a pension have to be adjusted to reflect income tax?’ pension valuation frequently asked questions on the BCH Actuarial Services Inc. website.

Locked-in DC plan balances are subject to the same transfer restrictions as lump sum transfers from a DB plan described in 1 and 2 above.

During separation or divorce, either you or your spouse can transfer existing RRSPs to the other, without being subject to tax, provided that:

  • You are living apart when property and assets are settled; and
  • You have a written separation agreement or a court order.

Note that federally regulated pension plans (i.e. banks, airlines, rail) may not divide the pension in the same manner as mentioned above and may only allow the division options available under the federal Pension Benefits Standards Act.

Under the federal Pension Benefits Standards Act, up to 100% of the benefits earned during the relationship can be assigned to the spouse. If a portion of the member’s pension benefits are assigned to the spouse, the non-member spouse is deemed to have been a member of the pension plan and have terminated their membership in the plan.

Most federal pension plans have established administrative policies as to how the non-member spouse can receive their share of the pension, however, typically they will have the choice of an immediate lump sum transfer or a deferred pension in the plan if the member is not retired and they will receive a pension from the plan if the member is retired  (the plan may offer a lump sum option and they may convert the spouse’s pension to one payable for their lifetime). For more information, click here.

Federal government pensions are divided in accordance with Pension Benefits Division Act which only allows an immediate lump sum transfer from the pension plan to the non-member spouse. For more information, click here.

1. This blog is based in part on information provided on the website of BCH Actuarial Services Inc. and the material is reprinted with permission. In all cases of marriage breakdown you should consult with a family lawyer and/or an independent actuary who will advise you regarding the laws and actuarial valuations that apply to your situation.

2. A division of a pension on marriage breakdown must not reduce the member’s commuted value to less than 50% of the member’s commuted value prior to the division.

Why some employee benefits are worth more than others

By Sheryl Smolkin

SHUTTERSTOCK

You just got a job offer and in addition to a hefty salary increase you are getting all kinds of new perks like life insurance, free parking and a cell phone. The company even has a subsidized cafeteria where you buy lunch and pick up dinner- to-go for the family.

But not all employee benefits are created equal. In some cases the value of the benefits is viewed as taxable income by Canada Revenue Agency when you file your tax return.

Here are seven things that may form part of your compensation and how they are taxed by CRA.

  1. Group benefits: Amounts your employer pays for your life, accident and critical illness insurance coverage are taxable benefits. But when the company pays all or part of the cost of your extended health care, dental plan, short-term disability (STD) or long-term disability (LTD) insurance you do not pay tax on the premiums. If you collect on your short-term or long-term disability insurance you will pay taxes if any part of the premiums were employer-paid.
  2. Pensions/Group RRSPs: Your company’s contributions to your pension plan are not taxable. However, your employer’s contributions to your Group RRSP account are viewed as additional taxable income by CRA. But you can deduct RRSP contributions (up to $23,820 for 2013) so you will not actually have to pay taxes on Group RRSP contributions made by your employer on your behalf.
  3. Service and recognition awards: Cash, gift certificates and things like gifts of stock certificates and gold coins are always taxable benefits. However, you can receive tangible tax-free gifts or awards worth up to $500 annually in some specified circumstances, such as a wedding or outstanding service award. In addition, once every five years you can receive a tax-free, non-cash long-service or anniversary award worth $500 or less.
  4. Tuition reimbursement: If you get a scholarship or bursary from your employer it will be a taxable benefit unless you took the program to maintain or upgrade your employment skills. For example, if you need an executive MBA to be promoted, no tax is payable on the value of company-paid tuition. Where the company gives your child a scholarship or bursary, generally neither you nor your son or daughter who benefit from the scholarship have to pay taxes on the amount.
  5. Parking: Employer-provided parking is usually a taxable employee benefit unless you have a disability or the parking spot is provided because you regularly need to drive a car for work. If you work in a shopping centre or industrial park where parking is free to employees and customers, a taxable benefit will not be added to your remuneration. Similarly, if there are fewer parking spots than the actual number of employees (scramble parking), free parking is not valued or included in taxable income.
  6. Mobile phone: Charges paid by the company for the business use of your cellphone are not taxable. If your phone is used in part for personal reasons, that portion of the bill should be reported on your T4 as a taxable benefit. However, if the cost of the basic plan has a reasonable fixed cost and your use does not result in charges over the cost of basic service, CRA will not consider any part of the use taxable.
  7. Subsidized meals: If the company cafeteria sells subsidized meals to employees, this will not be considered a taxable benefit as long as employees pay a reasonable amount that covers the cost of food preparation and service.

More details about the taxation of these and other employee benefits or allowances can be found on the CRA website.

Also see:

CRA Benefits and Allowances Chart

Income Tax Treatment of Taxable Benefits

Some workplace benefits come tax-free

Tax tips for seniors

By Sheryl Smolkin

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Retirement income has to last a long time and stretch to cover the increasing need for care required by disabled or older seniors. That’s why it is important for seniors, their children and their advisors to fully understand and take advantage of available tax exemptions and deductions.

Here are two tax breaks you may not know about.*

1.    Disability tax credit (DTC)

The disability amount is a non-refundable tax credit that a person with a severe and prolonged impairment in physical or mental functions can claim to reduce the amount of income tax he/she has to pay in a year. In 2013 the maximum tax credit for people over 18 is $7,697.

To be eligible for the DTC, The Canada Revenue Agency must approve Form T2201, Disability Tax Credit Certificate. You can apply for the DTC at any time during the year. Retroactive payments may be made if the individual was disabled for several years before applying for the tax credit. Last year we got over $9,000 back for my mother.

If you qualified for the disability amount for 2012 and you still meet the eligibility requirements in 2013, you can claim this amount without sending in a new Form T2201. However, you must send one if the previous period of approval ended before 2013, or if requested to do so by CRA.

You may be able to transfer all or part of your disability amount to your spouse or common-law partner or to another supporting person.

If you received attendant care and you are eligible for the DTC, there are special rules that apply for claiming those expenses. For more information, see Attendant care or care in an establishment.

CRA has an interactive online quiz you can take to find out if you or your family member may qualify for the DTC. Also see Who is eligible for the disability tax credit? for all of the requirements that must be met to qualify for the DTC

2.    GST/HST for homecare expenses 

The goods and services tax (GST) in Saskatchewan (or the harmonized sales tax (HST) in Ontario, Nova Scotia, New Brunswick, and Newfoundland and Labrador) is not payable on publicly subsidized or funded homecare services.**

However, if an individual is not approved for municipal or provincial homecare services, a private agency must charge GST/HST.

Nevertheless, if a government agency approves even a small amount of subsidized homecare services (i.e. 2 hours/week), then ALL public and private homecare services become GST/HST exempt.

That’s why Lorne Lebow, a partner in the accounting firm Stern Cohen LLP recommends that in any situation where an individual requires home care services, an application should be made to the relevant government agency for subsidized or free services before or at the same time a private home care worker is retained.

“Even if a government agency authorizes services for only one or two hours a week, it’s enough to trigger the GST/HST exemption for additional privately-retained home care services. With GST/HST rates ranging from 5% (Saskatchewan) to 15% (Nova Scotia), that can quickly add up,” Lebow says.

He also advises individuals receiving both public and private home care services to inform the agency they are working with and request that invoices do not include GST/HST.

In the event that someone you know has inadvertently paid GST/HST you can apply to the CRA for a rebate going back two years.  Saskatchewan residents must send the completed General Application for rebate of GST/HST CRA (Form 189) three-page form with a letter from the government agency confirming the client is receiving subsidized care plus copies of the original invoices to Summerside Tax Centre 275 Pope Road Summerside PE C1N 6A2. 

——

*Also see Guide RC4064, Medical and Disability-Related Information and discuss your family’s situation with your accountant or other financial advisor.

** Effective March 21, 2013 the definition of “homemaker service” in the GST/HST legislation has been expanded to include cleaning, laundering, meal preparation and child care provided to an individual who, due to age, infirmity or disability, requires assistance in his/her home plus  personal care services such as bathing, feeding, and assistance with dressing and taking medication.

Also see:
Tax tips for seniors – getsmarteraboutmoney.ca‎
TaxTips.ca – Saskatchewan Income Tax
TaxTips.ca – Seniors Income Tax and Government Benefits

Old Age Security: Take it now or later?

By Sheryl Smolkin

07Feb-OASapp

When you are planning to fully or partially retire, there are many decisions to make. Most Canadians are aware that they can elect to start receiving their Canada Pension anytime between age 60 and 70.

But many do not know that as of July 2013 if they become eligible for OAS benefits at age 65 they can also choose to defer receiving benefits for up to five years.

Regardless of whether you choose to defer your OAS or not, you must apply for benefits from this program when you wish to begin receiving payments.  It may make sense to wait, however, if at age 65 your income is still high enough that your benefits would be fully or partially clawed back. That would occur if you have net income between $71,592 and $115,716 on your tax return, and assuming you expect it to decline in future.

OAS is paid to seniors over 65 who are Canadian citizens or legal residents and have lived in Canada for at least 10 years after turning age 18. People living outside Canada at the time of application must have resided in Canada for at least 20 years after their 18th birthday. Your employment history is not a factor. A full OAS benefit is based on 40 years of Canadian residence.

For the period beginning January 2014, maximum OAS benefits are $551.54 per month or $6,618,48 per year. Benefits are indexed to inflation and adjusted quarterly. If you decide to delay collecting OAS beyond age 65, the benefit will be increased by 0.6 per cent for each month of delay to a maximum of 36%.

Therefore, based on the current annual benefit level (excluding future inflation), the pension you receive beginning at age 70 will be $9001.13.

Marissa Verskin, a senior tax manager at Toronto accounting firm Crowe Soberman, says the decision on whether to delay collecting OAS or claim it right away should depend on your personal situation. This includes your life expectancy, current and projected future income level and your expected rate of return.

Some of the other circumstances that may influence your decision are if you have chosen to work beyond age 65 or if you anticipate receiving a large one-time capital gain or lump sum at retirement (i.e., for accumulated sick leave credits or severance pay).

Doug Runchey of DR Pensions Consulting spent 32 years with Human Resources and Skills Development Canada. He says if you choose to defer receiving OAS beyond age 65 you can’t “double dip.”

That means if you are only eligible for a partial OAS pension because you have less than the 40 years of residence required for a full benefit, you can’t use the deferral period to both increase your OAS pension by counting it as additional years of residence and also receive a 0.6 per cent per month increase for voluntary deferral.

Service Canada is required to count the deferral period either as additional years of residence or a period of voluntary deferral — whichever is of the greatest benefit to the client.

Runchey also says there could be another collateral advantage to voluntary deferral of OAS. “If you delay and increase your OAS by 36 per cent to $9001.13 per year, you also effectively increase the maximum income claw back threshold to $131,599 from $115,716,” he says.

If you have started receiving your OAS benefits within the last six months but think you can benefit from the deferral, you can write to Service Canada and ask them to cancel your benefits for now. Once your request is approved, you will have to pay back the benefits received. Then you can reapply for OAS at a later date.

By 2023, gradual changes in the age of OAS eligibility from age 65 to age 67 will be fully phased in. This change will not affect OAS applicants or recipients born before March 31, 1958. But people born between April 1, 1958 and January 31, 1962 will have a date of eligibility between ages 65 and 67. For example, a person born in June or July 1961 will be not be eligible to collect OAS until age 66 plus eight months.

Also see:
Old Age Security
Changes to the Old Age Security program – Service Canada
Voluntary deferral of OAS – Retire Happy
Getting what’s yours when it comes to government pensions

More people planning to work beyond age 65

By Sheryl Smolkin

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Later retirement and working longer is the new norm. That’s the message in Sun Life’s 2013 Canadian Unretirement Index report.

Over 3000 adults aged 30 to 65 years of age polled online by Ipsos Reid in late 2012 present a startlingly different picture than five years ago.

The number of Canadians who are planning to exit the workforce by age 66 has declined by nearly half since 2008. Just 27% of survey respondents expect to be retired by that age versus 51% five years ago.

As a result, there is a corresponding increase in the number of Canadians who assume they will be working retirees. And according to the study, we’re not talking about part-time work.

Twenty-six percent now expecting to be working full-time at age 66. This figure represents a 10-percentage point increase since 2008 in the number of Canadians who expect to be punching the clock for a full 40 hours or more a week.

Furthermore, most people say they will be working longer not because they want to, but because they need the money. This is apparent when we examine the order in which Canadians ranked their reasons for working at age 66 in 2008 as compared to 2012.

Reasons for working at age 65

2008

2012

15%: I enjoy my job or career 25%: To earn enough money to pay basic living expenses
14%: To stay mentally active 21%: To earn enough money to live well
13%: To earn enough money to live well 16%: I don’t believe government pension benefits will be enough to live on
13%: I don’t believe government pensionbenefits will  be enough to live on 13%: To stay mentally active
11%: To earn enough money to pay basicliving expenses 10%: I enjoy my job or career

SOURCE: 2013 Sun Life Unretirement Index Report

It is apparent that there is a serious disconnect between retirement dreams and retirement reality for many Canadians. According to the Sun Life study, on average Canadians anticipate needing $46,000 in annual retirement income and they expect to live in retirement for 20 years.

But the average amount they anticipate saving by the time they retire is $385,000 (not including the equity in their house). That’s well below the amount required to meet these average expectations.

In fact 58% of Canadians aim to have less than $250,000 saved for retirement. Thirty-eight percent say they will have less than $100,000 tucked away.

There is no doubt that we all have competing priorities that make it difficult to save for retirement. Paying down debt and raising our children are pretty high on the list. But small steps can make a huge difference.

A good way to start is to pay yourself first. That means arranging for automatic monthly deposits in a registered retirement savings account like the Saskatchewan Pension Plan.

And if you complete and file the Canada Revenue Agency’s T1213 form you can request permission from your employer to deduct a lower amount of taxes at source.

By reducing your withholdings at source, you are paying yourself and not the Canada Revenue Agency first, and increasing your net take home pay. You are effectively giving yourself a raise all year long, not just once at tax time.

In 2013 you can contribute up to $2,500/year to the Saskatchewan Pension Plan and contribution options include directly contributing from your bank account on a pre-authorized contribution schedule. Additional amounts up to your RRSP contribution limit can be contributed to your individual or workplace retirement savings plans.

Developing the “Pay yourself first” habit can help you build up a substantial retirement nest egg. For example, if you deposit $2,500/year in the SPP and earn five percent over a 40 year career (age 25 to 65) you will have a lump sum of about $317,000 in your account.

The value of planning and saving is that you can decide how and when you want to fully retire. Saving with SPP will help you accumulate the funds you need to enjoy your golden years on your own terms.

SPP or TFSA?

By Sheryl Smolkin

You have $2,500 to contribute to retirement savings in 2012. Should you contribute to a tax-free savings account or the Saskatchewan Pension Plan?

Before answering that question, it is helpful to review some basic SPP and TFSA concepts.

SPP
You can contribute a maximum of $2,500/year to SPP providing you have RRSP contribution room. To find out how much RRSP room you have available in 2012, look at line A of the RRSP Deduction Limit Statement on your 2011 income tax notice of assessment or notice of reassessment.

Your SPP contributions are tax deductible and investment income accumulates tax sheltered. SPP contributions plus interest are also locked in. Unused contribution room is carried forward.

You may elect at anytime between age 55 and 71 to receive an SPP pension or move your SPP account balance into a locked-in RRSP. By age 71, amounts in a locked-in RRSP must be converted to income using a prescribed registered retirement income fund (pRRIF) or life annuity product. You must begin making minimum prescribed withdrawals from your pRRIF in the following year.

Both SPP annuity payments and pRRIF withdrawals are fully taxable income at your marginal tax rate. If your SPP benefits or pRRIF withdrawals push your income over specified limits, a portion of Guaranteed Income Supplement, the age credit and Old Age Security payments may be clawed back.

TFSA
You can contribute up to $5,000/year to a TFSA regardless of your age or income level. Contributions are not tax-deductible. However investment income  (including capital gains), accumulates tax free. When funds are withdrawn from a TFSA, no income tax is payable.

You can withdraw funds available in your TFSA at any time for any purpose — and the full amount of withdrawals can be put back into your TFSA in future years. Re-contributing in the same year may result in an over-contribution amount which will be subject to a penalty tax.

Neither income earned in a TFSA nor withdrawals affect your eligibility for federal income-tested benefits and credits. You can provide funds to your spouse or common-law partner to invest in their TFSA.

By the numbers
All other things being equal, whether or not you will be able to save more in the SPP or a TFSA depends on two key factors.

  1. Your marginal tax rate when contributing as compared to your marginal tax rates when you expect to withdraw the money.
  2. How you use your tax refund.

Generally speaking, if you think your marginal tax rate will be significantly lower at retirement than during your working career, saving with SPP makes much more sense than in a TFSA.

But how you use your tax refund is also important. Canada Revenue Agency calculations when the TFSA was introduced assume the tax refund generated by contributing to a retirement savings vehicle is also contributed to the account.

In these circumstances, investing in either the SPP or a TFSA will result in about the same net withdrawals at retirement. However, many of us look on our tax refund as “mad money” and do not earmark it for further retirement savings. In these situations, the TFSA comes out ahead.

That money can be withdrawn from your TFSA account and contribution room is restored in the next year may be attractive in some cases. However, replacing money you withdrew requires considerable discipline. In contrast, money saved in your locked-in SPP account will be there at retirement when you need it.

Your financial plan
SPP vs TFSA. It’s not an either/or proposition. A financial advisor can review your personal situation and help you decide the best way to maximize your retirement savings.

Depending on your income level, expenses and the amount of income you need in order to retire, you can benefit from having both kinds of accounts plus an RRSP.

To paraphrase David Chilton in TheWealthy Barber Returns:

  1. If you go the SPP* route, don’t spend your refund.
  2. If you go the TFSA route, don’t spend your TFSA.
  3. Whatever route you go, save more.

* Chilton used RRSP in this phrase.

Also read:
Understanding SPP annuities

The Wealthy Barber explains: TFSA or RRSP?

RRSP vs. TFSA: Tim Cestnick on where to put spare dollars

To TFSA or to RRSP?

TFSA vs RRSP – Clawbacks & income tax on seniors

TFSA vs. RRSP – Best Retirement Vehicle?

Can my spouse join SPP?

By Sheryl Smolkin

If both you and your spouse have individual RRSP contribution room of at least $2,500, each of you can contribute up to the annual maximum to your own Saskatchewan Pension Plan accounts. You can also each transfer $10,000 a year from individual RRSPs to your personal SPP accounts.

However, if you have sufficient RRSP room and your spouse does not, your spouse can open an SPP account to which you are the contributor. You can contribute up to $5,000/year in total ($2,500 for each of you) into the two accounts and get a tax deduction for the whole amount.

When it comes to RRSP transfers to SPP, your spouse can only make a transfer from an RRSP in his/her own name. You cannot make a $10,000 transfer from your RRSP to your partner’s spousal account.

Two major advantages of a spousal SPP account are that you can contribute double the amount each year and income split at retirement. Also, if both of you elect annuity options and one of you dies first, the surviving partner will still have a stream of income.

Also check out:

Derek Foster: Idiot Millionaire CBC Radio Saskatoon interview – August 13, 12

A pension solution for your business Saskatchewan Broker – Winter 2011

Roseman: Want to save tax? Look to SPP Moneyville.ca – March 6, 2012

Why transfer RRSP funds to SPP?

By Sheryl Smolkin

In addition to maximum regular contributions of $2,500/year, SPP members can annually transfer up to $10,000 into their SPP account from existing RRSPs, RRIFs and unlocked RPPs. In 2012, over 200 members have already transferred $1.5 million into their SPP accounts.

Since these are direct transfers between plans, there are no tax implications. As part of the transfer process, members are asked for investment instructions directing money to either the balanced fund and/or the short-term fund.

Once funds are transferred into the SPP, all of the member’s assets benefit from the plan’s low investment fees (about 1.1 per cent) and competitive returns (7.8% since inception 26 years ago).

Furthermore, contributions are creditor-protected and cannot be seized, claimed or garnisheed in any way except in the event of a court order under a marital division or Enforcement of Maintenance Order.

Both regular contributions (up to $2,500/year) and additional amounts transferred into the SPP are locked-in and are used to provide you with a pension or lump sum at retirement.

If you have money in existing RRSPs or unlocked RPPs, consider transferring up to $10,000 each calendar year to your SPP account. It’s a cost-effective, stress-free way to enhance the benefit you receive when you retire from the plan.

SPP members may begin receiving benefits from the Plan any time after age 55 and must be retired from the Plan by the end of the year in which they reach 71. At SPP, “retirement” simply means you are receiving pension payments. You can still be employed and receive pension from SPP.

You can use this form to an initiate a transfer of funds to SPP.

 

Also see:

Backgrounder – Saskatchewan Pension Plan and Income Tax Act Changes

Roseman: Want to save tax? Look to Saskatchewan

MoneyTalk interview with Derek Foster : February 13, 2012