As a Bay Street pension lawyer, Jean-Pierre Laporte often wondered why some people – public sector workers, union members – had access to great pension plans at work when many other hard-working people didn’t.

“That’s when I got the idea of taking the existing pension laws, and repackaging them at a micro level so people in the private sector got access to a good pension too – what’s good for the goose is good for the gander,” Laporte, CEO of INTEGRIS Pension Management tells Save with SPP.

The result is the Personal Pension Plan (PPP®), a design that offers a tailor-made pension plan for participants. The PPP® is essentially a pension plan where the individual running the plan is also a plan member, he explains. It is a “combination pension plan” that offers both a defined benefit (DB) pension and a defined contribution (DC) pension – and “the ability to move between the two options,” he explains.

It runs just like a big public sector pension plan would, with a statement of investment goals, actuarial filings, regulatory compliance, and even an additional voluntary contribution (AVC) feature for consolidating existing RRSPs with pension assets, he explains. Its combination design “allows one to shift away from the… DB mode of savings and into a money-purchase, or DC mode every year, if necessary.”

This could be ideal for situations where an entrepreneur is running a PPP® at the same time as a business – if sales are down, the company can “gear down” and shift into a less expensive DC pension mode, and can “gear up” when better times resume, he explains.

This design “optimizes tax deductions across a number of dimensions” that can’t be done with other savings vehicles, such as RRSPs or conventional DB plans like the Individual Pension Plan (IPP).

PPP® contributions can be much, much higher than RRSP contributions, which are capped at 18 per cent of earned income. This can allow PPP members to transfer hundreds of thousands more dollars into their PPP than they could to an RRSP in the run-up to retirement, he notes.

Other PPP® features include a wider range of investment options (including direct ownership of real estate), the ability to top up the PPP® with special payments if returns from investments are lower than expected, the deductibility of investment management fees, interest if borrowing, the ability to “turn on” the PPP® early for early retirement, and more.

As well, while the PPP® may be funded by an individual’s company, the PPP® assets are separate – so they are creditor-proof and not factored into a corporate (or individual) bankruptcy. Those setting up a PPP® for a family business can sign up family members as members, transferring the pension savings along to future generations without any “wealth transfer” taxation, he explains.

“It is for all of these reasons that the PPP® crushes the RRSP as the option for saving for retirement,” Laporte says.

While the PPP® is not intended for everyone, it is an option for a fairly broad group, Laporte explains.

“The pool of potential clients is broader than just self-employed professionals and business owners.  This also works well for highly compensated key employees of larger corporations where the T4 income paid is well above $150,000 per year. This includes CEOs, CFOs, and COOs of large companies,” Laporte explains.

Laporte says he has long advocated for better pension coverage for everyone, particularly those who don’t have workplace pensions and may have to rely solely on funding their own retirement via RRSPs. He advocated 15 years ago for an expansion of the CPP, which he says is a step in the right direction. He says he got his idea for CPP expansion after learning about the goals of the Saskatchewan Pension Plan (SPP).

He says the goal of making retirement “fair for all Canadians” would be like an effort to “rise all boats” to a higher level.

We thank JP Laporte for taking the time to talk with Save with SPP.

The Saskatchewan Pension Plan is non-profit, low-cost defined contribution plan that can help you grow your retirement savings, and provides a variety of annuity options at retirement. Get in the know 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 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

Recent research conducted for Aon has found that Canadian workers in capital accumulation plans (CAPs), such as defined contribution (DC ) pension plans or group RRSPs, while confident about these plans and their own finances, “find it hard to save for retirement and are worried about having enough money to retire.”

The global actuarial and HR firm’s report, Global DC and Financial Wellbeing Employee Survey, also found that “fewer than half” of those surveyed have a particular goal for retirement savings, and that “depending on other sources of income, many find their current plan contribution levels are inadequate to ensure their total income needs in retirement,” according to an Aon release.

Among the other findings of the report:

• Of the 1,003 respondents, only 27 per cent saw their financial condition as poor
• Almost half of those surveyed say outstanding debts are preventing them from saving for retirement
• Two of five who are in employer-matching plans (where the employer matches the contributions made by the employee) are not taking full advantage of the match
• Of those who expect to fully retire from work, two-thirds expect to do so by age 66; 30 per cent expect to keep working forever in some capacity.

Save with SPP reached out to one of the authors of the research, Rosalind Gilbert, Associate Partner in Aon’s Vancouver office, to get a little more detail on what she made of the key findings of the research. 

Do you have a sense of what people think adequate contributions would be – maybe a higher percentage of their earnings?

“I don’t believe most respondents actually know what is ‘adequate’ for them from a savings rate perspective.  The responses are more reflective of their fears that that they don’t have enough saved to provide themselves a secure retirement.  Some may be relating this to the results of an online modeller of some kind, or feedback from financial advisors.

“I also think that many employees don’t have a clear picture of the annual income they will be receiving from Canada Pension Plan/Old Age Security to carve that out from the income they need to produce through workplace savings.  Some of this comes back to not having a retirement plan in terms of what age they might retire and, separately, what age they might start their CPP and OAS (since both of those drive the level of those benefits quite significantly).”

Is debt, for things like mortgages and credit cards, restricting savings, in that after paying off debt there is no money left for retirement savings?

“We were surprised to see the number of individuals who cited credit card debt as a barrier to saving for retirement. Some of this is the servicing (interest) cost, which is directly related to the amount of debt (and which will increase materially if interest rates do start to rise, which many are predicting).

“I think that the cost of living, primarily the cost of housing and daycare, is currently quite high for many individuals (particularly in certain areas like Vancouver), and that, combined with very high levels of student loans, means younger employees are just not able to put any additional money away for retirement.  There is also a growing generation of employees who are managing child care and parent care at the same time which is further impeding retirement savings.”

We keep hearing that workplace pensions are not common, but it appears from your research that participation rates are high (when a plan is available).

“This survey only included employees who were participating in their employers’ workplace retirement savings program.  So you are correct that industry stats show that overall coverage of Canadian employees by workplace savings programs is low, but our survey showed that where workplace savings programs are available, participation rates are high.”

What could be done to improve retirement savings outcomes – you mention many don’t take advantage of retirement programs and matching; any other areas for improvement?

“In Canada, DC pension plans and other CAPs are not as mature as they are in other countries such as the UK and US.  That said, we are now seeing the first generation of Canadians retiring with a full career of DC (rather than DB) retirement savings.  Appropriately, there has been a definite swing towards focusing on decumulation (outcomes) versus accumulation in such CAPs.

“From service providers like the insurance companies that do recordkeeping for workplace CAPs, this includes enhanced tools supporting financial literacy and retirement and financial planning.  Also, many firms who provide consulting services to employers for their workplace plans encourage those employers to focus on educating members and encouraging them to use the available tools and resources.

“However, if members are required to transfer funds out of group employer programs into individual savings and income vehicles (with associated higher fees and no risk pooling) when they leave employment, they will see material erosion of their retirement savings. Variable benefit income arrangements (LIF and RRIF type plans) within registered DC plans are able to be provided in most jurisdictions in Canada, but there are still many DC plans which still do not offer these.

“It is more difficult to provide variable benefits when the base plan is a group RRSP or RRSP/deferred profit sharing plan (DPSP) combination, but the insurance company recordkeepers all offer group programs which members can transition into after retirement to facilitate variable lifetime benefits.  The most recent Federal Budget was really encouraging with its announcement of legislation to support the availability of Advanced Life Deferred Annuities (ALDAs) and Variable Pay Life Annuities (VPLAs) from certain types of capital accumulation plans.

“There is still more work to be done to implement these and to ensure that they are more broadly available and affordable, but it is a definite step in the right direction.  A key benefit of the VPLAs is the pooling of mortality risk while maintaining low fees and professionally managed investment options within a group plan.  The cost to an individual of paying retail fees and managing investments and their own longevity risk can have a crippling impact on that member’s ultimate retirement income.”

We thank Rosalind Gilbert for taking the time to connect with us.

If you don’t have access to a workplace pension plan, or do but want to contribute more towards your retirement, the Saskatchewan Pension Plan may be of interest. It’s a voluntary pension plan. You decide how much to contribute (up to $6,200 per year), and your contributions are then invested for your retirement. When it’s time to turn savings into income, SPP offers a variety of annuity options that can turn your savings into 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