Tag Archives: BNN Bloomberg

Jan 27: Best from the blogosphere

US looks at making retirement plans easier for small businesses to offer

Up here in Canada, workplace pension plans are becoming scarce, especially for small, private sector employers.

It’s the same story in the USA – however, a report in Benefits Canada suggests that our friends south of the line are getting encouragement from their government to roll out more retirement programs for small business employees.

The article reports that “the Setting Every Community Up for Retirement Enhancement Act, known as the SECURE Act, won final congressional approval” late last year, and has been signed into law by President Donald Trump.

One of the more interesting angles of this legislation, the magazine notes, is that it will make it easier for “small businesses to band together to offer 401(k) and other retirement plans. The option, called multiple-employer plans, lower the costs of administering a plan.”

A 401(k) is a defined contribution-like product that is similar to an RRSP. Unlike an RRSP, the 401(k) can have an employer match. So instead of each small business having to face the cost of setting up and administering its own 401(k), this new legislation would allow them to join together with other small companies to form a multi-employer plan – a plan for multiple businesses. This would greatly lower administration costs, the article notes.

As well, the old $500 credit US businesses got for starting a retirement plan has increased ten-fold to $5,000, the article reports.

It’s hoped, the article concludes, that this new legislation will increase access by companies with less than 50 employees to retirement benefits – right now, only half of them have any kind of retirement program through work.

The 401(k) program got a boost recently from Alan Greenspan, former head of the US Federal Reserve, although it was a bit of a backhanded compliment.

In a recent interview broadcast on BNN Bloomberg, Greenspan suggested that the American equivalent to the Canada Pension Plan, Social Security, be changed from its current defined benefit mode to a 401(k) like defined contribution model.

“The source of the problem is that we have a defined-benefit program for social security…  what we need to do is go to a defined contribution program… that will put a damper on our major problem,” he says in the interview. The concern in the US is that the Social Security program, paid entirely out of tax revenue, is not sustainable for the long term.

Putting the two thoughts together, perhaps having more workplace retirement programs is a good thing if the Social Security program that backstops US retirement isn’t in the best of health. Let’s choose to focus on the good news that a federal government is making it easier for small businesses to offer retirement benefits.

If you don’t have a workplace pension plan, or you do but want to contribute even more towards your retirement, the Saskatchewan Pension Plan is a logical place to start. The SPP offers the winning combination of low fees, a strong track history of growth, and the ability to convert your savings into a lifetime stream of retirement income. It’s a one-stop retirement centre – check them out today.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

Is there benefit to retiring later?

Would people be better off if they worked a little longer, and collected their retirement benefits a little later?

A new study from the Canadian Institute of Actuaries (CIA) called Retire Later for Greater Benefits explores this idea, and proposes a number of changes, including moving the “target eligibility age” for the Canada Pension Plan and Quebec Pension Plan to 67 from 65, while moving the earliest age for receiving these benefits from 60 to 62. As well, the CIA’s research recommends that the latest date for starting these benefits move from 70 to 75.

Old Age Security (OAS) would see its target age move to 67 from 65. For registered pension plans (RPPs), the CIA similarly recommends moving the target retirement age to 67 from 65, and the latest retirement date to 75 from 71.

Why make such changes? An infographic from the CIA notes that we are living longer – a 65-year-old man in 2016 can expect to live for 19.9 years, while a woman can expect 22.5 more years of living. This is an approximately six-year improvement versus 1966.

So we are living longer, the study notes, but face challenges, such as “continuing low interest rates, rising retirement costs, the erosion of private pensions and labour force shortages.”

Save with SPP reached out to the CIA President John Dark via email to ask a few questions about these ideas.

Is, we asked, a goal of this proposal to save the government money on benefits? Dark says no, the aim “is not about lowering costs to the government. The programs as they are currently formulated are sustainable for at least 40 to 75 years, and we believe this proposal will have minimal if any implications on the government’s costs.

“We are suggesting using the current increments available in the CPP/QPP and OAS to increase the benefits at the later age.” On the idea of government savings, Dark notes that while CPP/QPP are paid for by employers and employees, OAS is paid directly through government revenue.

Our next question was about employment – if full government pension benefits begin later, could there be an impact on employment opportunities for younger people, as older folks work longer, say until age 75?

“We’re not recommending 75 as the normal retirement age,” explains Dark. “We are recommending that over a phase-in period of about 10 years we move from a system where people think of ‘normal’ retirement age as 65 to one where 67 (with higher benefits) is the norm.

“The lifting of the end limit from 71 to 75 is at the back end; there are currently those who continue to work past normal retirement and can continue to do so even later if they choose,” he explains. “Current legislation forces retirees to start taking money out of RRSPs and RPPs at age 71 – we think this should increase to 75 to support the increasing number of Canadians who are working longer.”

As for the idea of younger workers being blocked from employment opportunities, Dark says “if we had a very static workforce this might as you suggest cause a bit of blockage for new entrants, but as we say in the paper, Canada has the opposite problem.

“Many areas are having a difficult time finding workers,” he explains, adding that “in the very near future a great many baby boomers will begin to retire. We think allowing people who want to remain in the work force can help with that.

“It’s important to remember that if you have planned retirement at 65 this proposal won’t prevent you from doing that except that OAS wouldn’t be available until 67 instead of 65 (and we expect the government would explore other options for supporting vulnerable populations who need OAS-type support at earlier ages).” Dark explains.

Would starting benefits later mean a bigger lifetime benefit, and could it help with the finnicky problem of “decumulation,” where retirement savings are turned into an income stream?

“Under our proposal,” Dark explains, “people could work just a little longer and get higher benefits for life. By itself that doesn’t make decumulation any less tricky – but perhaps a little more secure.

“For many people in defined contribution (DC) plans who have no inflation protection, longevity guarantees, or investment performance guarantees from an employer, using your own funds earlier and leaving the start of CPP and OAS to as late as possible can help provide some of the best protection against inflation for at least part of your retirement income,” he adds. And, he notes, because you waited, you will get a bigger benefit than you would have got at 65.

Finally, we asked if having a longer runway to retirement age might help Canadians save more for their golden years.

“Clearly by having a longer period of work you have more opportunity to accumulate funds, and by providing more security of retirement income it will help as well,” Dark notes. “We also know that Canadians are already starting their careers later in life – getting established in their 30s rather than their 20s, for example – and need that longer runway anyway.

“Overall, to me the most important word in the report is `nudge.’ If we can get people to think about retirement sooner and get governments to act on a number of areas that we and others have outlined we hope to improve retirement security for Canadians. This is just the start of a journey that will have lots of chapters.”

We thank John Dark, as well as Sandra Caya, CIA’s Associate Director, Communications and Public Affairs, for taking the time to speak with Save with SPP. Some additional research of the CIA’s can be found on Global News Radio, BNN Bloomberg and the Globe and Mail.

Even if the runway towards retirement age is lengthened, it’s never too early to start saving for retirement. If you don’t have a workplace pension plan, or do but want to augment it, the Saskatchewan Pension Plan may be a vehicle whose tires you should consider kicking. It’s an open DC plan with a good track record of low-cost investment success, and many options at retirement for converting your savings to a lifetime income stream.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22