A look at the best of the Internet, from an SPP point of view
Actual retirement savings lag even our own targets
Canadians think they should be putting away 14 per cent of what they make for their retirement. Only problem is, the same research found that on average Canucks are saving 12 per cent.
These numbers come from recent international research, conducted by Schroders, published in Benefits Canada magazine. The article found Danes were the only nationality surveyed who put away more than they think they need to save – 13 per cent savings versus a target of 12 per cent. While Canadians undersave by two per cent, Chileans, who figure they need 19 per cent savings but put away 13 per cent, have an even bigger savings gap.
Worse, the survey found most people underestimate what they will need in retirement for basic expenses. The article notes that Canadians think they will spend 42 per cent of savings on basic living expenses, but in reality, the figure is closer to 59 per cent.
“There is a real danger that people globally are underestimating the proportion of their retirement income that will need to be allocated to basic living expenses and the amount of money they will need to live comfortably in retirement, particularly in the current environment of low returns and increasing inflation,” states Lesley-Ann Morgan, global head of retirement at Schroders, in the article.
Have you done this math? If you’re thinking now that you are not putting away enough for retirement, consider joining the Saskatchewan Pension Plan. If you’re an SPP member and in the same boat, why not ramp up your contributions a bit? Better to be an oversaver than an overspender – at least according to the research!
The simplest retirement plan ever?
An article from Reuter Benefits boils retirement down to three thoughts.
First, the article notes, select the age when you want to retire. When you are at that age, the article then asks, add up your expected expenses. Then add up your expected income from all sources. If you have more expected income than expected expenses, you are good to go.
If you are not good to go, then you need more savings and less expenses. The article also recommends the use of a financial planner to help you finalize your plans.
Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22
I have been writing about the Saskatchewan Pension Plan for six years and a member of the plan for just as long. I thought I knew everything there was to know about the plan, but every time I review the website I learn something new.
Here are 10 things about SPP that you may find interesting.
The 30 year old plan is the 25th largest defined contribution plan in Canada (Benefits Canada 2016).
The plan is funded by member contributions and investment earnings. As of December 31, 2016 there was $479.5 million in assets under management administered by a Board of Trustees, some of whom are also plan members.
If you are between age 18 and 71 and have available Registered Retirement Savings Plan room you are eligible to join the 33,000 other members who are saving for their future, whether or not you live or work in Saskatchewan.
With an annual maximum contribution of $2,500, the plan has several payment options designed to suit your budget.
You can also transfer up to $10,000 per calendar year into your SPP account from your existing RRSP or Registered Retirement income Fund (RRIF).
You have two investment options for your funds. The default fund is the Balanced Fund (BF) which is a low to moderate risk/return investment option. Approximately 55% of the fund is invested in equities, 35% in fixed income investments and 10% in a real estate pooled fund.
The Short-term Fund (STF) is a low risk/low return investment option. Its primary purpose is to preserve capital. It is suitable for members who are near retirement and have reached their retirement savings goal, or members who wish to have a cash equivalent component in their investment portfolio.
You may retire from SPP between the ages of 55 and 71 regardless of your employment status. You must apply for SPP retirement benefits; the package to make this application is available by calling SPP.
If you name your spouse as beneficiary of your account, Canada Revenue Agency allows death benefits to be transferred, tax-deferred, directly to his or her SPP account or to an RRSP, RRIF, or guaranteed Life Annuity Contract (LAC).
In addition to spousal rollover of SPP death benefits, rollovers to an RRSP or Registered Disability Savings Plan for a financially dependent infirm child or grandchild are permitted.
For more information about SPP see the website or call the office at 1-800-667-7153.
Today, I’m pleased to be interviewing Greg Hurst for savewithspp.com. Greg is a pension consultant and pension innovator based in Vancouver. He’s held many roles in the pension industry with large international and small regional consulting firms and a major Canadian insurer.
He’s a member of both the editorial advisory board of Benefits and Pensions Monitor and Benefits Canada’s online expert panel. In fact, two of his articles were among the five most widely-read Benefits Canada pension articles of 2013.
Today, Greg is going to share his thoughts with us on the federal government’s surprising pre-election proposal to study allowing Canadians to voluntarily contribute to the Canada Pension Plan (CPP) to supplement their retirement savings.
Thank you for joining me today, Greg.
Glad to be here Sheryl.
Q: Were you surprised to hear of the federal government’s announcement in May that they are going to reconsider a voluntary top-up to the Canada Pension Plan?
A: It was totally unexpected. Since 2011, the federal government has consistently said it’s not the right time for changes to the CPP, and even more recently – in fact, just before the announcement – they characterized CPP contribution rate changes as a “pension tax hike.”
Q: Interesting. So, why do you think that the Minister of Finance, Joe Oliver, announced these consultations after the government and the provinces previously rejected similar proposals?
A: Well, an election is coming up. The federal Conservatives recognize that CPP expansion will be a significant election issue. In the 2014 Ontario election pensions were front and center, and Kathleen Wynne’s Liberals won with her promise of the Ontario Registered Pension Plan (ORPP), which grew out of the federal government’s refusal to consider CPP expansion in spite of a consensus amongst the provinces. Canadians have come to love the CPP. It delivers on its benefit promises and the CPP Investment Board consistently delivers good news on its investment returns.
Q: Now, in an article you wrote that was published May 27th on the Benefits Canada website, you suggest that “the devil is in the details.” The closing date for the consultations on a voluntary CPP top-up is September 10th and the election will be held on October 19th. Do you think a detailed blueprint for adding a voluntary tier to CPP will be available for public scrutiny prior to the election?
A: It is unlikely. October 19th is the next fixed election date, and that would leave less than six weeks to build and publish the blueprint. It would also require input from the provinces. It would be very irresponsible for the federal government to publish proposals for CPP changes without first consulting the provinces.
Q: Ontario has gone ahead and passed legislation to establish the ORPP. What do you think of those proposals?
A: Well, I really favor mandatory employer and employee contributions for pension benefits. It’s taken a lot of political courage and leadership from Ontario, which has been absent elsewhere in Canada for many, many years to implement the ORPP. But there again, the devil is in the details. I might have different ideas on how to build the ORPP, but I really don’t have any interest in criticizing those who exhibit this leadership in pensions.
Q: In your view, is it likely that other provinces will jump on the bandwagon once the Ontario plan is up and running?
A: I think there’s a good chance of that, particularly if the Conservatives win the upcoming federal election, because they’ve been consistently intransigent in their opposition to workplace pensions with mandatory employer contributions. But if the Liberals or NDP wins, they’re more likely to build on the leadership of Ontario and proceed with CPP expansion, which I think would make the ORPP unnecessary.
Q: Were you surprised by the federal announcement that the Harper government would not help Ontario administer the ORPP?
A: I was quite surprised. To me, it amounted to a juvenile temper tantrum. It seems to be extremely bad policy for the federal government to torpedo any provincial pension initiative, particularly in this way. Administration of contributions could easily be accommodated in the same way as provincial income tax collection. And in terms of tax deductibility, the feds could readily accommodate ORPP contributions in the current tax-assisted framework like they already do for the Quebec Pension Plan and the Saskatchewan Pension Plan.
Q: Do you believe a voluntary supplement to the CPP should be an option for Canadians to save for retirement? Is this something you would use to increase your retirement savings?
A: Well, to answer questions about the concept of a voluntary CPP supplement, I first have to suspend my disbelief that the federal government – and particularly a Conservative government – would actually choose to compete with the financial services industry, which already has a wide spectrum of products and services designed for retirement savings.
I think that the expectations amongst the public with this announcement are that it would be a savings and investment vehicle, in which case my answer would be, no, I wouldn’t use it to increase my retirement savings and, no, I don’t think they should bother.
Q: Why do you say that?
A: Well, although many Canadians might be excited by the possible opportunity to share in the investment results that the CPP Investment Board has achieved — particularly if the cost of investing is similar to the Board’s current cost — that’s not what they would get from a voluntary supplement under the CPP. It would require a different investment mandate from the CPP Investment Board, with the degree of difference dependent upon how much administrative flexibility the plan has. It would be far more expensive at the end of the day and would likely not have much to differentiate it from retirement investment options already available in the marketplace.
Q: And what about the design of a potential voluntary top-up? What do you think? Should the money be locked in? And should there be basic required contributions, or some variability? I mean what should this thing look like?
A: Well, you know, it depends on how they actually design it. They could do it as a standard savings and investment vehicle, or they could do it as a prepaid annuity vehicle, which might be more interesting. So, I think, first off, Canadians would generally choose good, old-fashioned RRSPs over CPP supplements as a savings and investment vehicle, unless the CPP had the same flexibility with no locking-in, in which case the cost would be almost the same as traditional RRSPs. But if a voluntary CPP supplement were designed around the prepaid annuity concept, contributions could be flexible so you could buy as many prepaid annuities as you want, perhaps within some limits; and full locking-in would perhaps be appropriate under that kind of a design.
Q: Now, in a previous question, you referred to the integration of a voluntary CPP into the current income tax rules. Do you think that that’s problematic, or it would be fairly easy to do?
A: I think it could be fairly easy to do within the current income tax rules. If you really wanted to make it work as a prepaid annuity concept, you could put it on top of the existing RRSP limits. It would just be another added-value pension saving that wouldn’t impact your RRSP limits.
Q: That might make it more attractive to particularly people who have topped up their RSP limits already.
Q: So, who do you think should be responsible for investing the contributions made to a voluntary CPP supplement?
A: If it was designed around a prepaid annuity concept, it would be the CPP Investment Board.
Q: How important is keeping costs low to the success of this proposal?
A: Well, it’s fundamentally important if it’s a savings and investment vehicle, which means that it would be very difficult to do without having some sort of subsidy from the government. MERs aren’t really applicable to paid up annuities. But certainly the cost would then likely be comparable to the current costs of the CPP Investment Board services.
Q: When you discuss a “prepaid annuity,” what do you mean? Do you mean that it would operate like a defined-benefit pension as far as the consumers are concerned?
A: Yes. Once you purchase it – so, you come in with “this is the amount of contribution I have. This is my age.” And then that would purchase a certain amount of fixed pension payable at your retirement date of age 65, or maybe 67, assuming that becomes the new normal retirement date. So, when you buy the annuity, you would know how much you’re getting when you reach that retirement date — like a defined-benefit plan.
Q: Do you think that this voluntary top-up to CPP is ever going to see the light of day? Will that depend on who forms the next government?
A: No. Even if it’s a prepaid annuity, I don’t think there will be enough of a market appetite for the concept to proceed. If it were a saving and investment type of program, it would have costs that are too high to really compete with the current, private-sector marketplace. But if the Liberals or the NDP form the government, I believe then we’d see a mandatory form of CPP expansion.
Q: Thank you very much, Greg. I really appreciated talking to you today.
A: My pleasure, Sheryl.
This is the edited transcript of an interview conducted by telephone in July 2015.
Today we’re talking to Kevin Press as part of our continuing 2014 series of SavewithSPP.com podcast interviews with personal finance bloggers. Kevin is the Assistant Vice-President of Marketing Insights at Sun Life Financial in Toronto.
His blog, Today’s Economy has appeared on Sun Life’s Brighter Life platform since 2009. Kevin started his career in 1998 at Rogers Healthcare and Financial Publishing; where he had several editorial and marketing positions, including over 3 years as editor of Benefits Canada. He has also volunteered for the Canadian Pension & Benefits Institute for almost 15 years in many roles, including as National Chair.
Thank you so much for joining me today, Kevin.
Sheryl, thanks so much for the invitation. It’s good to talk to you again.
Q. A blog is a major time commitment. How often do you blog?
A. These days, it’s just once a week. I’m up every Wednesday but over the years it’s been sometimes twice a week, sometimes even three times a week in the early days.
Q.Why did you decide to start blogging in addition to your more-than-full time job and your volunteer activities?
A. I love my job. I’m so proud of the team that I lead. But, the truth is – and I think you can relate to this – I don’t think I ever stopped being a journalist. I was asked to launch the Today’s Economy blog back in early 2009, right in the heart of the financial crisis, and that was really a very easy decision.
Q.I can understand that. You can take the man out of journalism, but you can’t take journalism out of the man! What are some of the topics you cover in your blog?
A. As I say, my chief goal is to help readers understand what is happening in the global economy, and here in Canada. So, in that sense, Today’s Economy is not a personal finance blog in the way that some of the others are. I certainly post a lot on personal finance, but primarily what I’m trying to do is focus on explaining key economic trends to a broad audience.
The Eurozone has been an amazing story to follow, and, more recently, emerging markets – what’s happening there now as the U.S. government slows down its quantitative-easing program. That’s a fascinating story. If I’ve helped Canadians understand these big stories, even just a little bit, then I think the blog is a success.
Q.Since you’ve started blogging, the Brighter Life platform has been expanded to include a number of other blogs covering a broad range of subjects. Tell me a little bit about a couple of the other bloggers and what they write about.
A. One of my favorites is Dave Dineen. He writes a blog called ‘Dave’s Retirement Journey’. Dave was actually a member of my team years ago, before he decided to take early retirement I think he’s helped a lot of Canadians make the transition to retirement successfully – just writing in the first-person about his experiences, making that transition himself.
Anna Sharratt does really good work for us on the health beat. She has a blog called Living Well. Gerald McGroarty writes about work issues, but I have to tell you, he’s written a piece recently about an extraordinary story. Last year, Gerald experienced a sudden cardiac arrest, and his wife, who is a registered nurse, saved his life.
Q. I’m going to have to look for that one.
A. It’s called ‘Could You Save a Life?’
Q.How many hits do you usually get when you or the other bloggers post?
A. It’s a really wide range. I’ve written posts that get no more than a couple of hundred visits and others have got well into the six-figures. I can tell you that after years of being a journalist, this blog reaches a larger audience by far than I’ve ever been able to connect with before.
Q.So what have some of your most popular blogs been?
A. The economic forecasts attract a lot of readers. Any of the retirement research we do like our Unretirement Index always scores well. Specifically, what we expected to learn from that research was that many Canadians will work past the traditional retirement age of 65 for lifestyle reasons. But because what we’ve actually ended up tracking are the evolving views of Canadians post-financial crisis it’s turned into even more of an interesting story.
Q.Poll after poll, particularly during RRSP season reveals that Canadians are not saving enough and that they’re worried about how they will live in retirement. Why do you think so many people find managing their finances so difficult?
A. We really believe that the way we can help Canadians most is empower them to act. So research shows, time and again, that adults want to do the right thing – they recognize that lifetime financial security is achievable. It’s just hard for them to get there, it’s hard for them to start. So our goal is to educate.
Q. You published 20 Smart Money Moves at the beginning of the year and you suggest that people maximize their employee benefits. Can you give me one or two examples where you think Canadians are really leaving money on the table?
A. First, a lot of employers sponsor capital accumulation plans – or defined contribution plans as they’re sometimes called – and match employee contributions up to certain limit. So, lesson number one – if you’re lucky enough to have one of those plans, take full advantage.
Lesson number 2 is if your employer offers a group registered retirement savings plan, do what I did. Move your individual RRSP funds over to the group plan – you save a lot in terms of management expense ratios.
The difference between the group environment versus individual RRSPs is quite dramatic. You still realize all the same benefits from your registered savings and you’ll get a better return in the long run.
Q.Interesting. I know the Saskatchewan Pension Plan has employer-workplace programs, and they also offer similar advantages.
Employers and insurance companies spend a lot of time and money communicating with benefit programs – why do you think so many employees are still not getting the message?
A. I think that a lot of folks struggle with the technical nature of the subject, and it really is incumbent upon financial institutions to keep working at finding ways to present information, in the most understandable fashion possible.
Q.If you had one piece of advice to help Canadians better manage their finances, what would it be?
A. One of the best things I ever did was take the Canadian Securities Course. The textbook alone is worth the price of the program. People who are interested in working in the industry very often take that as an early-stage educational opportunity. But what I took away from it was so much more. It’s just such a valuable learning experience. I think it will help you to understand your finances in a very meaningful way.
Q. The federal government is not interested in expanding CPP. A few provinces, Saskatchewan included, are rolling out the new pooled registered pension plans. Do you think PRPPs will be the carrot that helps more Canadians to save what they need for retirement?
A. I’m a big fan of PRPPs. I think they have that potential. The fundamental idea behind the PRPP is that too few Canadians (43%) have workplace pension plans. But even that number is misleading because so many of those folks are public sector workers. In the private sector, fewer than a quarter of workers work for an organization that sponsors a plan. So, the idea is that PRPP can fill that gap. And I’m very hopeful about their ability to improve the pension system in this country.
Q.Youth unemployment is a huge issue. Your Unretirement Index shows that older workers are working longer. Are seniors clogging up the pipeline? How do we get more young people into good jobs? How do we give them a good start?
A. This is such a tough story. I have to say this one of the stories, since I started blogging, that bothered me the most. The unemployment rate among young adults in this country has been stuck at about twice the national average since before the financial crisis.
But of course, this is not a new story. Youth unemployment hit 17.2 percent in the ’92 recession. It hit 19.2 percent in 1983. What’s interesting and what was a surprise to me is that there actually is no evidence to support the notion that young people can’t find work because older workers are retiring later.
There are lot of good ideas out there about how to help young Canadians. I think the best relate to the choices that young people make in terms of their careers and their education.
There are certain areas of the economy that are more dynamic. There are certain skills that are more marketable. And I think if young people are as strategic as possible, and as parents, I think if we can help our kids be as strategic as possible in making education and career decisions, then they will be well positioned to transition more easily to the workforce.
Q. So, one of your New Year’s resolutions was to write a Today’s Economy e-book. How’s that going for you?
A. Oh, I love you holding my feet to the fire. What I’ve done is I’ve put together a collection of posts that are not quite so time-sensitive, that still stand up over time.
A lot of what I write is about what’s happening right now and probably won’t have relevance a year, two years down the road. I think that we can help to tell the story of what’s been happening in the economy since 2008 and I’m targeting the second half of the year to pull that together.
Q.You’re ahead of me on that one. Thank you very much, Kevin. It was a pleasure to talk to you today.
A. So good to talk to you again, Sheryl. Thanks for talking to me today.
This is an edited transcript of the podcast you can listen to by clicking on the graphic under the picture above. If you don’t already follow BrighterLife.ca, you can find it here and subscribe to receive blog posts by email as soon as they’re available.