By Sheryl Smolkin

If you are reading this, chances are you have heard about SPP or you are already a member. But even if you make regular contributions, you may have forgotten about some of the key features of the program that make it an excellent retirement savings program for all Canadians. 

Just for fun, we have put this quiz together to test your knowledge about SPP. Give it a try and see how much you really know. And forward it to friends and family members who may still not have heard about “Canada’s best kept secret.”

 

For a full list of contest rules and regulations click here.

By Sheryl Smolkin

If you save for retirement with the Saskatchewan Pension Plan, the Contribution Fund allows you to invest in a professionally managed balanced portfolio or a short-term fund. The composition of the balanced fund at September 30, 2012 is illustrated below. On average, annual fees are targeted to be one percent.

Yet a recent article in the Globe and Mail by columnist Rob Carrick reveals that the average management expense ratio (MER) — that’s the ratio of fees to the total amount of money in the fund — is 2.37 per cent for six types of retail balanced funds he reviewed.

Carrick also notes that yield on a five-year Government of Canada bond — that is, the annualized return from the interest you receive — is about 2.5 per cent right now. A five-year provincial government bond yields about 2.9 per cent. Subtract the average balanced fund fee from these yields and you’re not left with much. Those same fees will grind down your returns from the stocks in your balanced fund, though not quite so dramatically.

How much of a difference do fees make? Take a look at the following two scenarios:

1. If starting at age 30 you save $2,500/yr. in the SPP for 35 years with an average annual net interest rate of five per cent you will have savings of $237,090 at age 65.
2. If starting at age 30 you save $2,500/yr. in a retail balanced mutual fund for 35 years with an average net annual interest rate of 3.63 per cent (lower because admin expenses are 1.37 per cent higher than in SPP) you will have savings of only $177,235 at age 65.

That’s a difference of almost $60,000. And the results are much more dramatic if you deposit $2,500/year for 35 years and transfer in another $10,000/year from your RRSP. Earning 5 per cent a year in SPP, your balance would be $1,185,454 but if you only earn 3.63 per cent in a retail balanced mutual fund you will save only $886,176 or 25 per cent less.

For more information about SPP investments, see Investments.

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Also read:
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SPP members may begin receiving benefits from the Plan any time after age 55 and must be retired from the Plan by the end of the year in which they reach 71. At SPP, “retirement” simply means you are receiving pension payments. You can still be employed and receive a pension from SPP.

You may choose an annuity from SPP and receive a pension for the rest of your life, transfer the funds to a locked-in account with a financial institution, or choose a combination of the annuity and transfer options.

Here are some FAQ about pension payments. For more information, see the SPP Retirement Guide.

Q. How much will my pension be?

A. If you elect to receive a pension, the amount of your monthly payment will depend on which annuity option you choose, your age at retirement, your account balance, and the interest and annuity rates in effect when you retire.

Q. How does an annuity work?

A. A SPP annuity is the easiest way to access your SPP savings. Funds stay invested with SPP – no transfer fee – and the Plan assumes the investment risk and the obligation to pay a pension for your lifetime.

Your annuity choice cannot be changed after payments begin. Each option provides different death benefits. Annuities offered by SPP as well as their features are:

Life Only Annuity

This provides the highest monthly payment with no survivor or death benefits payable. All pension payments stop at death.

Refund Life Annuity

At death your beneficiary receives the remaining account balance. The death benefit is calculated by subtracting total payments received from account balance at retirement. You must specify a person(s) or estate as beneficiary. The beneficiary designation can be updated at any time before your death.

Joint and Last Survivor Annuity

At your death, your surviving spouse or common-law partner receives a monthly payment for the rest of his or her life. The continuing benefit for your joint survivor is 100%, 75%, or 60% of your monthly pension, as chosen at retirement.

Q. Can I transfer my money out?

A. At retirement time, one of the options is to transfer your account to a Locked-in Retirement Account (LIRA) or a prescribed RRIF with another financial institution.

Q. Can I get my money out in a lump sum?

A. If you have a small pension benefit of $20.88 or less per month at your retirement date, you may choose to take your money out in cash less a 10% withholding tax (sent to Canada Revenue Agency) or transfer your account into an RRSP.

Saving money can be challenging.  It is not always easy to be disciplined enough to regularly put money aside for retirement. And even when you are committed to making regular contributions, there are times when life gets in the way and other expenses must take first priority.

That’s why we try to make contributing as easy as possible for SPP members. In the FAQs below we explain more about our flexible contribution options.

Q.1 How do I make my contribution?

A. Contributions can be made in a number of ways:

• Directly from your bank account on the 1st or 15th of the month by joining the pre-authorized contribution program.
• By mail or at your financial institution using a contribution form.
• Online or by telephone through your bank.
• Authorizing payments from your VISA or MasterCard on a pre-arranged schedule.
• Contributing online, by telephone or in person using VISA or MasterCard.

Q.2 Do I have to contribute the same amount each year?

A. SPP is designed to be very flexible and to accommodate your individual financial circumstances. There is no minimum contribution. Even contributing $10 per month will build your SPP account and provide you with additional pension at retirement. The maximum contribution was changed to $2,500 effective December 7.

Q.3  Can I transfer money into SPP?

 A. SPP accepts transfers, up to $10,000 per calendar year from RRSPs, RRIFs and unlocked pension plans.

Q.4  Are my SPP contributions tax deductible?

A.   SPP contributions are subject to the same rules as RRSP contributions.    Your SPP contribution is tax deductible by you or your spouse, if he or she contributed for you. The person claiming the deduction must have unused contribution room for RRSP purposes.

Q.5 Can my creditors access my SPP contributions for outstanding debt?

A. Your money is protected from claim or seizure except in the event of an order under a marital division or an Enforcement of Maintenance Order.

Q.6 Can I take my contributions plus investment earnings out of SPP?

A. SPP is a locked-in pension plan which means your account must stay with the Plan until you are at least 55 years old. In the event of your death, the money in your account will be paid to your beneficiary.

Within six months of joining SPP, you can withdraw your contributions if you decide that you do not wish to participate in the Plan. After six months, the funds are locked in.