Could a pension model be the way to address the costs of long-term care in Canada?

Writing in the Globe and Mail, Professor Carolyn Hughes Tuohy of the University of Toronto offers up an interesting solution on how Canada could improve its long-term care sector – and part of her thinking relates to the way the Canada Pension Plan is funded.

Professor Tuohy notes that while there have been calls for “national standards” for long-term care facilities in the wake of the pandemic, a key problem is that long-term care is currently a provincial responsibility.

“How do we achieve a common threshold of provision while respecting Canada’s federal system?” she asks.

She writes about the idea of having some sort of “nationwide pool” of funding, so that the “longevity risk, that individuals will outlive their savings and be unable to afford long-term care,” could be addressed.

And, she writes, while provinces and local governments are “best suited” to deliver long-term care, that can lead to “inequitable variation across divisions.”

For instance, she notes, the fatality rate at long-term care facilities in Ontario has been about four times higher than that of British Columbia.

A solution, Professor Tuohy thinks, may be found by looking at the Canada Pension Plan/Quebec Pension Plan as a possible model.

“The Canada Pension Plan, paralleled by the Quebec Pension Plan, is jointly managed by federal and provincial governments. It provides a dedicated source of public finance, funded by contributions from workers and employers. It is designed to be sustainable and sensitive to demographic change, in contrast with the periodic haggling around the Canada Health Transfer. And it makes sense to think of a model of public finance for long-term care as more akin to a retirement benefit than to health insurance,” she writes.

She notes that the government spends more on providing healthcare for those over 65 than the rest of us – and that living past 80 carries with it “a 30 per cent chance of requiring long-term institutional or home care.” That risk currently carries a cost that might be addressed via “a steady, pension-like benefit stream,” she explains.

She proposes “a long-term care insurance (LTCI) benefit… (that) could be attached to the CPP/QPP as a supplementary benefit. It would pay out a capped cash transfer to the beneficiary, set according to the level of health need as assessed through existing provincial mechanisms. Unlike the CPP/QPP, the benefit would be assignable to a qualifying third-party provider of institutional or home care, as chosen by beneficiaries in consultation with their local assessing agency.”

Such a benefit, she concludes, already exists in countries like “Germany, the Netherlands, and Japan.” She calls the proposal a creative way “to bring the full advantages of our federal system to the pressing issues of long-term care.”

Long-term care is something we all hope we’ll never need, but could be part of our retirement expenses. A best defence against unexpected retirement costs is, of course, retirement saving.

And an excellent way to do that is to consider joining the Saskatchewan Pension Plan. The money you contribute is professionally invested at a very low cost, and SPP has averaged an impressive eight per cent rate of return since its inception 35 years ago. Check out SPP today.

Join the Wealthcare Revolution – follow SPP on Facebook!

By Sheryl Smolkin

While most (94%) Canadians aged 55 to 75 ‘agree’ that they would ‘like to have guaranteed income for life’ when they retire, a new Ipsos poll* conducted on behalf of RBC Insurance finds that just two in ten (22%) Canadians agree that ‘Canadian public pension plans (such as CPP/QPP/OAS) will provide enough retirement income’ for them. In fact, most (78%) disagree that these pension plans will suffice.

It’s no surprise then that six in ten ‘agree’ that they’re ‘worried about outliving their retirement savings’, while four in ten ‘disagree’ that they’re worried. Women (66%) are considerably more likely than men (50%) to be worried about outliving their savings, as are those aged 55 to 64 (62%) compared to those aged 65 to 75 (52%).

Atlantic Canadians (67%) are most worried about outliving their retirement savings, followed by those in Ontario (63%), Alberta (60%), Quebec (59%), Saskatchewan and Manitoba (58%) and finally British Columbia (41%).

One way of supplementing retirement income is through the use of an annuity, but many Canadians aged 55 to 75 appear in the dark about what an annuity is and how it might help them. In fact, six in ten say ‘that they ‘don’t know much about annuities’, while four in ten disagree that they lack knowledge in this area.

Women (71%) are significantly more likely than men (51%) to say they don’t know much about annuities, as are those aged 55 to 64 (66%) compared to those aged 65 to 75 (55%). Albertans (75%) are most likely to admit they don’t know much about annuities, followed by those living in Saskatchewan and Manitoba (71%).

Responses to this quiz also confirm that many Canadians lack fundamental knowledge about annuities. Just 55% of Canadians were able to answer more than half of the questions correctly, and only 6% got all six questions right. British Columbians (62%) were most likely to pass the test, followed by those in Quebec (57%), Ontario (54%), Atlantic Canada (53%), Alberta (52%) and finally Saskatchewan and Manitoba (49%).

• Just four in ten believe that it is true that they need a licensed insurance advisor to buy an annuity. In contrast, six in ten believe this is false – when in fact, it is true.
• Seven in ten correctly believe it’s true that there are potential tax savings to investing in annuities, while 29% incorrectly believe this to be false.
• Half incorrectly believe it’s true that annuities last for a specific period of time, while the other half believes this is false, which is the correct answer.
• Seven in ten correctly believe it’s true that annuities can provide guaranteed income for life, while three in ten incorrectly believe this to be false.
• Half think it’s true that annuities are not a good investment during low interest rate environments, while the other half correctly believes this to be false.
• Three quarters correctly believe it’s true that they can invest in an annuity using their RRSP and/or RRIF savings, while 27% incorrectly think this is false.

Despite the majority being uneasy about their retirement savings, just one in three agrees that they are exploring or considering annuities as part of their retirement plan, while most (65%) are not. One quarter say they have an annuity.

Members of the Saskatchewan Pension Plan can opt at retirement to receive an annuity payable for life. Life only, refund and joint survivor annuities are available.

*These are some of the findings of an Ipsos poll conducted between August 7 to 14, 2015 on behalf of RBC Insurance. For this survey, a sample of 1,000 Canadians aged 55 to 75 from Ipsos’ Canadian online panel was interviewed online.

By Sheryl Smolkin

I’ve been thinking about the cost of health and long term care a lot lately because my 88- year old Mom recently had a bad fall and cracked five ribs. She is recovering at home but she is in a lot of pain, and requires 24/7 care for the foreseeable future.

The plan has always been to keep her in her own apartment as long as possible. Fortunately her wonderful, privately-paid caregiver (a registered practical nurse) who normally works 40 hours/week has virtually moved in and is helping us to take excellent care of her. But as costs mount up over the short run, we are beginning to wonder if this will be a luxury she soon can’t afford.

Access to public resources varies across the country, but in Thornhill, Ontario where she lives , I’ve been told that a maximum of one hour a day (and most probably only two hours a week) will be offered to her on the government dime. But I’m grateful that 22 in-house physiotherapy sessions to get her up and moving better and train her to avoid future falls have been approved.

So if health and long-term care are not in your retirement planning radar yet, I have put together a few recent articles that may get you thinking about what you can expect.

On Retire Happy, Donna McCaw writes about Your Health in Retirement: Asking for Help. She cites staggering statistics from the Vancouver based Canadian Men’s Health Foundation about men and heart disease, cancer, diabetes, obesity, alcohol-related deaths as well as suicide. She interviewed recently-retired men who made it their first priority to get healthy and get rid of their “ring around the waist” by embracing fitness and learning to eat healthy.

Life after retirement: Health care costs require careful planning in the Financial Post is by Audrey Miller, the Managing Director of  http://www.eldercaring.ca/. She cites home care costs by the week and by the year (albeit in Ontario) and says as family members and professionals, we need to be better prepared. The cost of care is only going to become more expensive, especially as our public and private resources are reduced. Not only will we soon have more seniors than young people under 15, but our pool of those who are willing to be paid to do this work will also become smaller.

The coming health benefits shock for retirees by Adam Mayers at the Toronto Star reminds us that contrary to what many people believe, glasses, drugs and nursing homes will not in most cases be paid for by our universal health care. He quotes Kevin Dougherty, president of Sun Life Financial Canada who says one reason for the disconnect may be that we form an opinion of the health system through our use of it. Most of us are covered by workplace health plans and we don’t need much from these plans during our earlier years, and into middle age what we do need is covered.

Navigating Retirement healthcare is a comprehensive report from CIBC Wood Gundy discussing health care cost considerations in retirement. The study notes that long-term care is classified as an extended healthcare service under the Canada Health Act but the role of publicly-funded LTC facilities is changing as provincial governments limit the expansion of these facilities by reducing the number of registered nurses, maintaining or decreasing the number of available beds, and tightening the qualifications for acceptance into a facility.

Even if these policies were reversed, an individual’s current wait time of one year will likely increase unless significant expansion of the LTC provision occurs. The result is that a greater number of seniors are paying to enter more expensive for-profit private or semi-private facilities that can cost up to $7,000 or more a month.

Finally, Long-term care costs in Saskatchewan 2014 by Sun Life discusses how residential facilities, retirement homes/residences, government-subsidized home care, adult day care and private home care operate. Government subsidized options including home care are administered by the Regional Health Authority (RHA). As RHA resources are limited, many seniors don’t get the care they need from RHA services and have to rely on private home care services. The provincial tariff for skilled nursing ranges from $42-$70/hour while 24 hour live-in care can cost from $21-30/hr.

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By Sheryl Smolkin

If you know someone heading off to University of Regina, Saskatchewan Polytechnic (or several other participating Canadian universities and colleges) you may be interested to know that Aeroplan points can now be used to pay their tuition. Ontario and Alberta students can also use Aeroplan points to pay down student loans. The service is operated online by HigherEDPoints.com.

When I initially read about this option in the Toronto Star my first reaction was that no students I know can afford to travel frequently enough to rack up a slew of airline points. But after reading further, I discovered that grandparents, parents and other generous benefactors can also convert points into cash and direct the money to the student of their choice so I was curious enough to find out more about how the program works.

Aeroplan’s Beyond Miles Charitable Pooling Program also allows students and institutions to “crowd-source” donations of Aeroplan Miles by setting up a Pooling Account for individuals in need. Each Charitable Pooling account will be able to run a Contribution Campaign once a year.

A campaign runs for a duration of 30 days and allows the charity to set a specific mileage goal. If the charity reaches 90% of their targeted goal through donations within the 30 day period, Aeroplan will contribute by donating 10% to ensure the goal is met.

The HigherEd.com site even includes a draft email for students who would like to solicit Aeroplan points from friends and family to help pay their school expenses. One plus seems to be there is no charge to donate points, whereas if you simply want to transfer Aeroplan points between accounts there is a charge of $.02 per mile.

But at an exchange rate of 35,000 Aeroplan points for $250, a student will need an awful lot of points to make a dent in annual tuition of $5,000 or an accumulated student loan of $35,000 or more. Furthermore, when you do the math, it becomes apparent that it makes more sense to give your child, grandchild or community member a cheque.

That’s because spending 35,000 Aeroplan points for a credit of only $250 (which works out to a reward of only .007 or 7/10 of a cent per mile) is not the best way to get good value for your hard-earned loyalty points.

Calculations on Flightfox, illustrate that depending on the cost of the ticket and the distance you are traveling, you can realize anything from 1.4 cents per mile on cheap round–trip flights within Canada and the Continental U.S.A. to 1.84 cents per mile on an international economy flight. Pricey international business class flights that cost over $6,000 (or 135,000 Aeroplan) miles can result in a return on your investment of about 4.53 cents per mile.

According to Suzanne Tyson, founder of Higher Ed Points who was quoted in the Toronto Star article, already some $120,000 in tuition and student loan offsets have been converted through this plan. She also notes that one Toronto employer cashed in his Aeroplan points and put them toward summer course tuition for three students.

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