Canada, unlike France and the U.S., is not dealing with a pension crisis: Keller

In an opinion column for The Globe and Mail, Tony Keller explains why Canada isn’t having a crisis with its pension system like France and the United States are.

In France, he writes, there are protests in the streets and strikes over plans to raise the national retirement age to 64 from 62. In the U.S., he writes, there’s a “quiet… slow motion” crisis as Democrats and Republicans fail to agree on steps to stabilize the U.S. Social Security system.

“The Congressional Budget Office says that unless premiums are raised, the deficit is increased or taxpayers kick in cash, pension benefits will have to shrink 23 per cent by 2033,” Keller writes, noting that the Social Security system “continues to wend its gentle way toward the iceberg.”

There’s no crisis here, he says.

“Canada is not having a pension crisis. You may not have noticed. ‘`Absence of Crisis Expected to Continue Indefinitely, Experts Say’ is not a headline we tend to put on the front page,” he writes.

That’s because actions taken decades ago stabilized our system, Keller explains.

“Back in the 1990s, Canada was headed for a crisis. The Canada Pension Plan (CPP) (and the parallel Quebec Pension Plan (QPP)) had been created three decades earlier, and like most public pensions they were built on a pay-as-you-go model. CPP premiums deducted from workers’ paycheques paid retirees’ pensions, and once you retired, the next generation of workers would pay your pension. The CPP was a chain of intergenerational IOUs,” he writes.

The French and American systems also operate under the “pay-as-you-go” model. But such systems run into problems when there are fewer workers than retirees. Here in Canada, 19 per cent of us were seniors as of 2021; in France it is 21 per cent, Keller explains.

You have to change things up when demographics change, Keller contends.

“In the 1990s, then-Finance Minister Paul Martin and his provincial counterparts chose to face the arithmetic. They gradually doubled CPP premiums, to ensure that promised pensions would be paid, today and tomorrow. To make that possible, a large chunk of premiums now go into a savings account. The Canada Pension Plan Investment Board (CPPIB) manages the growing pile, which at the start of this year stood at $536-billion. Your premiums today partly fund your retirement tomorrow.”

This is a somewhat complex concept, but what it means is that we are still operating a “pay-as-you-go” system, but when we get to the point when there are not enough workers to pay for the pensions of retirees, money in the CPPIB cookie jar will be tapped into until the ratio returns to a sustainable level.

Keller’s article goes on to note that the Old Age Security (OAS) system, which is paid entirely out of tax dollars rather than employer and member contributions, has the potential for problems in the future; its costs keep rising as the senior population grows. One way to save money on OAS would be to increase the so-called “clawback” so only those seniors needing OAS the most would get it.

CPP was intended to supplement the workplace pensions Canadians were supposed to have; increasingly, workplace pensions are becoming less common. And OAS was designed for those who did not work (and contribute to CPP) during their careers. For a lot of people, CPP, OAS and even the Guaranteed Income Supplement are all they have to live on in retirement, and it’s a pretty modest living.

If you don’t have a workplace pension, there’s a great made-in-Saskatchewan solution out there for you — the Saskatchewan Pension Plan. SPP is a voluntary defined contribution pension plan that any Canadian with registered retirement savings plan (RRSP) room can join. Employers can also offer it as a workplace benefit. Contributions made to SPP are professionally invested in a pooled fund at a low fee. SPP grows the savings until retirement time, when options for turning savings into income include a stable of annuities. Check out SPP today!

And there’s more good news! Now, you can contribute any amount to SPP each year up to your RRSP limit. And if you are transferring money into SPP from your RRSP, there’s no longer an annual limit! Saving with SPP for retirement is now limitless!

Join the Wealthcare Revolution – follow SPP on Facebook!

More than three quarters of older Canadians fretting about retirement finances: NIA

Is retirement a concern for Canadians – especially those aged 55 to 69 who are approaching or have begun their “golden years?”

New research from the National Institute on Ageing at Toronto’s Ryerson University, reported on by CTV News, suggests that a significant majority of older folks are indeed quite worried.

According to the CTV report, the research found that “77 per cent of Canadians within the 55-69 age demographic are worried about their financial health.” As well, CTV notes, “79 per cent of respondents aged 55 and older revealed that their retirement income – through RRSPs, pension plans and Old Age Security – will not be enough for a comfortable retirement.”

The NIA research found that people were worried about the cost of long-term care in the latter part of their retired life.

While 44 per cent say the plan is to “age at home,” the data suggests that many don’t realize how expensive long-term care at a facility would be.

“Nearly half of respondents aged 45 and older believe that in-home care for themselves or a loved one would cost about $1,100 per month, while 37 per cent think it would cost about $2,000 per month,” CTV reports.

“In reality, it actually costs about $3,000 per month to provide in-home care comparable to a long-term care facility, according to Ontario’s Ministry of Health,” the broadcaster explains.

It’s essential that Canadians know the true costs of long-term care as they plan for the future, says Dr. Bonnie-Jeanne MacDonald of the NIA.

“Canadians retiring today are likely going to face longer and more expensive retirements than their parents – solving this disconnect will need better planning by people and innovation from industry and government,” she tells CTV.

Dr. MacDonald suggests one step we can take early in retirement to help us fund unexpected care costs later is deferring our Canada Pension Plan or Quebec Pension Plan payments until age 70.

Dr. MacDonald spoke to Save with SPP on this topic in detail earlier this year.

“Someone receiving $1,000 per month at age 60 would receive $2,218.75 per month if they wait until age 70 to begin collecting,” the article notes. Another source of income for long-term care costs could be the equity in your home, the article concludes.

Save with SPP has gone through this, with both our parents having had to receive the help of a long-term care facility to battle health issues in their latter years. Fortunately our parents had always been savers, and their retirement income was sufficient to handle these unexpected costs. Will yours?

If there’s a retirement savings program available at your workplace, consider joining it and contributing at the maximum possible level. If your employer doesn’t offer a program, refer the boss to the Saskatchewan Pension Plan. They can help set up a retirement program at businesses large and small. Check out SPP, marking 35 years of delivering retirement security, today!

Join the Wealthcare Revolution – follow SPP on Facebook!

The concept of retirement “has grown increasingly more sophisticated,” begin authors Alexandra Macqueen and David Field in their new book, The Boomers Retire.

“Canadians preparing for retirement,” they write, “have been able to contemplate a variety of highly personalized approaches – from early (or even very early) retirement, to phased retirement, working retirement, and more.”

This thorough book covers all matters retirement and boomer with clear, concise explanations, tables, charts, and focus.

Early, we learn about three “realities” in today’s retirement world – the amount of time we are retired is “increasingly longer,” that retirement is much more diffuse than the old “retire at 65” days of the past, and that funding retirements that may last longer than one’s working years is “increasingly complex.”

Workplace pensions aren’t as common as they were in the past, especially in the private sector, so many of us have to rely on government benefits, the authors explain. But Canada Pension Plan and Quebec Pension Plan maximum benefits are just over $1,200 a month, and worse, the “average benefit amount for new recipients is $710.41 per month, or about 60 per cent of the maximum.”

Old Age Security provides another $7,384.44 annually, but is subject to clawbacks, the authors observe. Lower-income retirees may qualify for the Guaranteed Income Supplement, we are told.

Those without a workplace pension plan (typically either defined benefit or defined contribution) will have to save on their own.

In explaining the difference between two common do-it-yourself retirement savings vehicles, the Tax Free Savings Account (TFSA) and the registered retirement savings vehicle (RRSP), the authors call the TFSA “a nearly perfect retirement savings and retirement income tool” since growth within it is free of tax, as are withdrawals. They recommend a strategy, upon withdrawing funds from an RRSP or registered retirement income fund (RRIF) of “withdrawing more than needed… and instead of spending that extra income, move it over to the TFSA.”

Our late father-in-law employed this strategy when decumulating from his RRIF, chortling with pleasure about the fact that he received “tax-free income” from his TFSA.

The book answers key timing questions, such as when to open a RRIF. Planners, the authors write, used to advise waiting “until the last possible moment” to move funds from an RRSP to a RRIF, at age 71. “The problem with this approach,” they tell us, “is that it sometimes results in low taxable income between retirement and age 71.” If you are in that situation, be aware that you don’t have to wait until 71, and can RRIF your RRSP earlier, they note.

A section on annuities – a plan feature for SPP members – indicates that they address the concern of running out of money in retirement, as annuities are generally paid for life. The trade-off, of course, is that you don’t have access to the funds used to provide the annuity.

Other retirement options, like continuing to work, taking a reverse mortgage, and starting your own business, are addressed. There’s a nice section on investing that looks at the pros (security) and cons (low interest rates) of bonds, how to treat dividend income, index exchange-traded funds, and more.

An overall message for this book, which is intended for both planners and individuals, is a focus on having an individualized strategy, rather than relying on various “rules of thumb.”

“Aiming for a smooth, even withdrawal over a retiree’s lifetime will often be the optimal approach,” the authors say. That’s complicated if, as our friend Sheryl Smolkin told us recently, your retirement income “river” comprises many different registered and non-registered streams. The authors say that a withdrawal rate of four per cent from your various retirement income sources is generally a good target.

Tax tips include remembering to claim medical expenses – many of us forget this category and miss out on tax savings – claiming the disability amount if you qualify, and taking advantage of income splitting. There’s a chapter on being a snowbird (there can be some unexpected downsides with it) and going the rental route in your latter years, when “the future is now.”

This clear, detailed, and very helpful book is a must for your retirement library.

If you’re a member of the Saskatchewan Pension Plan, you’ll have the option at retirement to choose from a variety of great annuity products. Some offer survivor benefits, including the Joint & Survivor option where your surviving spouse will continue to receive some (or all) of your pension after you are gone. It’s a solid part of the SPP’s mandate of delivering retirement security, which it has done for more than 35 years.

Join the Wealthcare Revolution – follow SPP on Facebook!

“Mind shift” on taxation needed when you enter retirement

Writing in the Sarnia Observer, financial writer Christine Ibbotson notes that taxation – fairly straightforward before you retire – gets a lot more complicated after you retire.

“Managing your taxes during your working years is relatively generic,” she writes. “You maximize your registered retirement savings plan (RRSP) contributions, purchase investments that attract the least tax possible on investment income or buy real estate to increase your net worth.”  The goal with taxes is get them as low as possible, she explains.

It’s a different ball game in retirement, Ibbotson notes.

“As you transition into retirement, the tax planning process shifts onto withdrawing assets, and doing so in the most tax-efficient manner,” she explains. This requires what she calls a minor “mind shift” for most people, the article notes.

“Most are preoccupied with minimizing current taxes each year. But this cannot be at the expense of your long-term objective for maximizing after tax income for your entire retirement (often estimated at 25 to 40 years),” she notes.

For that reason, Ibbotson says retirees need to get a handle on how the various types of income they may receive are taxed.

“There are three main types of taxation to consider: interest income, dividend income, and capital gains. All are taxed differently, so this makes it easier to structure your portfolio more efficiently when you are creating your plan with your advisor,” Ibbotson writes.

“As a general rule you want to place income that is going to be unfavourably taxed, (interest income) into tax-sheltered products such as tax-free savings accounts (TFSAs) or RRSPs. Investment income that generates returns that receive more favourable tax treatments (dividends or capital gains) should be placed in non-registered accounts.”

If you are retiring, it’s critical that you know what your income is from all sources – government retirement benefits, a workplace pension, and “anticipated income” from your own savings. This knowledge can help you to “avoid clawbacks as much as possible,” she explains.

Other tax-saving suggestions from Ibbotson include the ideas of Canada Pension Plan/Quebec Pension Plan “sharing,” splitting employer pension plans for tax purposes with your spouse, and holding on to RRSPs, registered retirement income funds (RRIFs) or locked-in retirement accounts (LIRAs) to maturity. Those age 65 and older in receipt of a pension (including an SPP annuity) will qualify for the federal Pension Income Tax Credit, another little way to save a bit on the tax bill.

“Simply put, paying less tax translates into keeping more money in your pocket, allowing you to enjoy a better quality of life,” she concludes.

This is great advice. Save with SPP can attest to the unexpected complexity of having multiple sources of income in retirement after many years of having only one paycheque. You also have fewer levers to address taxes – while you might be able to contribute to an RRSP or your SPP account, it’s probably only on your earnings from part-time work or consulting. You can ask your pension plan to deduct additional taxes from your monthly cheque if you find you are paying the Canada Revenue Agency every year.

The older you get, the more you talk about taxes with friends and neighbours, and many a decumulation strategy has been mapped out on the back of a golf scorecard after input from the other players!

Wondering how much your Saskatchewan Pension Plan account will total when it’s time to retire? Have a look at SPP’s Wealth Calculator. Plug in your current account balance, your expected annual contributions, years to retirement and the interest rate you expect, and voila – there’s an estimate for you. It’s just another feature for members developed by SPP, who have been building retirement security for 35 years.

Join the Wealthcare Revolution – follow SPP on Facebook!

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!

Canadian millennials now focused on long-term saving: report

It’s hard to find many silver linings to the dark, terrible cloud that is COVID-19, but a report from Global News suggests the crisis has caused millennials to think longer-term when it comes to savings.

Carissa Lucreziano of CIBC tells Global that Canadians aged 24-35 “are very committed to saving more and investing.” That’s great news for this younger segment of our society, she states, “as actions now can have long-term benefits.”

The report also cites data from Semrush, an online data analysis company, as showing 23.6 per cent of millennials regularly visit their online banking websites, as compared to 20.7 per cent of older Canadians aged 35 to 44.

Semrush’s Eugene Levin tells Global this suggests younger people “are more conscious moneywise… they are using this time (the pandemic) to plan out their finances to either mitigate their financial insecurity or improve their financial security.”

Other findings – more people are searching for information on Tax-Free Savings Accounts (TFSAs), and investment apps like Wealthsimple and Questrade, the article reports.

CIBC data noted in the Global report found that 38 per cent of millennials have decreased spending, 34 per cent plan to add to TFSAs or Registered Retirement Savings Plans (RRSPs), and to establish emergency savings accounts.

While there is also interest in topics like payday loans and installment loans, the article finds it generally positive that younger people are thinking about long-term savings.

For sure it is positive news. Data from Statistics Canada reminds us why long-term savings are so important.

The stats show that as of 2019, 70 per cent of Canadians are saving for retirement, either on their own or via a workplace savings program – that’s up from 66 per cent in 2014, Stats Canada reports.

“Interestingly, this may reflect the fact that over the past five years, Canadians have become increasingly aware of the need to save for retirement,” reports Stats Canada. “For example, almost half of Canadians (47 per cent) say they know how much they need to save to maintain their standard of living in retirement—an increase of 10 percentage points since 2014 (37 per cent).”

Those who don’t save for retirement on their own (or via a workplace plan) will have to rely on the relatively modest government benefits, such as the Canada Pension Plan, Quebec Pension Plan, and Old Age Security, the article notes. And surely, the terrifying pandemic era has more of us thinking about our finances, both current and future.

So that’s why it is nice to see the younger generation is focusing on these longer-term goals. The best things in life, as the song goes, are free, but many other things carry a cost. The retired you will certainly be thankful that the younger you chose to stash away some cash for the future.

If, as the article notes, you don’t have a workplace pension plan and are saving on your own for retirement, there’s a plan out there for you that could really be of help. For 35 years, the Saskatchewan Pension Plan has been delivering retirement security; the plan now manages $673 million in assets for its 33,000 members. Check them out today!

Join the Wealthcare Revolution – follow SPP on Facebook!

Are Canadians doing things backwards when it comes to rolling out their retirement plans?

New research from Dr. Bonnie-Jeanne MacDonald of the National Institute on Ageing at Ryerson University suggests that in some cases, we are putting the cart before the horse when it comes to our Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits.

Save with SPP spoke by telephone with Dr. MacDonald to find out more about her research.

In her paper, titled Get the Most from the Canada and Quebec Pension Plans by Delaying Benefits, Dr. MacDonald notes that “95 per cent of Canadians have consistently taken CPP at normal retirement age (65) or earlier,” and that a mere one per cent “choose to delay for as long as possible, to age 70.”

This, she writes in the paper, can be a costly decision. “An average Canadian receiving the median CPP income who chooses to take benefits at age 60 rather than at age 70 is forfeiting over $100,000 (in current dollars) of secure lifetime income.”

She tells Save with SPP that tapping into your (registered retirement savings plan) RRSP and other savings first, as a bridge to a higher CPP or QPP later, can make a lot of sense. “Rather than holding on to the RRSP, why not use the RRSPs sooner and CPP later,” she explains.

Even waiting one year – taking CPP or QPP at 61 instead of 60 – means you will get nearly 12 per cent more pension for life, she says. The longer they wait to start CPP, the more they get – about 8.2 per cent more for each year after age 65, Dr. MacDonald explains.

If you go the other route, and take your government pension at 60, “you don’t know what your savings will look like at 70,” she notes. As well, those savings may be harder to manage when you are older, especially if you are “drawing down” money from a registered retirement income fund (RRIF).

Many people, she notes, worry that taking government benefits at 70 is too late, and that they will potentially die before getting any benefits. Most people who are in good health will live long beyond age 70, she says; the data shows that only a small percentage of Canadians don’t make it past their 60s.

Dr. MacDonald notes as well that the retirement industry tends to help people save, but doesn’t help them on the tricky “decumulation,” or drawdown phase. It would be akin to having an adviser set you up with skis, boots, poles and bindings, and deliver you the top of the ski hill – where you would be on your own to figure out how to get to the bottom, she says.

While “Freedom 55” was a popular concept in decades past, the data shows that the retirement age is creeping back up to age 65 and beyond, she says.

“Finances… are part of the reason why people are retiring later,” she explains. Pension plans are less common these days, and not all of them still offer an early retirement window. Few offer incentives to late retirement, she adds.

Her paper concludes that Canadians – and the financial industry that advises many of them – need to rethink the conventional idea of taking CPP or QPP as soon as possible in retirement, and then hanging onto RRSPs until it is time to RRIF them up the road.

“Despite wanting and needing greater income security, Canadians are clearly choosing not to delay CPP/QPP benefits, thereby forfeiting the safest, most inexpensive approach to get more secure retirement income,” she writes. By showing, through the Lifetime Loss calculation, that Canadians can lose out on $100,000 of secure retirement income, the hope is that the industry and policymakers will begin to rethink how they present retirement strategies to Canadians, the paper concludes.

We thank Dr. Bonnie-Jeanne MacDonald for taking the time to speak with Save with SPP.

Celebrating its 35^th year, the Saskatchewan Pension Plan (SPP) has a long tradition of building retirement security. SPP is flexible when it comes to paying out pensions – you can start as early as 55 or as late as 71. Check out SPP, it may be the retirement solution you are looking for.

Join the Wealthcare Revolution – follow SPP on Facebook!

Canucks doing better than we think at retirement saving: report

It’s somewhat rare to see a headline saying Canadians are on track for retirement saving, but that’s the key point of new research from HEC Montreal’s Retirement and Savings Institute.

The study, funded by the Global Risk Institute, was featured in a recent Benefits Canada article.

The positive news – “more than 80 per cent of Canadians aged 25 to 64 are prepared for retirement and the vast majority have a high probability of being prepared,” the magazine notes.

According to the research, which was conducted featuring a large sample of more than 17,000 Canadians, those who are the best prepared are those whose household earnings are below the national median, and “those covered by pension plans,” Benefits Canada notes.

Those who are in the worst shape – somewhat surprisingly – are “upper-middle earners without retirement savings,” the magazine reports, adding that CPP and QPP improvements may benefit that segment of the population down the road.

The authors of the study used what they called a “new stochastic retirement income calculator,” which unlike many calculators, models “the evolution of private savings, accounting for individual and aggregate risk; taxation of savings, including capital gains; employer pensions; a realistic stochastic modelling of work income; the value of housing; and debt dynamics.”

So for those, like us, who got lost at “stochastic,” it seems that this calculation takes into account risk, taxation, future work income, housing prices and levels of debt when calculating what one actually needs to maintain the same standard of living in the life after work.

That calculation showed that on average, participants would have 104.6 per cent of the net income they need, once they are retired, to maintain their pre-retirement living costs.

We can share a personal experience here. When the head of our household decided to get an estimate of what her pension from work would be, she was at first a little dismayed to see that the gross annual pension income – despite 35 years of membership in her workplace plan – was lower than what she was making at work. But when she looked at the net, after-tax income, or take-home pay, it was actually higher. It’s because she’s paying less income tax, no longer making pension contributions, and no longer paying into CPP and EI. That all makes a big difference on the bottom line.

So, the authors of the study conclude, “on average, if (Canadians) retire at the age they intend to, maintain their saving and debt payment strategies and convert all of their financial wealth into income, Canadians have net income in retirement which is higher than their pre-retirement income.”

The reason for the high numbers may be that for those making at or below the median income  “are well covered by the public system even if they have no savings or [registered pension plan] coverage,” the authors of the report state in the Benefits Canada piece. It’s those with income above the median and who also lack workplace pensions – about 15 per cent of Canadians – who need to worry, the article concludes.

If you don’t have a retirement program through work, and don’t really want to take on saving and investing on your own, an excellent option is the Saskatchewan Pension Plan. The plan will invest your contributions at a very low investment cost, thanks to the fact the SPP is not operated on a “for profit” basis. Since its inception in the late 1980s the SPP has grown the savings of its members at an average annual rate of eight per cent. And when the time come for you to convert those savings into a lifetime income, the SPP has flexible annuity options to turn your hard-saved dollars into a lifetime income stream.

Join the Wealthcare Revolution – follow SPP on Facebook!

Would people be better off if they worked a little longer, and collected their retirement benefits a little later?

A new study from the Canadian Institute of Actuaries (CIA) called Retire Later for Greater Benefits explores this idea, and proposes a number of changes, including moving the “target eligibility age” for the Canada Pension Plan and Quebec Pension Plan to 67 from 65, while moving the earliest age for receiving these benefits from 60 to 62. As well, the CIA’s research recommends that the latest date for starting these benefits move from 70 to 75.

Old Age Security (OAS) would see its target age move to 67 from 65. For registered pension plans (RPPs), the CIA similarly recommends moving the target retirement age to 67 from 65, and the latest retirement date to 75 from 71.

Why make such changes? An infographic from the CIA notes that we are living longer – a 65-year-old man in 2016 can expect to live for 19.9 years, while a woman can expect 22.5 more years of living. This is an approximately six-year improvement versus 1966.

So we are living longer, the study notes, but face challenges, such as “continuing low interest rates, rising retirement costs, the erosion of private pensions and labour force shortages.”

Save with SPP reached out to the CIA President John Dark via email to ask a few questions about these ideas.

Is, we asked, a goal of this proposal to save the government money on benefits? Dark says no, the aim “is not about lowering costs to the government. The programs as they are currently formulated are sustainable for at least 40 to 75 years, and we believe this proposal will have minimal if any implications on the government’s costs.

“We are suggesting using the current increments available in the CPP/QPP and OAS to increase the benefits at the later age.” On the idea of government savings, Dark notes that while CPP/QPP are paid for by employers and employees, OAS is paid directly through government revenue.

Our next question was about employment – if full government pension benefits begin later, could there be an impact on employment opportunities for younger people, as older folks work longer, say until age 75?

“We’re not recommending 75 as the normal retirement age,” explains Dark. “We are recommending that over a phase-in period of about 10 years we move from a system where people think of ‘normal’ retirement age as 65 to one where 67 (with higher benefits) is the norm.

“The lifting of the end limit from 71 to 75 is at the back end; there are currently those who continue to work past normal retirement and can continue to do so even later if they choose,” he explains. “Current legislation forces retirees to start taking money out of RRSPs and RPPs at age 71 – we think this should increase to 75 to support the increasing number of Canadians who are working longer.”

As for the idea of younger workers being blocked from employment opportunities, Dark says “if we had a very static workforce this might as you suggest cause a bit of blockage for new entrants, but as we say in the paper, Canada has the opposite problem.

“Many areas are having a difficult time finding workers,” he explains, adding that “in the very near future a great many baby boomers will begin to retire. We think allowing people who want to remain in the work force can help with that.

“It’s important to remember that if you have planned retirement at 65 this proposal won’t prevent you from doing that except that OAS wouldn’t be available until 67 instead of 65 (and we expect the government would explore other options for supporting vulnerable populations who need OAS-type support at earlier ages).” Dark explains.

Would starting benefits later mean a bigger lifetime benefit, and could it help with the finnicky problem of “decumulation,” where retirement savings are turned into an income stream?

“Under our proposal,” Dark explains, “people could work just a little longer and get higher benefits for life. By itself that doesn’t make decumulation any less tricky – but perhaps a little more secure.

“For many people in defined contribution (DC) plans who have no inflation protection, longevity guarantees, or investment performance guarantees from an employer, using your own funds earlier and leaving the start of CPP and OAS to as late as possible can help provide some of the best protection against inflation for at least part of your retirement income,” he adds. And, he notes, because you waited, you will get a bigger benefit than you would have got at 65.

Finally, we asked if having a longer runway to retirement age might help Canadians save more for their golden years.

“Clearly by having a longer period of work you have more opportunity to accumulate funds, and by providing more security of retirement income it will help as well,” Dark notes. “We also know that Canadians are already starting their careers later in life – getting established in their 30s rather than their 20s, for example – and need that longer runway anyway.

“Overall, to me the most important word in the report is `nudge.’ If we can get people to think about retirement sooner and get governments to act on a number of areas that we and others have outlined we hope to improve retirement security for Canadians. This is just the start of a journey that will have lots of chapters.”

We thank John Dark, as well as Sandra Caya, CIA’s Associate Director, Communications and Public Affairs, for taking the time to speak with Save with SPP. Some additional research of the CIA’s can be found on Global News Radio, BNN Bloomberg and the Globe and Mail.

Even if the runway towards retirement age is lengthened, it’s never too early to start saving for retirement. If you don’t have a workplace pension plan, or do but want to augment it, the Saskatchewan Pension Plan may be a vehicle whose tires you should consider kicking. It’s an open DC plan with a good track record of low-cost investment success, and many options at retirement for converting your savings to 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

A look at the best of the Internet, from an SPP point of view

Should 67 become the new 65?

While many of us were brought up expecting Freedom 55, a new report by the Canadian Institute of Actuaries suggests we might all enjoy things better if it was Freedom 67.

The report, featured in Benefits Canada points out that since Canadians are working longer and therefore, retiring later, government benefits should be pushed out farther into the future.

“Canadians are living longer than ever, and many are choosing to work beyond age 65,” John Dark, president of the CIA, states in the article. “It makes sense to update our country’s retirement income programs to reflect this fact.”

Save with SPP interviewed Dark about the research, you can find that story here.

The article notes that men now live nearly 19.9 years after age 65 on average, and women, 22.5. This longer life expectancy, coupled with people working longer, is the reason given for considering system changes, the article states.

The changes the CIA suggests are moving CPP/QPP and OAS “full” benefits from age 65 to 67. The earliest you could get benefits would move from 60 to 62, and the latest from 70 to 75, the article notes.

“In addition to the financial benefit of receiving higher lifetime retirement income, our proposal provides financial protection for retirees against the cost of living longer and the significant erosion of savings from the effects of inflation,” states Jacques Tremblay, a fellow of the CIA, in the article.

Moving the age of benefits has been tried before. There are important considerations to take into account. First, are people working longer because they want to, or because they can’t afford to retire? Moving the goalpost on those benefits may not help people in that boat.

And secondly, we can’t assume that everyone is healthy enough to work past 65 and into their 70s. It will be interesting to see if the CIA’s recommendations are heeded by government.

Retirement’s value outweighs all financial concerns

Many authors have noted that the value of actually being retired outweighs most financial concerns about getting there.

From the Wow4U blog here are some great quotes about retirement.

“We work all our lives so we can retire – so we can do what we want with our time – and the way we define or spend our time defines who we are and what we value.” Bruce Linton

“The joy of retirement comes in those everyday pursuits that embrace the joy of life; to experience daily the freedom to invest one’s life-long knowledge for the betterment of others; and, to allocate time to pursuits that only received, in years of working, a fleeting moment.” Byron Pulsife

“Retirement life is different because there is no set routine. You are able to let the day unfold as it should. Enjoy, be happy and live each day.” Suzanne Steel

Whatever happens, if anything, to government benefits, it’s a wise idea to put money away for your own future retired self. The Saskatchewan Pension Plan offers great flexibility, professional investing, and a variety of options for retirement, whether you plan to start it early or late.

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, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22