Financially independent seniors require less government help: Frazer Stark

Writing in the Financial Post, Frazer Stark notes that the “looming crisis” of baby boomer retirements — with those boomers living longer lives than their forbears — can be solved with a little more focus on self-reliance.

“Retirees,” he writes, “face uncertainty on multiple fronts: market returns, cost inflation and their own physical health. Yet it’s the unknown length of an individual’s ultimate lifespan that creates a labyrinthine financial planning challenge.”

“Consider that a 65-year-old woman entering retirement can expect to live on average to age 87,” he explains. “This average hides variability: she still has a 10-per-cent chance of living past 100, a one-per-cent chance of living past 105 and a tiny chance of reaching 110 or even beyond that (the oldest Canadian on record passed away at 117 years and 230 days). This variability makes determining how much to safely spend from her nest egg rather tricky,” he writes.

This danger of outliving one’s savings, he explains, can be handled several ways. You can “play it safe” and avoid drawing down your savings, he writes. But that carries the cost of “not fully enjoying these special retirement years while we can.”

You could also simply ignore the problem of living into your 90s and beyond by spending “freely as you set into retirement.” This can backfire, Stark adds, and your future you may suffer as a result of early heavy spending.

Defined benefit (DB) pension plans, Stark continues, offer a form of insurance against longevity, as such pensions are paid for life. Yet, he says, we “continue to steadily transition away from the DB pension structures that offered comfortable, confident retirements to previous generations.” Less than nine per cent of private-sector workers have DB plans today, compared to 50 per cent in the late 1970s, he notes.

Because such plans are so scarce in the private sector (they are more common in the public sector), Stark writes that “some… are giving up, viewing retirement as an unattainable goal.” Recent research has found that many have “curtailed saving,” rather than cutting back on today’s expenses to save for tomorrow, he continues.

As an example, he writes that the average price of a new car in 2022 hit more than $61,000, while in the same year, “59 per cent of Canadians said they were saving nothing for retirement, or little at all.”

Only a small percentage of Canadians insure themselves against running out of money in retirement via the use of lifetime annuities, he writes.

There has been progress in rolling out low-fee retirement savings programs (Stark mentions Wealthsimple), but “a similar evolution is now essential for the decumulation phase,” when saved retirement dollars are turned into income.

“Last year, the Organization for Economic Co-operation and Development (OECD) updated its pension-program guidelines, recommending that member countries provide their retired populations access to income-for-life options, including `by non-guaranteed arrangements where longevity risk is pooled among participants,’” Stark writes.

While work is being started by government and the financial sector on programs that address longevity risk for retirees, the path to this future “remains largely untrodden, and much work remains,” he continues.

Stark sees a solution in boosting “baseline education” about finances, and developing for Canadians “a set of tools to solve the decumulation problem for themselves.” This won’t be easy, will require a lot of innovation, but will be worth it, he predicts.

“Every Canadian who can comfortably navigate their own retirement finances is one less person requiring expensive subsidized care from the public purse, which must come from either increased taxes, additional borrowing or reduced spending elsewhere. The fourth option would be to simply not provide aid, creating tremendous suffering among our vulnerable elderly population and a stain on our national conscience,” he concludes.

This is a very well-written and detailed look at an insidious problem that tends to bite you in the backside when you are too old to deal with it — running out, or running low, on retirement income.

There is a way out of this for members of the Saskatchewan Pension Plan. SPP has you covered on the savings side — your contributed dollars are invested in a low-cost, expertly managed pooled fund. But SPP also has you covered at the drawdown stage. You can choose from a variety of SPP annuity options when you retire. All of them will provide you with an income supply that never runs out — a payment nestled in your bank account at the beginning of every month.

Check out SPP today!

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We often hear how scarce good workplace pensions are, and how many employers, notably those in the private sector, have given up on offering them altogether.

But, according to Derek Dobson, CEO and Plan Manager of the Colleges of Arts and Technology (CAAT) Pension Plan, there is an option for any Canadian employer that doesn’t want to go through the effort and expense of managing a pension plan for their employees. That option is CAAT’s DBplus plan.

Dobson tells Save with SPP that there are three main themes as to why some employers – with or without their own pension plan – might want to look at DBplus.

Running what is called a “single employer” defined benefit (DB) plan means the risk of ensuring there’s enough money invested to cover the promised benefits rests on the shoulders of one employer. In a multi-employer plan, however, many employers are there to shoulder the load – the risk is shared.

As well, he notes, it might be a chance to upgrade pension benefits. “A lot of organizations want to have access to something better for their people… some employers offer nothing, or a group RRSP. Now they can move to a modern DB plan,” Dobson explains. One study by the Healthcare of Ontario Pension Plan (see this prior Save with SPP post) found that most Canadians would take a job with a good pension over one that pays more, Dobson notes.

A final benefit, he says, is the ability that DBplus has to move all employees to a common retirement benefit platform. “In many organizations, you may find that one group of employees has nothing, one has a defined contribution plan, others have a DB plan that is now closed to new entrants… DB plus allows you to put everyone on the same platform,” he says.

Noting that another large pension plan – Ontario’s OPSEU Pension Trust – has launched a similar program for non-profit organizations, Dobson says the idea of leveraging existing pension plans to deliver pensions to those lacking good coverage “is great…the long and the short of it is that there’s a general belief that these larger plans want to put up their hands to help where they can.”

“It’s the right thing to do,” he says.

Why are pensions so important?

Dobson points out some key reasons. “The average person these days will live to age 90, and on average, they retire at age 64 or 65,” he explains. “That’s 25 years in retirement. So having a secure, predictable income, one with inflation protection and survivor pensions, and that is not being delivered for a profit motive – that’s why these plans are so powerful.”

Another great thing about opening up larger plans to new employers is that it addresses the problem of “pension envy,” Dobson says. Instead of pointing out who has a good pension and who doesn’t, now “everyone has access to one, to the same standard.”

Those without a pension have issues to face when they’re older, he warns. “The Canada Pension Plan and Old Age Security systems weren’t designed to be someone’s only source of income,” he explains. “We had a three-pillar system in the past – CPP, OAS, and the third pillar, your workplace pension plan and your private savings,” Dobson says. But a large percentage of Canadians don’t have pensions at work, and a recent study by Dr. Robert Brown found that the median RRSP savings of someone approaching retirement age is just “$2,000 to $3,000,” Dobson says. Yet the same study found Canadians are willing to try and save 10 to 20 per cent of their income for retirement.

Dobson says he is energized by the goal of bringing pensions to more Canadians. “It’s a way of making Canada better,” he concludes.

Here’s a video about how the CAAT pension plan delivers on benefit security.

We thank Derek Dobson for taking the time to speak to Save with SPP.

If you don’t have a workplace pension, or the one you have offers only modest benefits, don’t forget the Saskatchewan Pension Plan. SPP allows you to decide what your savings rate will be, grows those dollars at a very low management rate, and can convert the proceeds to a variety of lifetime pensions when you retire. Check them out today.

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What if there was a way to convert some or all of the money you’ve saved up for retirement into cash for life – monthly payments for as long as you live?

And once you made this conversion, you’d no longer have to make any investment decisions for this money; you’d just have to trot over to the Super Mailbox each month to collect a cheque.

There is just such a product, the annuity, but for some reason, it’s not something people choose very often. Writing in MoneySense, David Aston calls annuities “the best retirement product that hardly anyone buys,” adding that they amount to a sort of do-it-yourself defined benefit (DB) plan.

“Like DB pensions, (annuities) provide guaranteed income for as long as you live. But while employer pensions are considered the gold standard of retirement income plans, few Canadians ever think about annuities,” writes Aston, calling their unpopularity “baffling.”

Aston says that for some people, such as those with wealth or who have DB pensions from work, an annuity is probably not necessary. And others don’t like the idea of “their finality – once you give your cash to the insurance company, you’re locked in for life.” There’s no more “growth potential” for this investment and you can’t tap into it for lump sum amounts, he explains.

But, says Aston, they are ideal for cash flow. Many people buy an annuity which, along with government pensions, “meets all your non-discretionary needs,” such as keeping the lights on, the furnace going, and the rent paid via the steady, predictable and guaranteed income. And if you convert part of your retirement savings to an annuity, you can “afford to take more risks with the rest of your portfolio.”

One would imagine that those who took out annuities prior to the market downturn in 2008 are happy with their choice, because while you may miss out on investment gains, you also miss out on investment losses with an annuity.

In a video posted to Save with SPP, Moshe Milevsky, Professor of Finance at York University’s Schulich School of Business, calls annuities “insurance against something that is really a blessing, longevity.” Because the annuity pays you for life, you can never run out of money, he notes.

Writing in the Globe and Mail financial columnist Rob Carrick notes that unlike withdrawing money from a RRIF or other vehicle, the withholding tax on an annuity is not automatically deducted but is taxed the same as regular income, he explains.

He reports that a good time to consider buying an annuity is when you are older. “The later you buy, the shorter the period of time the insurer selling an annuity expects to have to pay you. As a result, payments are higher than they would be if you bought at a younger age,” he explains.

The cost of an annuity depends on current interest rates, which have been quite low for a while but are rising, which is good news for annuity buyers.

The Saskatchewan Pension Plan (SPP) is somewhat unique in that it can convert your savings into an annuity. They offer four different kinds of guaranteed annuities, and your money continues to be invested by SPP while you sit back and wait for the monthly cheque. For full details, check out the Retirement Options chapter in the SPP Retirement Guide.

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

For Derek Dobson, the fact that Canadians “are struggling to put money toward their retirement goals” is a “monumental issue” that needs to be addressed.

Dobson is CEO and Plan Manager of the Toronto-based Colleges of Applied Arts & Technology Pension Plan. At the end of 2017, the CAAT Plan had $10.8 billion in net assets and served more than 46,000 working and retired members.

Dobson tells Save With SPP that the statistics show that “there has been a decline in the percentage of working Canadians who have access to a pension savings program” in most Canadian workplaces. He says that the decline of workplace pensions started in the 1960s when the Canada Pension Plan started, a trend that has continued for decades.

But that trend can and should be reversed, he says. These days, it is harder to attract and retain valuable employees, and workplace pensions play an important role. “Employers are competing for workers again,” he explains. He says CAAT’s new defined benefit (DB) plan design, DBPlus, open to any organization, is getting inquiries from large and small employers. “We had a tree service company owner, with a staff of four, call us up about joining, because he found his people would leave to get jobs where there is a pension.”

Both CAAT and another Ontario jointly sponsored DB plan, OPSEU Pension Trust, have developed pensions that expand access to well-run defined benefit pensions that are easy for members and employers. Recently Torstar and its employees joined CAAT Pension Plan’s DBplus. When the matter was put to a vote, 97 per cent of the members of the Torstar plans voted in favour of the merger.

“Along with other pension plans, we are trying to get the message out that a measure of the health of Canada is how good its standard of living is in retirement,” Dobson explains.

People, he says, visualized getting old around age 75 and then passing away soon after. “Their jaw drops when we show them that it is highly likely they will live until their high 80s or early 90s,” he says. “They could easily live for 25 years of retirement. With improving longevity people need to think more about their financial security in retirement.”

Yet, he notes, those without pensions at work aren’t saving much on their own. The average RRSP balance in the country is only around $65,000 at age 65. That’s not going to be sufficient to keep people at a reasonable standard of living for 25 years, Dobson says.

Saving for retirement on one’s own is not easy, he says. While financial literacy courses help, retirement savings is a complex challenge for most. Canadians already are having to manage their debts, so “having a picture of what they want their future to be like” is difficult. “They want a good standard of living in retirement, but they don’t know where to start, or where to find value across so many choices.” And that can be so overwhelming that people “are not getting started putting money toward their retirement goals.”

Pensions in the workplace work because it is an automatic savings program, Dobson explains. “Your contributions come off your paycheque, so you don’t have to think about it,” he says. But decades later, he says, CAAT members notice that they are receiving a pension comfortably and the value is strong as they receive about $8 in benefits for every dollar they contributed, a fact that “resonates” with them, Dobson says.

The importance of having an adequate pension is something Dobson is passionate about; it is his hope that more and more employers will take advantage of the new and easy defined benefit offerings available to extend retirement security to more Canadians.

We thank Derek Dobson for taking the time to speak to Save With SPP.

If you are saving on your own for retirement and want someone else to do the heavy lifting of retirement asset management and decumulation – turning savings into lifetime monthly income — the Saskatchewan Pension Plan may be the plan for you. Check it out today.

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

By Sheryl Smolkin

If you are a member of the Saskatchewan Pension Plan you can elect to retire any time between the age of 55 and 71. You can purchase an annuity from the plan which will pay you an income for the rest of your life.

You can also transfer your SPP account into a locked-in retirement account (LIRA) or a prescribed registered retirement investment account (prescribed RRIF). Both options are subject to a transfer fee.

LIRA

The LIRA is a locked-in RRSP. It acts as a holding account so there is no immediate income paid from the account. You direct the investments and funds in this option and funds remain tax sheltered until converted to a life annuity or transferred to a prescribed RRIF. You choose where the funds are invested.

The LIRA is only available until the end of the year in which you turn 71. One advantage of a LIRA is that it allows you to defer purchase of an annuity with all or part of your account balance until rates are more favourable.

Prescribed RRIF

You must be eligible to commence your pension (55 for SPP) to transfer locked-in pension money to a prescribed RRIF. If you are transferring money directly from a pension plan, the earliest age at which your pension can commence is established by the rules of the plan.

You may transfer money from a LIRA at the earlier of age 55 (SPP) or the early retirement age established by the plan where the money originated. Funds in your SPP account or your LIRA at age 71 that have not been used to purchase an annuity must be transferred into a prescribed RRIF.

Unlike an annuity, a prescribed RRIF does not pay you a regular amount every month. However, the Canada Revenue Agency requires you to start withdrawing a minimum amount, beginning in the year after the plan is set up.

The Income Tax Act permits you to use your age or the age of your spouse in determining the minimum withdrawal. This is a one-time decision made with the prescribed RRIF is established. Using the age of the younger person will reduce the minimum required withdrawal.

To determine the minimum annual withdrawal required, multiply the value of your prescribed RRIF as at January 1 by the rate that corresponds to your age:

Table 1: Prescribed RRIF + RRIF minimum Withdrawals

Age at January 1	Rate (%)	Age at January 1	Rate (%)
50	2.50	73	7.59
51	2.56	74	7.71
52	2.63	75	7.85
53	2.70	76	7.99
54	2.78	77	8.15
55	2.86	78	8.33
56	2.94	79	8.53
57	3.03	80	8.75
58	3.13	81	8.99
59	3.23	82	9.27
60	3.33	83	9.58
61	3.45	84	9.93
62	3.57	85	10.33
63	3.70	86	10.79
64	3.85	87	11.33
65	4.00	88	11.96
66	4.17	89	12.71
67	4.35	90	13.62
68	4.55	91	14.73
69	4.76	92	16.12
70	5.00	93	17.92
71	7.38	94 and beyond	20.00
72	7.48
For revised RRIF withdrawal schedule based on 2015 Federal Budget, see Minimum Withdrawal Factors for Registered Retirement Income Funds.

There is no maximum annual withdrawal and you can withdraw all the funds in one lump sum. This is in contrast to other pension benefits jurisdictions such as Ontario and British Columbia where locked-in funds not used to purchase an annuity must be transferred to a Life Income Fund at age 71 that has both minimum (federal) and maximum (provincial) withdrawal rules.

The same LIRA and prescribed RRIF transfer options apply to Saskatchewan residents who are members of any other registered pension plan (DC or defined benefit) where funds are locked in.

RRSP/RRIF transfers

If you have saved in a personal or group registered retirement savings plan (RRSP) your account balance can be transferred into a RRIF (as opposed to a prescribed RRIF) at any time and must be transferred into a RRIF no later than the end of the year you turn 71 if you do not take the balance in cash or purchase an annuity.

The minimum withdrawal rules are the same as those of a prescribed RRIF (see Table 1). However, even in provinces like Ontario and British Columbia where provincial pension standards legislation establishes a maximum amount that can be withdrawn from RRIF-like transfer vehicles for locked in pension funds (LIFs), there is no cap on the annual amount that can be taken out of a RRIF.

Also read: RRIF Rules Need Updating: C.D. Howe