Tag Archives: guaranteed income supplement

May 6: Best from the blogosphere

A look at the best of the Internet, from an SPP point of view

Tax-free pension plans may offer a new pathway to retirement security: NIA

With workplace pensions becoming more and more rare, and Canadians generally not finding ways to save on their own for retirement, it may be time for fresh thinking.

Why not, asks Dr. Bonnie-Jeanne MacDonald of the National Institute on Ageing, introduce a new savings vehicle – a tax-free pension plan?

Interviewed by Yahoo! Finance Canada, Dr. MacDonald says the workplace pension plan model can work well. “Workplace pension plans are a key element to retirement income security due to features like automatic savings, employer contributions, substantial fee reductions via economies of scale, potentially higher risk-adjusted investment returns, and possible pooling of longevity and other risks,” she states in the article.

Dr. MacDonald and her NIA colleagues are calling for something that builds on those principles but in a different, tax-free way, the article explains. The new Tax-Free Pension Plan would, like an RRSP or RPP, allow pension contributions to grow tax-free, the article says. But because it would be structured like a TFSA, no taxes would need to be deducted when the savings are pulled out as retirement income, the article reports.

“TFSAs have been very popular for personal savings, and the same option could be provided to workplace pension plans. It would open the pension plan world to many more Canadians, particularly those at risk of becoming Canada’s more financially vulnerable seniors in the future,” she explains.

And because the money within the Tax-Free Pension Plan is not taxable on withdrawal, it would not negatively impact the individual’s eligibility for benefits like OAS and GIS, the article states.

It’s an interesting concept, and Save with SPP will watch to see if it gets adopted anywhere. Save with SPP earlier did an interview with Dr. MacDonald on income security for seniors and her work with NIA continues to seek ways to ensure the golden years are indeed the best of our lives.

Cutting bad habits can build retirement security

Writing in the Greater Fool blog Doug Rowat provides an insightful breakdown of some “regular” expenses most of us could trim to free up money for retirement savings.

Citing data from Turner Investments and Statistics Canada, Rowat notes that Canadians spend a whopping $2,593 on restaurants and $3,430 on clothing every year, on average. Canadians also spend, on average, $1,497 each year on cigarettes and alcohol.

“Could you eat out less often,” asks Rowat. “Go less to expensive restaurants? Substitute lunches instead of dinners? Skip desserts and alcohol?” Saving even $500 a year on each of these categories can really add up, he notes.

“If you implemented all of these cost reductions at once across all of these categories, you’d have more than $186,000 in additional retirement savings. That’s meaningful and could result in a more fulfilling or much earlier retirement,” suggests Rowat. He’s right – shedding a bad habit or two can really fatten the wallet.

If you don’t have a retirement plan at work, the Saskatchewan Pension Plan is ready and waiting to help you start your own. The plan offers professional investing at a low cost, a great track record of returns, and best of all, a way to convert your savings to retirement income at the finish line. You can set up automatic contributions easily, a “set it and forget it” approach – and by cutting out a few bad habits, you can free up some cash today for retirement income tomorrow. It’s win-win.

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 senior poverty linked to a lack of retirement saving or workplace plans?

An interview with Chris Roberts of the Canadian Labour Congress 

These days, it’s pretty common knowledge that many of us don’t save enough for retirement, and/or don’t have a savings plan at work. Save with SPP reached out to Chris Roberts, Director of Social and Economic Policy for the Canadian Labour Congress, to see how this lack of retirement preparedness may connect to seniors having debt and poverty problems.

Is the shortage of workplace pension plans (and the move away from defined benefit plans) in part responsible for higher levels of senior poverty/senior debt?

“Certainly old-age poverty rates and indebtedness among seniors have risen over the past two decades, while pension coverage has fallen (and DB coverage in the private sector has collapsed). Seniors’ labour-market participation has also doubled over those time period.

“It’s clear (from research by the Broadbent Institute) that falling pension coverage and inadequate retirement savings more broadly will deepen the financial insecurity and even poverty of many seniors. But while there’s been considerable research linking stagnant wages and rising household indebtedness, studies linking falling pension coverage with rising poverty and indebtedness among seniors are relatively scarce.

“Both rising poverty rates and growing indebtedness among seniors have several causes. Canada’s public pensions, especially Old Age Security (OAS) and the Guaranteed Income Supplement (GIS), provide a minimum level of income in retirement for individuals without private pensions or other sources of income. Part of the rise in the low-income measure of old-age poverty has been due to the fact that OAS is indexed to the consumer price index rather than the average industrial wage, causing seniors’ incomes to lag behind median incomes. Unattached seniors, especially women, are at particularly high risk of poverty, but so are recent newcomers to Canada who are eligible for only a partial OAS benefit.

“With respect to rising indebtedness, a declining number (according to Stats Can data) of senior-led households are debt-free. More Canadians are taking debt (especially mortgage debt) into retirement, and they’re shouldering more debt in retirement as well. At the same time, the total assets of senior-led families have also risen, and their net worth has grown even as debt levels rose. Indebtedness and net worth seems to have grown fastest (again according to Stats Can data) among the top 20 per cent of families ranked by income.

“So I think we have to be somewhat careful to avoid seeing rising senior household debt levels as driven solely or even primarily by financial hardship caused by declining pension coverage. There is certainly ample evidence (according to research by Hoyes Michalos) of a significant and growing segment of seniors that are struggling with debt and financial pressure. But rising debt levels among higher-income senior households likely have other causes besides financial hardship.”

Is a related problem the lack of personal retirement savings by those without pension plans?

“Richard Shillington’s study for the Broadbent Institute demonstrated that a retirement savings shortfall for those without significant private pension income will be a major problem for many current and future retirees. This shortfall has also been documented in the United States (see a study by the Center for Retirement Research at Boston College). While retirement contributions as a share of earnings have been rising (even as the household saving rate fell), these additional contributions have gone toward workplace pension plans; contributions to individual saving plans have declined, suggesting that those without a pension have not been able to save independently to compensate for not having an actual pension (see this article from Union Research for an explanation).”

Is debt itself a key problem (i.e., idea of people taking debt into retirement and having to pay it off with reduced income)?

“I think rising debt levels in retirement do pose risks, even if the challenges vary significantly with income. For low- and modest-income seniors, some forms of debt (e.g. consumer credit, payday lending) can be onerous and even unconscionable. For home-owners, even if mortgage debt is accompanied by rising home values and rising net worth, servicing debts while managing health-related and other costs on fixed incomes can be challenging for seniors. Debts acquired at earlier stages of the life-cycle will likely become a mounting problem in Canada, as, for instance, the student debt of family members (see article from Politico) and seniors themselves (see coverage from CNBC) is becoming an urgent problem in the United States.”

Apart from things like CPP expansion, which seems a good thing for younger people, can anything be done today to help retirees to have better outcomes?

“Increasing GIS but especially improving OAS will be important to improving financial security for seniors. For the reason discussed above, OAS will have to be expanded or indexed differently in order to stabilize relative old-age poverty. But in my view, there are also good reasons to expand it. Current as well as future seniors would benefit. OAS is a virtually-universal seniors’ benefit (about seven per cent of seniors have high enough incomes that their OAS benefit is clawed back by the recovery tax), and it’s particularly important to low- and modest earners, women, Indigenous Canadians, and workers with disabilities. It isn’t geared to employment history or earnings, so it’s purpose-built for a labour-market increasingly characterized by precarity, and atypical employment relationships (e.g. “self-employment,” independent contractors, etc). Modest income-earners with pensions would benefit from a higher OAS; these workers earn only a small workplace pension benefit, and unlike increases to CPP, their employers would be unlikely to try to offset the costs of a higher (tax-funded) OAS benefit. While growing along with the retirement of the baby-boom cohort, the cost of OAS (as a share of GDP) is projected to peak around 2033 before declining. And at a time when workplace pension plans, individual savings plans, and even the CPP increasingly depend on uncertain and sometimes volatile investment returns, the OAS is funded through our mostly progressive income tax system.”

We thank Chris Roberts for taking the time to talk to Save with SPP.

Given the scarcity of workplace pensions, more and more Canadians must be self-reliant and must save on their own for retirement. An option worth consideration is opening a Saskatchewan Pension Plan account; your money is invested professionally at a very low-cost by a not-for-profit, government-sponsored pension plan, and at retirement, you have the option of converting your savings to a lifetime income stream. Check it out today at saskpension.com.

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 and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Shelties, Duncan and Phoebe, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Jan 14: Best from the blogosphere

A look at the best of the Internet, from an SPP point of view

Blogger sees CPP expansion as helping hand for retirement saving

While many politicians and financial think-tanks like to refer to Canada Pension Plan (CPP) contributions as a tax – one they say is being increased through expansion of the program – at least one blogger sees it as a positive step towards retirement saving.

The Michael James on Money blog recently took a look at the issue of CPP expansion.

In his post, James notes that many observers say CPP expansion is “unnecessary,” and cite average saving figures as proof that a bigger CPP is not needed.

“But averages are irrelevant in this discussion,” writes James. “Consider two sisters heading into retirement. One sister has twice as much money as she needs and the other has nothing. On average, they’re fine, but individually, one sister has a big problem. CPP expansion is aimed at those who can’t or won’t save on their own.”

And while there are many programs – CPP, Old Age Security, and the Guaranteed Income Supplement – designed to ensure “we don’t… see seniors begging for food in our streets,” the CPP is something that working Canadians and their employers pay into, rather than a taxpayer-funded program, he explains.

He makes the point that CPP should not be an optional savings program, like an RRSP. “If CPP were optional, too many of those who need it most would opt out. The only way CPP can serve its purpose well is if it’s mandatory for everyone,” he writes.

These are excellent arguments. The days when everyone had a pension plan at work, and the CPP was a sort of supplement to it, are long gone. According to Statistics Canada, the number of men with registered pension plan coverage dropped from 52 per cent to 37 per cent between 1997 and 2011. For women, coverage increased to from 36 per cent to 40 per cent during the same period. That means more than 60 per cent of us don’t have a pension at work.

CPP expansion helps fill that coverage void. If workplace pension plans were on the increase, certainly CPP expansion wouldn’t be necessary – the statistics show that’s simply not the case.

If you don’t have a pension plan at work, you can self-fund your retirement through membership in the Saskatchewan Pension Plan. Any Canadian can join and contribute up to $6,200 annually to an SPP account. When you retire, SPP takes the headaches out of the process for you and converts your savings into a lifetime income stream. You can start small and build your contributions as your career moves forward.

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

What you need to know about residential care for seniors in Saskatchewan

Whether you are a member of the “sandwich generation” with young children and older parents or you are a senior yourself, sooner or later you will need to understand the residential care options in Saskatchewan for individuals who can no longer live at home, and how much they cost.  Typically, residential facilities are characterized as either retirement homes or government-subsidized nursing homes. In the discussion below we distinguish between the two, the services provided and how much they cost.

Retirement home/residence 
A retirement home in Saskatchewan is a multi-residence housing facility that provides accommodation and services such as meals and cleaning for older people. Retirement homes in the province are privately owned and operated and not administered by the provincial government. Each facility usually provides a private or semi-private room or complete living suite as well as common living quarters, including a lounge area, a common dining room, recreation rooms, cleaning services, social and/or religious programs and some basic health care services.

The unit can be paid for on a monthly fee basis, like an apartment, or can in some instances be bought the same way as a condominium. Admission, fees and waiting lists for retirement homes are controlled by the homes themselves, not by the government. Admission usually depends on the ability to pay and absence of serious medical conditions that require professional nursing care. Residents are responsible for paying their own fees and government subsidies are not available for accommodation in a retirement residence.

Costs for Retirement Homes*

Type of Accommodation Provincial Median Provincial Range Regina Median Regina Range Saskatoon Median Saskatoon Range
Private Rooms(per month) $2,475 $1,500 – $5,500 $2,850 $1,800 – $5,500 $2,425 $1,600 – $4,000
1 Bedroom Suites (per month) $3,415 $1,580 – $4,170 $3,750 $3,500 – $4,100 $3,150 $1,580 – $4,042

*As reported in Long Term Care in Saskatchewan 2016

Government-Subsidized Nursing Homes**
Nursing homes or special care homes, as they are called in Saskatchewan, are residential long term care facilities that provide 24-hour professional nursing care and supervision for people who have complex care needs and can no longer be cared for in their own homes.

These facilities are owned and operated by municipalities, religiously affiliated organizations and private, for-profit organizations. However, nursing home fees are set by the Saskatchewan Ministry of Health.

Admissions to residential long term care facilities are managed by local Regional Health Authorities (RHAs). An intake coordinator or social worker from the RHA conducts an in-home assessment with clients and their families to assess care needs and program options, to coordinate access, explain fees and coordinate placement into long-term care facilities.

A report of the assessment is sent to the Regional Committee, who decides on acceptance. Clients who are eligible for access to a long term care bed generally access the first available bed in the system and then transfer to a facility of choice. A chronological wait list is maintained by the RHA to ensure fair and equitable access to a facility of choice.

Eligibility/Requirements for Admission 
To be eligible for subsidized care services, a client must:

  • Be a Canadian citizen or permanent resident over 18 years of age.
  • Require ongoing care (usually 24 hour care, seven days a week) due to age, disability, injury from accidents, or long-term illness.
  • Hold a valid Saskatchewan Health Services card, or be in the process of establishing permanent residence in Saskatchewan and have applied for a Saskatchewan Health Services card.

Income/Asset Test
The client’s income is assessed by Saskatchewan Health.  Income Tax returns of applicants are reviewed once the Regional Committee has approved the admission of the client into a nursing home. The client’s application is sent by the RHA to the nursing home, which in turn sends it to Saskatchewan Health for income assessment.

A resident pays the standard resident charge ($1,086 at July 1, 2017) plus 57.5% of the portion of their income between $1,413 and $4,200. For married residents, including common law couples, the couple’s income is combined, divided equally and then the above formula is applied.

The resident and spouse (if applicable) are required to provide:

  • The most recent year’s Notice of Assessment(s) from CRA, or
  • Pages 1 to 3 of Income Tax Return(s) upon admission and annually thereafter.

If income information is not provided, the resident charge will be assessed at the maximum rate.

A resident admitted for temporary care must pay the income-tested resident charge if their stay is more than 60 consecutive days.

Examples of resident charges at various income levels

Monthly Income Monthly Resident Charge
$1,413 $1,086 (minimum)
$2,000 $1,423
$2,500 $1,711
$3,500 $2,286
$4,200 $2,689 (maximum)

 

Married residents living in separate special care homes 
Married residents who live in separate dwellings for reasons beyond their control may choose to complete an Optional Designation Form.

  • With this designation, only the resident’s income is considered when calculating the charge.
  • Choosing this designation does not change a couple’s marital status.

Additional charges
In addition to the resident charge, there is an additional cost for prescriptions, medications, incontinence supplies, and certain medical and personal supplies and services.

There is also a $21.25 monthly supply charge for personal hygiene items, such as shampoo, conditioner, soap, denture cream, toothpaste, mouthwash, etc. This charge is adjusted annually based on increases to Old Age Security and Guaranteed Income Supplement benefits

** As reported in Special Care Homes

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Your guide to upcoming CPP changes

In June 2016 federal, provincial and territorial finance ministers finally reached an agreement to expand the Canada Pension Plan. However, because the changes will be phased in over an extended period, there has been considerable confusion among many Canadians about how both CPP contributions and benefits will increase, and who the winners and losers will be.

The Globe and Mail reports that an expanded CPP is designed to address the shortfall in middle-income retirement planning that is occurring as a result of disappearing corporate pensions. “Most at risk are workers under the age of 45 with middling incomes – say, families earning about $50,000 to $80,000 a year,” note authors Janet McFarland and Ian McGugan. “Without the defined-benefit pensions that their parents enjoyed, many could hit retirement with little in savings.”

Here is what you need to know about the planned CPP changes.

Effects on CPP retirement pension and post-retirement benefit:
Currently, you and your employer pay 4.95% of your salary into the CPP, up to a maximum income level of $55,300 a year. If you are self-employed you contribute the full 9%.

When you retire at the age of 65, you will be paid a maximum annual pension of $13,370 (2017) under the program if you contributed the maximum amount each year for 40 years (subject to drop out provisions). People earning more than $55,300 do not contribute to CPP above that level, and do not earn any additional pension benefits.

The first major change will increase the annual payout target from about 25% of pre-retirement earnings to 33%. That means if you earn $55,300 a year, you would receive a maximum annual pension of about $18,250 in 2017 dollars by the time you retire — an increase of about $4,880/year (subject to the phase in discussed below).

The second change will increase the maximum amount of income covered by the CPP (YMPE) from $55,300 to about $79,400 (estimated) when the program is fully phased in by 2025, which means higher-income workers will be eligible to earn CPP benefits on a larger portion of their income.

For a worker at the $79,400 income level, CPP benefits will rise to a maximum of about $19,900 a year (estimated in 2016 dollars). Contributions to CPP from workers and companies will increase by one percentage point to 5.95% of wages, phased in slowly between 2019 and 2025 to ease the impact. The federal finance department says the portion of earnings between $54,900 and $79,400 will have a different contribution rate for workers and employers, expected to be set at 4%.

The enhancement also applies to the CPP post-retirement benefit. If you are receiving a CPP retirement pension and you continue to work and make CPP contributions in 2019 or later, your post-retirement benefits will be larger.

Impact on CPP disability benefit/survivor’s benefit
The enhancement will also increase the CPP disability benefit and the CPP survivor’s pension starting in 2019. The increase you receive will depend on how much and for how long you contributed to the enhanced CPP.

Impact on CPP death benefit
There is currently a one-time lump sum taxable death benefit of $2,500 for eligible contributors of $2,500. This amount will not change.

The main beneficiaries of the CPP changes will be young employees, who are less likely to have workplace pension plans than older workers. To earn the full CPP enhancement, a person will have to contribute for 40 years at the new levels once the program is fully phased in by 2025. That means people in their teens today will be the first generation to receive the full increase by 2065.

The recently released Old Age Security report from chief actuary Jean-Claude Ménard which includes the GIS illustrates how higher CPP premiums scheduled to begin in 2019 will ultimately affect the OAS program.

The report reveals that because of the planned CPP changes, by 2060, 6.8% fewer low-income Canadians will qualify for the GIS, representing 243,000 fewer beneficiaries. This will save the federal government $3-billion a year in GIS payments.

In other words, higher CPP benefits mean some low income seniors will no longer qualify for the GIS, which is a component of the Old Age Security program. The GIS benefits are based on income and are apply to single seniors who earn less than $17,688 a year and married/common-law seniors both receiving a full Old Age Security pension who earn less than $23,376.

Also read: 10 things you need to know about enhanced CPP benefits

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Should the age of CPP/OAS eligibility be raised?

Results from the 2016 census show that there are now 5.9 million Canadian seniors, compared to 5.8 million Canadians age 14 and under. This is due to the historic increase in the number of people over 65 — a jump of 20% since 2011 and a significantly greater increase than the five percent growth experienced by the population as a whole. This rapid pace of aging carries profound implications for everything from pension plans to health care, the labour market and social services.

“The reason is basically that the population has been aging in Canada for a number of years now and the fertility level is fairly low, below replacement levels,” Andre Lebel, a demographer with Statistics Canada told Global News. Lebel also projects that because over the next 16 years, the rest of the baby boom will become senior citizens, the proportion of seniors will rise to 23 per cent.

Therefore, it is not surprising that a new study from the C.D. Howe Institute proposes that the age of eligibility (AOE) for CPP/QPP, Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits should be re-visited. The AOE is the earliest age at which an individual is permitted to receive a full (unreduced) pension from the government.

Other countries with aging populations are raising the AOE for social security benefits. These include Finland, Sweden, Norway, Poland and the United Kingdom. In 2012, then Prime Minister Steven Harper announced plans to increase the AOE for OAS and GIS from 65 to 67 between 2023 and 2029. However, Trudeau reversed this very unpopular legislation (leaving the AOE at 65) in the 2016 budget.

In their report Greener Pastures: Resetting the age of eligibility for Social Security based on actuarial science, authors Robert Brown and Shantel Aris say their goal is to introduce an “evidence-based” analysis that can be used impartially to adjust the AOE for Canada’s social security system based on actuarial logic, not political whims.

However, they do not argue that current systems and reform plans are unsustainable. In fact, increasing life expectancy and increasing aged-dependency ratios are consistent with the assumptions behind CPP/QPP actuarial valuations. However, they suggest that if there are relatively painless ways to manage increasing costs to the programs, then they are worthy of public debate.

Their calculations assume that Canadians will spend up to 34% of their life in retirement, resulting in recommendations for a new AOE of 66 (phased-in beginning in 2013 and achieved by 2025) that would then be constant until 2048 when the AOE would shift to age 67 over two years.

Brown and Avis believe these shifts would soften the rate of increase in the Old Age Dependency Ratio, bring lower OAS/GIS costs and lower required contribution rates for the CPP (both in tier 1 and the new tier 2). This, in turn, would result in equity in financing retirement across generations and a higher probability of sustainability of these systems.

However they do acknowledge that there are some important issues that would arise if the proposed AOE framework is adopted. One of these issues is the fact that raising the AOE is regressive. For example, if your life expectancy at retirement is five years, and the AOE is raised by one year, then that is a 20% loss in benefits. If your life expectancy at retirement is 20 years, then the one year shift in the AOE is only a five percent benefit reduction.

People with higher income and wealth tend to live longer, so the impact of raising the AOE will be greater on lower-income workers than on higher-income workers. Access to social assistance benefits would be needed to mitigate this loss. The study suggests that it would be easy to mitigate the small regressive element in the shift of AOS by reforming the OAS/GIS clawback as the AOE starts to rise.

The report concludes that having partial immunization of the OAS/GIS and CPP/QPP from increases in life expectancy is  and logical and would help Canada to achieve five attractive goals with respect to our social security system:

  • Increase the probability of it’s sustainability.
  • Increase the credibility of this sustainability with the Canadian public.
  • Enhance inter-generational equity.
  • Lower the overall costs of social security; and
  • Create a nudge for workers to stay in the labour force for a little longer .

It remains to be seen if or when the C.D. Howe proposals regarding changes to the AOE for public pension plans will make it on to the “To Do” list of the current or future federal governments.

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.