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

By Sheryl Smolkin

You just got a job offer and in addition to a hefty salary increase you are getting all kinds of new perks like life insurance, free parking and a cell phone. The company even has a subsidized cafeteria where you buy lunch and pick up dinner- to-go for the family.

But not all employee benefits are created equal. In some cases the value of the benefits is viewed as taxable income by Canada Revenue Agency when you file your tax return.

Here are seven things that may form part of your compensation and how they are taxed by CRA.

1. Group benefits: Amounts your employer pays for your life, accident and critical illness insurance coverage are taxable benefits. But when the company pays all or part of the cost of your extended health care, dental plan, short-term disability (STD) or long-term disability (LTD) insurance you do not pay tax on the premiums. If you collect on your short-term or long-term disability insurance you will pay taxes if any part of the premiums were employer-paid.
2. Pensions/Group RRSPs: Your company’s contributions to your pension plan are not taxable. However, your employer’s contributions to your Group RRSP account are viewed as additional taxable income by CRA. But you can deduct RRSP contributions (up to $23,820 for 2013) so you will not actually have to pay taxes on Group RRSP contributions made by your employer on your behalf.
3. Service and recognition awards: Cash, gift certificates and things like gifts of stock certificates and gold coins are always taxable benefits. However, you can receive tangible tax-free gifts or awards worth up to $500 annually in some specified circumstances, such as a wedding or outstanding service award. In addition, once every five years you can receive a tax-free, non-cash long-service or anniversary award worth $500 or less.
4. Tuition reimbursement: If you get a scholarship or bursary from your employer it will be a taxable benefit unless you took the program to maintain or upgrade your employment skills. For example, if you need an executive MBA to be promoted, no tax is payable on the value of company-paid tuition. Where the company gives your child a scholarship or bursary, generally neither you nor your son or daughter who benefit from the scholarship have to pay taxes on the amount.
5. Parking: Employer-provided parking is usually a taxable employee benefit unless you have a disability or the parking spot is provided because you regularly need to drive a car for work. If you work in a shopping centre or industrial park where parking is free to employees and customers, a taxable benefit will not be added to your remuneration. Similarly, if there are fewer parking spots than the actual number of employees (scramble parking), free parking is not valued or included in taxable income.
6. Mobile phone: Charges paid by the company for the business use of your cellphone are not taxable. If your phone is used in part for personal reasons, that portion of the bill should be reported on your T4 as a taxable benefit. However, if the cost of the basic plan has a reasonable fixed cost and your use does not result in charges over the cost of basic service, CRA will not consider any part of the use taxable.
7. Subsidized meals: If the company cafeteria sells subsidized meals to employees, this will not be considered a taxable benefit as long as employees pay a reasonable amount that covers the cost of food preparation and service.

More details about the taxation of these and other employee benefits or allowances can be found on the CRA website.

Also see:

CRA Benefits and Allowances Chart

Income Tax Treatment of Taxable Benefits

Some workplace benefits come tax-free

By Sheryl Smolkin

It’s only February 11^th and it feels like personal finance writers should have run out of things to say about RRSPs by now, but somehow they still find more to write about.

One of the more interesting things I came across this week was the results of a BMO survey that reported 69% of Canadians expect the Canada Pension Plan (or Quebec Pension Plan) to cover their retirement costs with nearly one-third, planning to “rely heavily” on it. This is despite the fact that CPP has an average monthly payout of less than $600 a month! And many people are also pegging their hopes on an inheritance or a lottery win to fund their golden years.

Well, someone once told me that lotteries are “a tax on the statistically challenged,” so you should probably take careful note of Brenda Spiering’s blog on brighterlife.ca discussing how much you can contribute to an RRSP.

The annual maximum contribution for 2013 is the lesser of $23,820 and 18% of your earned income for the previous year. But you may also have unused contribution room from previous years that has been carried forward and you can over-contribute up to $2,000 without a penalty.

But don’t forget to save some RRSP contribution room to make your $2,500 maximum Saskatchewan Pension Plan contribution.

Also, check out Gail Vaz-Oxlade’s interesting  2014 RRSP Update. Did you know that kids CAN have an RRSP although they can’t have a Tax-free Savings Account until they’re 18? If a child contributes when she doesn’t have to pay any tax, don’t claim the deduction. Hold it for later when her income and her tax rate go up so she gets a bigger bang for her buck.

On moneysmartsblog.com Mike Holman pokes a few holes in the RRSP Myth that an RRSP is only advantageous if your marginal tax rate in retirement is lower than your marginal tax rate when contributing.

He gives examples to show that when you make a contribution to an RRSP the tax deferred from RRSP contributions is calculated at your marginal tax rate (or close to it, if your RRSP contributions span more than one tax bracket). However, when you withdraw money from your RRSP or RRIF – the tax is calculated using your average tax rate (after other income sources such as pensions) which is typically lower.

Finally on retirehappy.ca, blogger Scott Wallace weighs in on the new Pooled Pension Plans to be offered by the federal government and some provinces such as Quebec and Saskatchewan. PRPPs are intended to provide a savings vehicle for small business or self- employed people who don’t have access to larger pension plans..

Scott says the industry already has low cost Group RRSPs and DC pension plans. And of course my readers already know that SPP allows employers to set up an easy, no-cost workplace plan. That’s why I agree with Scott that the real issue is not creating new kinds of retirement savings accounts but finding ways to make more people save!

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

SPP, RRSP, Group RRSP, TFSA. This alphabet soup of acronyms represents only a few of the most common retirement savings options available to Canadians.

Other important retirement savings vehicles beyond the scope of this blog include employer-sponsored defined benefit pension plans, defined contribution pension plans and hybrid registered pension plan designs.

Where you chose to save your money and how much you save each year is an individual decision based on your disposable income and your longer-term financial goals. Because each type of plan has different contribution levels, tax consequences and withdrawal rules, it often makes sense to contribute to more than one kind of savings vehicle.

For example, you might decide to:

• Contribute to the Saskatchewan Pension Plan to ensure you have a stream of income at retirement.
• Participate in the Group Registered Retirement Savings Plan sponsored by your employer to get the benefit of employer matching of your contributions.
• Save your “emergency” or “rainy day” fund in a TFSA.

To help you understand and prioritize your retirement savings, here are some key features of each of these program. SPP and RRSP contributions for 2012 must be made by March 1, 2013 to be eligible for a tax deduction.

In all cases, you should consult your financial advisor and obtain more detailed information about each type of program before making savings and investment decisions.

Saskatchewan Pension Plan 

SPP is the only pension plan of its kind in Canada. It is a voluntary defined contribution plan open to anyone between the ages of 18 and 71. Employers who wish to make SPP available as an employee benefit can set up a group plan. Often employers with group plans match employee contributions up to a specified amount selected by the company.

SPP Key Features

Savings objectives:	Retirement savings.
Contributions:	Maximum contributions of up to $2,500/year if RRSP contribution room is available. Up to $10,000/year can be transferred in from another RRSP. No minimum payment. Contribution schedule and payment method at the member’s option.
Tax treatment:	Contributions are tax deductible. Tax is paid on benefit payments after retirement.
Investments:	Active members can invest in a professionally-managed balanced portfolio intended to maximize earnings and minimize risk or a short-term fund geared to capital preservation. Investment returns in the balanced fund have averaged 8% over the last 26 years and annual fees have been around 1%.
Withdrawals:	SPP contributions are locked-in within 6 months of joining and earn interest until the member retires.
Portability:	Membership in SPP can continue regardless of where the member resides or works throughout his career.
Retirement:	SPP members can elect to retire (start receiving benefits) as early as age 55 and no later than the end of the year they reach age 71. Members can elect to receive a pension from the fund, transfer the lump sum in their account to another locked-in account with a financial institution or a combination of both.

Registered Retirement Savings Plan 

Any person currently working in Canada is eligible to open and contribute to an RRSP until the year he/she turns 71 providing the individual has contribution room and files Canadian taxes. An RRSP account can be opened at any financial institution such as a bank, credit union and most investment houses.

RRSP Key Features

Savings objectives:	Retirement savings. Home purchase, education (see “withdrawals” below)
Contributions:	Until the year the taxpayer turns 71, contributions of up to 18% of earned income from the previous year can be made up to $22,970 in 2012 ($23,820 in 2013.) RRSP contribution room can be found on line (A) of the RRSP Deduction Limit Statement, on taxpayer’s latest income tax notice of assessment or notice of reassessment.
Tax treatment:	Contributions are tax deductible. Tax is paid on the full amount of withdrawals before or after retirement.
Investments:	RRSPs can be self-directed, or administered by a bank or financial institution. Generally, the types of investments permitted in a in a RRSP include: Cash Mutual funds Securities listed on a designated stock exchange Guaranteed investment certificates (GICs); Bonds; and Certain shares of small business corporations. The earnings record and investment fees charged will vary and investors must do their own due diligence.
Withdrawals:	RRSP contributions are not locked in. However, when funds are withdrawn from an RRSP, the contribution room is lost. The Homebuyer’s Plan and Lifelong Learning Plan allow RRSP withdrawals and repayment in specified circumstances.
Portability:	Membership in an RRSP can continue regardless of where the member resides or works throughout his career.
Retirement:	Funds in an RRSP can be withdrawn at any time and tax is payable on the full lump sum. Funds that are not withdrawn by the end of the member’s 71st year can be used to purchase an annuity or transferred into a registered retirement income fund. There are provincial pension and federal income tax rules about the maximum/minimum amounts that must be withdrawn each year.

Group RRSPs

Some employers establish Group RRSPs as an employee benefit. Often employers with Group RRSPs match employee contributions up to a specified amount selected by the company. They also may be able to negotiate lower fees for similar investments than fees charged to individuals by retail financial institutions.

Employers may restrict withdrawal of RRSP contributions by active employees except in extenuating circumstances, by withholding employer contributions for some period of time after a withdrawal is made.

An employee who changes jobs will not be able to continue in the group plan but the funds can be transferred to an individual RRSP with no tax consequences. However, the available investment options and the investment fees may not be as attractive as in the Group RRSP.

Tax-Free Savings Account

TFSA stands for Tax-Free Savings Account. Like an RRSP, a TFSA can be set up at a financial institution such as a bank, credit union, trust or insurance company. 

TFSA Key Features

Savings objectives:	Saving for any short or long term objective including retirement.
Contributions:	Up to $5,500/year beginning in 2013. Previously, $5000/yr
Tax treatment:	Contributions are not tax deductible but investment earnings accumulate tax free. Any funds withdrawn are also tax free.
Investments:	Generally, the types of investments that will be permitted in a TFSA are the same as those permitted in a RRSP. This would include: Cash Mutual funds Securities listed on a designated stock exchange Guaranteed investment certificates (GICs); Bonds; and Certain shares of small business corporations. The earnings record and investment fees charged will vary and investors must do their own due diligence.
Withdrawals:	Funds can be withdrawn at any time. Withdrawals will be added to the member’s TFSA contribution room at the beginning of the following year.
Portability:	Membership in a TFSA can continue regardless of where the member resides or works throughout his career.
Retirement:	Federal income-tested benefits and credits such as: Old Age Security (OAS) benefits, Guaranteed Income Supplement (GIS), or Employment Insurance (EI) benefits will not be reduced as a result of the income earned in a TFSA or amounts withdrawn from a TFSA.

Have you made your 2012 SPP contribution yet? Are you also contributing to an RRSP or a TFSA? Send us an email to so*********@sa*********.com and tell us about how you are saving for retirement and your name will be entered in a quarterly draw for a gift card.

If you would like to send us other money saving ideas, here are the themes for the next three weeks:

21-Feb	RRSP/SPP deadline	How should you invest your retirement savings?
28-Feb	Debt Reduction	How to eliminate debt
7-Mar	Airline points	Which kind of airline points are better?

Also see:
SPP vs. TFSA
Understanding SPP annuities
The Wealthy Barber explains: TFSA or RRSP?
RRSP vs. TFSA: Tim Cestnick on where to put spare dollars
To TFSA or to RRSP?
TFSA vs. RRSP – Clawbacks & income tax on seniors
TFSA vs. RRSP – Best Retirement Vehicle?