By Sheryl Smolkin

This month’s interview is with author and financial journalist Jonathan Chevreau. Jon was the Financial Post’s personal finance columnists for nineteen years, and subsequently the Editor in Chief of MoneySense Magazine for two years until he declared his personal “financial independence day” on May 20th, 2014.

He has relinquished the leadership role at MoneySense, but as editor-at-large, his work is still frequently featured. He also writes for many other online venues and in November of last year he launched his ambitious North American portal, The Financial Independence Hub.

I last interviewed Jon for savewithspp.com in the summer of 2012 about his financial novel Findependence Day. Today I’d like to explore what he describes as “the profound difference between the traditional concept of retirement and the paradigm shift he calls financial independence.”

Q. To start off Jon, what is the difference between financial independence or “findependence” and retirement?
A: Well Sheryl, I always say that when you’re findependent you’re working because you want to not because you have to, financially speaking. But of course the lines blur. For the media and the financial service industry, it’s retirement, retirement, retirement. They don’t really distinguish between the two concepts.

For super frugal people, financial independence can often occur decades before traditional retirement. When you talk about the “early retirement extreme” movement, what these people are really talking about is being financially independent.

Q: So in fact you have coined the term findependence to apply to people at various ages, not just older workers?
A: Yes. The Financial Independence Hub is relevant for people at all stages of life.

Q: You’ve left the corporate world. But you seem to be busier than ever, with all of your freelance writing, your blog, and spin-offs from your book Findependence Day. How would you describe your current status?
A: Busier than I want to be, really. I think you can relate to that one as well. On the Hub I reviewed books like Encore and I talk about this new phase of life. If you believe in extended longevity and a lot of people leave corporations, either voluntarily or involuntarily, in their late fifties, early sixties, I say there’s a fifteen to twenty year sweet spot.

You’re no longer an employee, but I don’t think you are ready to take year-long cruises and do nothing but watch TV, play golf, read and play internet bridge. I think that fifteen year period, is the new “encore stage.” You could also call it part-time or phased retirement.

Q: How many hours a week do you estimate you’re currently working for compensation and on your own projects?
A: I got into this in December (2014). I read a bunch of internet books. I was keen on “Multiple Streams of Internet Income” by Robert Allen, and a book by Tim Ferriss called “The Four-hour Work Week.” I decided by having more passive income and less renting my time out, I could go to a four-hour week. Unfortunately, it hasn’t really worked out.

It turns out that the path to a four-hour workweek for me is a nine-hour day. I would say that I probably still spend 40% of my time on the MoneySense blogging contract. Another 40% is spent on the Hub which is not billable time. About 20% of my time is taken up with other things like one-off speeches, book sales, blogs and articles.

Q: What are the pros and cons in your view of your current working arrangement, as compared to working as a full-time salaried journalist?
A: As a freelance contractor there are no employee benefits, sick days or paid vacations. I had a “man cold” last week and I had to barrel through it. Luckily, of course, I don’t have to commute.

It’s hard to match my previous gross income but it can be a little bit better on an after- tax basis depending on the legitimate employment expenses I can write off. When I balance it with the lack of commuting, I think it’s a better life-work balance. But like anything else, there are trade-offs.

Q: Do you think that Canadians across the board are working longer and contemplating encore careers, or is this really restricted to knowledge workers and entrepreneurs?
A: Well I think that’s an apt observation. When you’re a knowledge worker there’s a real blurry line between working and playing, because I think we actually find it quite fun to absorb lots of information on subjects that fascinate us. Whereas, as you point out if you are a labourer, the body is not as apt to keep on going past sixty-four or sixty-six.

Q: Youth unemployment is running around 14 %. Are older workers, who continue working, clogging up the pipeline for young people and mid-career workers who are trying to get a leg up on the employment ladder?
A: Well that is one perception I’m not sure is true. I suppose if we’re talking about a big corporation with your traditional pyramid, where basically there are only a couple of people at the top, then yes, older workers might be clogging up that traditional pipeline.

But I think when you’re talking about all the people leaving companies and then contracting back their services, at that point they just become a valuable asset. Younger people can still move up the ladder, and they can still access the expertise and skills of the older codgers, like me if they are retained as freelance suppliers to the company.

Q: Some people opt to work longer for their current employers or continue on a contractual basis. Then there are others who want more flexibility or to try something new. How can older workers go about finding an encore career?
A: They can go to findependencehub.com and check out the book reviews. Encore, the Big Shift, there are tons of these books out there. For some it might be going back to school, getting an MBA. A lot of people make complete changes. For example, Eleanor Clitheroe left Ontario Hydro and went to divinity school.

I have a friend who is actually downsizing and moving to the country, so that he can go from being a set designer to doing true art. Every second journalist I know wants to write the great Canadian or American novel. I compromised by writing Findependence Day which is a financial novel.

Q: Money won’t buy happiness but it helps. What are some of the factors that you think contribute to a happy retirement, other than having enough money?
A: There are obvious things.  Health, happiness, relationships, family, networks. There’s a book by Wes Moss called “You can retire sooner than you think.” One of the things he talks about is a retiree should have at least three or four passionate interests. This is why I decided to put internet bridge back on my list. Reading, volunteering and exercising would be others.

I think the biggest single thing is of course your partner. I’ve talked to people in the financial service industry, who’ve been divorced. They say the biggest mistake they ever made financially-speaking was to get a divorce, because their net worth was cut in two right off the bat. But obviously you don’t stay together for financial reasons if you don’t have a harmonious relationship. 

Q: Well the relationship issue is interesting and I think one of the things that I think about all the time, is you don’t know how much time you’re going to have. You’re worried about financing thirty years of retirement but who knows if you’ll have it. So if you put it off and you put it off you just might miss those golden years.

A: Various people have joked that financial planning would be the easiest thing to do on Earth if you just knew when you were going to die. Unfortunately, most people don’t.

Q: How long do you think you will continue to work?  Do you see full retirement any time in your future?
A: I have a vision, that eventually I will have a website that brings in lots of passive streams of income. My idea of a nice retirement or findependence is every three years, to leisurely write a book working four six-hour days a week. Then I would go on tour to promote it and bring in another stream of income. Instead of grinding out words for multiple clients I’d like to be financially independent enough to work on one big project.

Q: Thanks very much for talking to me, Jon. It’s always fascinating to talk to you.
A: Well thank you for allowing me to share some of my thoughts, Sheryl. I think you’re doing a great job, too, on Retirement Redux.

—-

This is an edited transcript of a podcast interview of Jonathan Chevreau conducted by telephone in March 2015.

By Sheryl Smolkin

If you haven’t filed your income tax return yet it’s really getting down to the wire. Whether you take advantage of them this year or next, here are some tax tips that could put more money in your pocket,

Are you entitled to a tax refund for your medical expenses? by Brenda Spiering on Brighter Life draws on her experience following her son’s accident when she learned that the part of his dental bills not covered by her health insurance at work could be claimed as a tax credit along with a portion of her health insurance premiums.

Tax accountant Evelyn Jacks addresses The Mad Dash to April 30th in Your Money. Your Life. She says once you have filed your taxes, the most important question is how you will spend your tax return. Some options are: pay down debt; save in a TFSA; use RRSP room; invest in an RESP; or invest in a Registered Disability Savings Plan.

Hey last-minute tax filers: Don’t make these common, costly mistakes says Stephen Karmazyn in the Financial Post. For example, only eight percent of taxpayers are planning to claim the Canada Employment Amount (which is a credit for work-related expenses such as home computers, uniforms, supplies) even though anyone with a T4 income can make a claim.

In a timeless blog on Retire Happy, Jim Yih offers RRSP and Tax Planning Tips. He recommends that only one spouse claim charitable deductions. That’s because the credit for charitable donations is a two-tiered federal credit of 16% on the first $200 and 29% on the balance (plus provincial credits). Spouses are allowed to claim the other’s donations and to carry forward donations for up to five years. By carrying forward donations and then having them all claimed by one spouse, the first $200 threshold with the lower credit is only applied once.

And in a Global news video Smart Cookies: Last Minute Tax Tips, Kate Dunsworth shares last minute reminders for people who have been procrastinating with their taxes. She says if you are expecting a refund and you are not planning to file on time because you don’t owe anything, you are basically giving the government a tax free loan. And if you owe money, you will be penalized for every single day you file late. Also, repeat late offenders will be penalized up to double.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

 

By Sheryl Smolkin

According to the 2014 Bridal Survey conducted by weddingbells.ca, in 2014 an estimated 162,056 weddings took place in Canada and 65% of them took place between June and September.

That means dozens of your friends and neighbours are probably trying to balance their wedding budgets, booking venues and “saying yes to the dress” as you read this blog. But how many of them are factoring in the impact their upcoming nuptials could have on their insurance or any previous estate planning?

The folks at the web site insureeye.com recently asked licensed life insurance broker Tamara Humphries for her opinion on what you need to know about life and health insurance if you are getting married. Here are a couple of interesting issues she raised:

1. Amount of coverage: Once you get married, and especially if you have or will be having children, you should consider increasing in your life insurance coverage. There are various life insurance calculators online including this one from Sun Life that will help you calculate how much you need. Your financial advisor can also assist you.
2. Group Benefits: Understand the life and health insurance plans both you and your partner have at work, and how benefits are coordinated. If one supplementary health plan is particularly good, you may wish to opt out of the other.
3. Changing your beneficiary: If your previous life insurance policy named, for example, your parents as beneficiaries, you may want to make your spouse the beneficiary instead. You can change this beneficiary designation at any time upon notice to your insurance company unless you have made the beneficiary designation irrevocable.
4. Family life insurance: As an alternative to two life insurance policies for each spouse, you can get one policy for both of you, which often results in lower premiums overall. This policy is often called family or joint-first-to-die (JFTD) policy. JFTD policies pay only at the first death. It is important to know if one spouse dies, the surviving spouse will not have life insurance. If you prefer to keep separate policies after the marriage and get the policies from the same provider, you might benefit from a multi-life discount.
5. Look for bundles: Bundles still work. If you or your spouse already have a home and/or auto insurance provider, there may be an option to get a bundle discount when adding a life insurance policy from the same company. Some insurers, called universal insurers, offer all insurance products – life, property and health insurance.

Also keep in mind that when you get married, (see Public Legal Education Association of Saskatchewan) unless you indicate in your Will that you are making the Will in contemplation of the marriage or a spousal relationship, your entire Will is cancelled. This general rule does not apply where an individual makes a Will while living in a spousal relationship and later marries that spouse.

Ending a spousal relationship can also revoke or cancel your Will or parts of it. For example, if you name your spouse as your Executor or leave part of your estate to your spouse, those parts of your Will are revoked or cancelled after you divorce, or after 24 months of separation in the case of other spousal relationships, unless you expressly say otherwise in your Will.

In Alberta and British Columbia, however, new laws state that marriage, or the entrance into an adult interdependent partnership (common-law relationship) does not automatically revoke a Will.

Since the laws across the country are no longer consistent, deciding which laws apply if the person married in one province and died in another, can be unclear. Further, if a person marries or dies outside of Canada, the decision as to which law applies becomes even more complicated. To avoid such difficulties, it is best to enter into a Will and revoke the old one upon marriage, or when entering into a common-law relationship.

By Sheryl Smolkin

Spring has definitely sprung in our neck of the woods and yesterday I woke up to a neighbourhood of happy smiling people wbiking, jogging and cleaning garages.

This week we feature a blog from Blonde on a Budget Cait Flanders who is nine months into her shopping ban. Of course, as she notes in Nine Months Without Shopping and Takeout Coffee, she gets to make up the rules as she goes along. So she discarded a ripped pair of jeans and replaced them. She also broke her “no take out coffee” ban a few times when she was out with friends. Nevertheless, she has upped her savings goal from $100/month at the beginning of the period to $250/month and she has a nice little nest egg to show for it.

On Boomer & Echo, Robb Engen writes about how we can always find joy in the smallest things like using a cash back credit card for his everyday purchases. I know what he means. I prefer my travel rewards credit cards, but it feels great when I accumulate enough points at Shoppers Drug Mart or Longo’s and the cashier asks me if I want to take $20 or $30 off my bill.

Sean Cooper writes on Retire Happy about three More Costly Pension Mistakes and How to Avoid Them. They are: not updating your spouse and beneficiary designations; not joining your company pension plan right away; and, not starting your pension as soon as you are entitled to a unreduced pension.

The question that every person who is saving for retirement struggles with is Will they run short in Retirement? As part of the Masters of Money series on GetSmarterAboutMoney.ca, Allison Griffiths acknowledges that few working people have any idea how much money they will need and she offers an approach to budgeting that can help them nail down these elusive numbers.

Spring is the time when new university and college graduates hit the street looking for their first career position. On stupidcents.com blogger Tom Drake discusses best careers for the future. With baby boomers aging in the next 20 years, he says those who are involved in health care such as dental hygienists, registered nurses and physical therapy assistants will be in demand. But software developers and construction equipment operators are also growth areas.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

 

By Sheryl Smolkin

Piles of laundry loom ever larger and more ominous if you don’t stay on top of this tedious task. Who hasn’t discovered when dressing for an important meeting that their favourite white shirt has a big stain or needs ironing?

And when it comes to laundry, the larger your family, the bigger the problem is. In the interests of saving you both time and money, here are 10 tips on how to do laundry more efficiently culled from internet sources and my own experience.

1. Outsource: My dirty little secret is that I rarely do our laundry. One of the luxuries working after retirement buys is a weekly housekeeper who does it for us. But if you have a partner or children, teach them how to do laundry early and make it part of their weekly “To Do” list.
2. Make it easy: We have our own washer and dryer. However, because they are located in the basement, once a load goes in its easy to forget it still has to be dried and folded. If you are looking for a rental apartment or a new home, having laundry machines on the first floor or even the second floor where the bedrooms are will make the whole laundry cycle less onerous.
3. Use cold water: There are many commercial laundry detergents available for cold water washing. Your clothes will come out just as clean, and you will use much less energy heating hot water. Your clothes may actually last longer.
4. Minimize dryer use: Few of us use a clothesline anymore, but those who do say you can’t beat the fresh smell of sheets dried outside. Even if you don’t have a suitable location for a clothesline, you can use a free standing clothes rack for drying more delicate items like lingerie and sweaters in your bath tub.
5. Maintain your dryer: Be diligent about emptying the dryer lint after every load. Also look for the external vent and make sure it’s not obstructed. Lift up the vent and make sure there’s no lint or anything else that has built up. The external vent blows out very moist air removed from the clothes. If it can’t get out, it stays in your clothes, increasing drying time and increasing your expenses.
6. Double up: Ideally you should wait to do laundry until you have full loads. But sometimes that’s impossible if you only have a few coloured or white items that need washing but they are needed immediately. However you can save money on electricity if you wait to dry several small loads together.
7. Read the tags: Are you sending clothes to the dry cleaners that you could wash at home? Most people know enough not to try and launder a good wool suit, but cleaning and washing silk is apparently easy if you follow some precautions. Mountain Equipment Co-op gives instruction for washing down coats and sleeping bags. While they suggest only doing so if you have a front loading washer, I’ve never had a problem with my top loader.
8. Read the detergent label: Most of us grew up using up to a cup of washing detergent for each load. Now most kinds including liquids are much more concentrated. Read the label on the box to ensure you are using the quantity that is right for your machine. Using less detergent will save you money and your clothes won’t wear out as fast.
9. Compare detergent costs: It used to be that detergent came only in powder form in boxes of various sizes. Now you can also buy liquid detergent for your clothes and even detergent pods. Figure out on a per load basis what is the least costly and works best for your family. It is not the cheapest but we prefer liquid detergent because it doesn’t leave a soap residue on our clothes.
10. Wear things more than once: Some kids have their favourite clothing items they would never put in the wash unless you peel it off them. Others throw things in the laundry even if they were just trying them on to see if they are part of a suitable outfit for school the next day. There is a happy medium that will mean fewer loads and less wear and tear on your clothes.

Also see:
12 Laundry tips for maximum energy savings
How to Save Money on Laundry
5 Ways to Save Money on Doing Laundry
How To Do Laundry on the Cheap
10 Ways to Save Money when Doing Laundry

By Sheryl Smolkin

There were several interesting provincial budgets this week with provisions impacting the cost of health care for seniors.

The Saskatchewan budget removed 6,000 seniors from the province’s drug plan. Previously the threshold of $80,255 was the cutoff for the drug plan. Anyone with a taxable income in excess of that amount was not eligible for the program. Now, the threshold will be lowered to $65,515.

The Alberta budget added a new Health Care Contribution Levy payable through the income tax system that will cost each Albertan up to $1,000 per year. Coverage and eligibility for provincial public health care programs remain unchanged. Unlike the previous Alberta Health Care Insurance Plan premium eliminated after 2008 that was a flat fee for individuals, the Levy has a progressive structure (See Table at p.87). Each member of a family filing an income tax return who has income over $50,000 will be subject to the levy and seniors are not exempt.

On another note, Mr. Money Moustache, a Canadian blogger living in the U.S. was recently profiled in the Globe & Mail. He and his wife retired at age 30. He says A Lifetime of Riches is As Simple As a Few Habits. This means doing less pointless driving around in your car and making fewer visits to restaurants, bars, and coffee shops. He also says alcohol, drugs, cigarettes, TV watching, video game playing, procrastination, unhealthy eating, sedentary living, and unnecessary shopping are other habits that stand between the average person and a truly wealthy life.

On Brighter Life, Sun Life VP Kevin Press presents blogs that will refresh your understanding of employee pension plans and employee benefit plans. He notes that Canadians who do not enjoy employer-sponsored benefit plan membership are at a significant disadvantage because provincial plans provide limited levels of coverage. What’s more, your reimbursements for health and dental claims are not taxable. So you’re almost always better off if your employer sponsors a plan versus paying you a higher salary.

And finally, an interesting post on Our Big Fat Wallet about getting compensated for a flight delay. Dan booked his ticket with Travelocity and he was not notified when the return flight was cancelled. Fortunately, the airline re-booked him several hours later and he received a $100 rebate from Travelocity and $75 from his Scotiabank Momentum Visa Infinite card that provides coverage of up to $500 per trip for trip delays of four hours or more.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

 

By Sheryl Smolkin

One of the perks of growing older is that there are some additional tax credits you can take advantage of when you file your income tax return. For example, the pension income tax credit is available to you if you are under age 65, but the amounts that qualify for this tax credit are different, depending on whether you are pre or post age 65.

The federal non-refundable tax credit applies to up to $2,000 of eligible pension income. That means you will get back a maximum of 15% or $300. Provincial tax savings are in addition and can bump up your total savings by an additional $350 to $700 depending on your province of residence.

Since you can transfer up to 50% of pension income to your spouse for tax purposes, a couple can each access this tax credit even if only one of the pair is receiving an eligible pension.

If you are younger than age 65, the only pension income that is eligible for the pension tax credit is either from a superannuation/pension plan, annuity payments from the Saskatchewan Pension Plan or annuity income you are receiving because of the death of your spouse or common-law partner. The income you receive in these circumstances might be in the form of Registered Retirement Income Fund (RRIF), Registered Retirement Plan (RRSP) or Deferred Profit Sharing Plan (DPSP) income, but only if you have been receiving this income since your spouse passed away. 

If you are 65 or older eligible income can be:

• Income from a superannuation or pension plan.
• RPP lifetime benefits.
• RRIF income.
•  DPSP income.
• RRSP annuity income.
• EBP benefits.
• Regular annuities.
• Elected split pension income.
• Variable pension benefits.
• Foreign pension income unless the foreign pension income is tax-free in Canada because of a tax treaty or income from a United States Individual Retirement Account.

For a more detailed list of pension and annuity income eligible for the pension tax credit, check out CRA’s Eligible Pension and Annuity Income (less than 65 years of age) and Eligible Pension and Annuity Income (65 years of age or older) charts.

The following income does not qualify as pension income for the pension income tax credit:

• Old Age Security or Canada Pension Plan benefits
• Quebec Pension Plan benefits
• Death benefits
• Retiring allowances
• RRSP withdrawals other than annuity payments
• Payments from salary deferral arrangements, retirement compensation arrangements, employee benefit plans, or employee trusts.

A recent decision of the Tax Court of Canada in Taylor v. The Queen clarified the meaning of “annuity income from an RRSP.” Sarah Taylor began withdrawing money from an RRSP when her husband died. According to the terms of the RRSP she had total discretion with respect to the timing and the amounts of the withdrawals.

To minimize withdrawal fees, she decided to take funds out only once a year. In 2011 she withdrew funds a second time to make an unusual tax payment. The two payments to her were $12,500 and $6,250. Her accountant argued that once she turned 65 in 2011 these amounts and other similar annual withdrawals should be treated as annuity payments as required by the definition of “pension income” for the purposes of the pension tax credit.

Madame Justice Judith Woods ruled that withdrawals made by Taylor from her RRSP were not annuity payments and did not qualify for the pension tax credit because her financial institution had no obligation to make payments on a recurring basis.

The lesson to be taken from this court case is to be certain you understand the rules with respect to RRIF withdrawals and the pension tax credit.  Some people who do not have eligible pension income at age 65 opt for an interim approach. If you move $12,000 into a RRIF and then withdraw $2,000 a year for six years, these withdrawals will allow you to qualify for the full pension tax credit.

By Sheryl Smolkin

As I write this on March 31st, it is for the second time because I closed the completed document the first time without saving it. I can only attribute this oversight to an early April Fools’ Day joke from cyber space!

Here are some interesting blogs I read this week:

For those of you who prefer cash back credit cards over travel cards, Tom Drake on the Canadian Finance blog rates the Best Cash Back Credit Cards of 2015. Top of the list is the Scotiabank Momentum VISA Infinite Card which offers a full 4% cash back on gas station and grocery store purchases. You also receive 2% cash back on your recurring payments and on drug store purchases. All other purchases earn a 1% cash rebate. 

The Big Cajun Man aka Alan Whitton writes on the Canadian Personal Finance blog about his daughter’s experience trying to find a student line of credit to attend Chiropractic College. The only financial institution willing to fork over enough money was the National Bank of Canada. However, by mistake they set up the loan as a personal line of credit. As a result, the very next month there was a demand for payment. Although the error was fixed, Whitton had to co-sign on the loan.

Five unconventional ways to get your financial act together from Kerry K. Taylor aka Squawkfox resonates with me. She suggests we can save money by throwing out fewer grocery products and curbing our collecting. We just renovated our kitchen cabinets and I couldn’t believe the number of stale-dated packages we pitched and how many marginally useful kitchen gadgets we have collected. Did we ever really need  six sets of barbecue skewers?

Why “Healthspan” trumps “Lifespan” by Dan Richards is a guest blog on the Financial Independence Hub. Financial advisors spend a great deal of their time with clients who ask, “Will I run out of money?” But Richards says according to new research, an equally pressing question is “How can I enjoy life in my 60s before health issues creep in.?

RRIFs 101: Using your nest egg by Preet Banerjee on Tangerine’s Forward Thinking blog fills in the blanks for readers who understand how RRSPs work but were not aware that they must be converted into RRIFs at age 71 and that beginning the year after, minimum fully taxable amounts must be withdrawn.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

 

By Sheryl Smolkin

As part of the ongoing series of podcast interviews on savewithspp.com, today I’m talking to lawyer Ari Kaplan, a partner in the Pension and Benefits Group of the Toronto law firm Koskie, Minsky, L.L.P.

Ari is the author of Canada’s leading textbook on pension law, and he has acted as counsel in some of Canada’s most widely known pension cases before the Supreme Court of Canada. In addition, he teaches pension law as an adjunct professor of law at both the University of Toronto and Osgoode Hall Law School.

In his spare time, Ari heads up licensing and publishing at Paper Bag Records, a leading, independent record label and artist management company also based in Toronto.

Today, we are going to talk about the Canada Pension Plan. In the ongoing national debate regarding how Canadians can be encouraged to save more for retirement, Ari is a staunch advocate for an expansion to the Canadian Pension Plan.

Welcome, Ari, and thanks for talking to me today.

My pleasure, Sheryl. Thanks for having me.

Q: How many Canadians currently have workplace pension plans?
A: Well, that’s a good question to put everything in perspective. Over 60% of working Canadians actually have no workplace pension plan, and they must rely solely on CPP and their own personal savings for their retirement income. 

Q: Why do you think that an enhanced Canada Pension Plan is the best way to give Canadians a more robust retirement income?
A: Very simple. It’s currently the only universal and mandatory savings scheme in the country. It’s portable from job to job. If you’re a student, you can work for the summer in British Columbia and then come back to a full-time job in Ontario, and your CPP credits will go with you. Also, it doesn’t just cover employees. It applies to self-employment, which most workplace pension plans don’t.

Q: As early as 2008, industry guru Keith Ambachtsheer wrote a C.D. Howe Institute commentary about the benefits of enhancing the Canada Pension Plan. Yet, in December 2013, the conservative government in several Canadian provinces voted against this proposal. Why do you think this occurred?
A: Every respected economist in the country supports a CPP expansion. The reason why the current government did not support it is political, not principled.

There was political pressure from business lobby groups who did not want to be forced to contribute employer revenue toward their employees’ retirement. There was political pressure from the financial services lobby, because they do not benefit at all when the retirement savings of Canadians is held in the CPP Trust Fund.

And finally, there’s fear among Canadian voters, who’ve been led to believe that anything opposed by business must be bad for them, too. Some of them also don’t want to be forced to save for retirement.

Q: Instead of expanding the CPP, the late finance minister, Jim Flaherty and the provinces endorsed pooled registered pension plan legislation as the way to encourage Canadians to save more for retirement. What are the key features of PRPPs?
A: Good question. PRPPs are basically like voluntary employer-sponsored group RRSPs. The funds are locked in, so it resembles a registered defined contribution plan. Your funds can also be ported to another plan and there are survivor benefits. So, it’s basically like an “RRSP-plus.”

Q: Why do you think that PRPP’s are not the answer?
A: Well, I think PRPPs are just a prime example of what I said earlier ­­­– political lobbying by business and the financial industry.

1. The employer is not required to contribute a dime even if the company voluntarily sponsors a PRPP.
2. An employee can opt out, or voluntarily set their contribution rate to zero, which gives zero benefit to the employee.
3. There’s very little benefit security. Like I said, it’s like a DC plan, so you get to choose member-directed investment funds. If you don’t invest your money well, then you won’t get a good pension.
4. The cost structure is really not that much different than a 500-member group RRSP. The management expense ratio (MER) will be much higher under a PRPP than under a large workplace pension plan or, for that matter, under CPP, where the efficiencies of scale are such that the costs are very, very, very low.
5. It will create a huge windfall to insurance companies and other financial institutions who manage these funds, because there’s very few cost controls. There are lots of problems in group RRSPs with so-called “hidden fees” and there’s no indication that that will change with PRPPs.

I can go on, but I think you get the idea.

Q: Groups such as the Canadian Federation of Independent Business say that required employer contributions to an expanded CPP would amount to a significant payroll tax that could slow down economic growth. How would you respond to this statement?
A: To be quite blunt, this is a false and misleading statement. Anyone who tells you it’s a tax is not telling you the truth. This is employee money. It goes into a pension fund. It then goes back to the employee.

Q: Ontario Premier, Kathleen Wynne’s government is currently holding consultations on the design of an Ontario Retirement Pension Plan. What are some of the key features of that plan?
A: At the end of December of last year, the Ontario government introduced the first reading of the bill for the Ontario Retirement Pension Plan intended to commence at the beginning of 2017. The reason for the delay period is because there’s hope that the next federal government may agree enhance CPP, which could make the ORPP redundant.

But the key features are that it’s a mandatory plan. It’s like an adjunct to CPP. So, it would be mandatory in all Ontario workplaces, except where the employer already has a workplace pension plan for its workforce, and it would be integrated with the CPP.

Q: Several other provinces, like PEI, may jump on the same bandwagon, so why do we still need a national CPP enhancement?
A: Well, it would better if the federal government came on board to make it nationwide. I mean if we just have it province by province, then it’ll be more of a patchwork. This could influence inter-provincial mobility. We don’t want to discourage full inter-provincial mobility by Canadians.

Q: Well – and, of course, the other issue is – just like pension legislation across the country, which is similar, but actually very different when it comes to the details – we run the risk of getting ten or 11 completely different plans.
A: And that would result in over-regulation and an increase in transaction costs although the whole point of this is to minimize and optimize the costs of running the fund — which is why CPP is good model.

CPP is viewed as one of the best universal, mandatory state-sponsored pension plans in the world. It would be a shame for us to have to rely on province-by-province, patchwork participation in such a scheme.

Also, you know, at the end of the day, this is really something that benefits all Canadians, regardless of what age or generation they are in. One way or the other, taxpayers will be taking care of older Canadians who are poor. It’s better that Canadians have their own resources to take care of themselves; and that’s an optimal use of taxpayer resources.

So, I just really think it’s a good idea, and I really think that this is the ballot question for the upcoming federal election this year. We saw this 50 years ago when CPP was introduced. I believe this year there will be a renaissance of that issue.

Q: Thanks, Ari. It was great to talk to you.
A: My pleasure, Sheryl. Be well.

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This is an edited version of the podcast posted above which was recorded on February 3, 2014.