Experts call for higher RRSP limits, and a later date for RRIFs

Writing in the Regina Leader-Post, a trio of financial experts is calling on Ottawa to make it easier for Canadians to save more for retirement — and then, on the back end, starting turning savings into income at a later date.

The opinion piece in the Leader-Post was authored by William Robson and Alexandre Laurin of the C.D. Howe Institute, and Don Drummond, a respected economist who now teaches at the School of Policy Studies at Queen’s University in Kingston, Ont.

Their article makes the point that our current registered retirement savings plan (RRSP) limits need to be changed.

“The current limit on saving in defined-contribution pension plans and RRSPs — 18 per cent of a person’s earned income — dates from 1992,” their article notes. While that 18 per cent figure may have been appropriate 30 years ago, “now, with people living longer and with yields on safe investments having fallen, it is badly out of line with reality,” the authors contend.

They recommend gradually raising the limit to 30 per cent of earned income through a four-year series of three per cent increases, the Leader-Post article notes.

While an RRSP is for saving, its close cousin, the registered retirement income fund (RRIF) is the registered vehicle designed for drawing down savings as retirement income. The trio of experts have some thoughts about RRIF rules as well.

The current RRIF rules compel us to “stop contributing to, and start drawing down, tax deferred savings in the year (Canadians) turn 71,” the authors note. This rule was also established in the early 1990s, they note.

“As returns on safe assets fell and longevity increased, these minimum withdrawals exposed ever more Canadians to a risk of outliving their savings,” the authors explain. They are calling for a reduction of the minimum withdrawal amount by “one percentage point, beginning with the 2023 taxation years, and further reduce them in future years until the risk of the average retiree depleting tax-deferred savings is negligible.”

OK, so we would raise RRSP contribution limits, and lower RRIF withdrawal amounts. What else do the three experts recommend?

They’d like to see it made possible for Tax Free Savings Account (TFSA) holders to buy annuities within their TFSAs.

“When an RRSP-holder buys an annuity with savings in an RRSP, the investment-income portion of the annuity continues to benefit from the tax-deferred accumulation that applied to the RRSP. But TFSA-holders cannot buy annuities inside their TFSAs, which means they end up paying tax on money that is intended to be tax-free. This difference disadvantages people who would be better off saving in TFSAs and discourages a much-needed expansion of the market for annuities in Canada,” they write.

Save with SPP has had the opportunity to hear all three of these gentlemen speak out on retirement-related issues over the years. They’ve put some thought into providing possible approaches to encouraging people to save more, making the savings last, and to make the TFSA into a better long-term income provider. Under new rules, you can now make an annual contribution to SPP up to the amount of your available RRSP room! And if you are transferring funds into SPP from an RRSP, there is no longer a limit on how much you can transfer! Check out SPP today — your retirement future with the plan is now limitless!

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After the saving comes the tricky part – turning savings into income

Writing in the Regina Leader-Post, noted financial commentator Jason Heath saves that while most people agree saving is a great idea, “how much to set aside and how to set your targets are up for debate.”

He notes that when RRSPs were first rolled out back in 1957, you were allowed to contribute up to 10 per cent of your earnings, to a maximum of $2,500, each tax year.

“The percentage limit was doubled to 20 per cent in 1972. In 1991, it was decreased to the current 18 per cent of annual earned income for the previous year, to a maximum of $26,500 for 2019. Unused RRSP room from previous years accumulates each year as well,” he explains in the article.

So, he asks, can we assume that the “right” level of savings is somewhere between the two RRSP limits of 10 and 20 per cent?

The argument for putting away 10 cents of every dollar you earn was most recently popularized by author David Chilton, Heath writes. But the World Economic Forum suggests we save “10 to 15 per cent” of earnings,” he notes.

Having a savings target – let’s say 15 per cent – is only half the battle, the article continues. When you’ve saved up all that money, how much should you be withdrawing each year as retirement income?

Heath notes that in 1994, financial planner William Bengen proposed the so-called “four per cent rule,” meaning that “four per cent was a sustainable withdrawal from a balanced investment portfolio for a 30-year retirement even if stock markets subsequently had a bad 30-year run,” Heath writes.

But a 2017 Morningstar paper suggests “three to 3.5 per cent may be more appropriate,” assuming high investment fees and today’s relatively low interest rates, both factors that weren’t the same 25 years ago.

“If you assume a 3.5-per-cent withdrawal rate, you can work backwards from retirement. For example, a 65-year-old who needs $35,000 per year of withdrawals indexed to inflation would need to save $1 million. And a 45-year-old starting from scratch to save towards that same $1-million target in 20 years would need to save about $25,000 per year indexed to inflation (assuming a return of four per cent and two-per-cent inflation),” Heath writes.

As Heath notes, the math here is somewhat head-spinning, but the concept for setting a savings target is actually fairly simple – how much income per year do you want to have? From there, do the math backwards and figure out how much to put away.

He goes to explain that there are other programs that can help. You have the newer option of saving for retirement in a tax-free savings account (TFSA), and most of us will receive money from the Canada Pension Plan, Old Age Security, and even the Guaranteed Income Supplement to top up the income we’ve created from savings.

When people roll out this sort of stuff, it’s somewhat akin to finding out that your “ideal” weight is 100 lbs less than what you are walking around with right now. A lot of times, knowing that you will need to put a lot of effort into fitness and diet is so daunting that you take yourself out for a cheeseburger and fries to dull the mental pain. But like anything else, a long-term journey can be achieved by making many small steps. It’s the same with retirement savings. Start small, gradually increase what you save, and in a few decades you’ll be happily surprised at your balance. But start – don’t suffer analysis paralysis.

And a great place to start the retirement savings journey is the Saskatchewan Pension Plan. They have everything you need to set up your own plan, make regular contributions, and watch as they are professionally invested and grown. At gold-watch time, you can get them to start making regular, monthly payments – for life – to the account of your choosing! So if you’re on the sidelines and not quite ready to put your toe in the water of retirement savings, check out SPP – the water’s fine!

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

Getting up every day for 40+ years and going to work for eight or more hours a day pays the bills, but it can become tedious and repetitive. However, if you work for a great employer that is constantly reviewing compensation, benefits and employee engagement levels in order to attract and retain the best and the brightest, work can be a much more pleasurable experience.

One way to identify a top-notch employer is to keep an eye out for organizations that are recognized as leading employers in various lists published from time to time. For example, take a look at Canada’s Top 100 Employers published by Mediacorp Canada since 2000 and spinoffs such Canada’s Top Employers for Young People and Saskatchewan’s Top Employers.

First published in 2006, Saskatchewan’s Top Employers recognizes the Saskatchewan employers that lead their industries in offering exceptional places to work. The 2017 winners were announced this past April in a special magazine published by the Regina Leader-Post and Saskatoon StarPhoenix.

Employers are evaluated by the editors of Canada’s Top 100 Employers using the same eight criteria as the national competition:

(1) Physical workplace.
(2) Work atmosphere and social.
(3) Health, financial and family benefits.
(4) Vacation and  time off.
(5) Employee communications.
(6) Performance management.
(7) Training and skills development, and
(8) Community involvement.

Companies are compared to other organizations in their field to determine which offers the most progressive and forward-thinking programs. You can find the 2017 Saskatchewan list here, but featured below is information collected by Mediacorp about just five of these notable Saskatchewan employers.

Access Communications Co-operative Ltd.
This cable and communications company with 215 employees has locations in Saskatoon, Regina and nine other towns in the province.

• In addition to 3 weeks of starting vacation allowance, Access Communications recognizes previous work experience when setting individual vacation entitlements for experienced candidates and provides 3 paid personal days off to help employees balance their work and personal lives.
• Access Communications supports its new and adoptive moms with maternity leave top-up payments (to 100% of salary for up to 17 weeks).
• Access Communications supports ongoing employee development with tuition subsidies and a variety of in-house training programs — and offers the next generation opportunities to gain on-the-job experience through paid internships and co-op placements.

ClearTech Industries Inc.
Cleartech distributes chemicals and equipment. It has facilities in Port Coquitlam BC, Saskatoon SK and Edmonton AB with a total of about 145 employees.

• ClearTech Industries lets everyone share in the fruits of their labours with a profit-sharing plan and also encourages long-term savings through a defined contribution pension plan.
• ClearTech Industries invests in the long-term development of its employees through tuition subsidies for job-related courses, in-house training initiatives and financial bonuses for some course completions.
• ClearTech Industries’ employee social committee organizes a number of events through the year, including a Christmas party, family barbecue and golf tournament, weekly treat days and summer “Rider Day” barbecue.

The Mosaic Company
Fertilizer manufacturing company Mosaic has its head office in the U.S. but Saskatchewan branches in Regina, Belle Plaine, Colonsay and Estherhazy with 2,250+ Canadian employees.

• Mosaic helps employees build their skills through a variety of in-house training options and generous tuition subsidies for courses directly related to their positions (up to $10,000).
• Varying by employee group Mosaic employees share in a range of excellent financial benefits including a defined contribution pension program, matching RSP contributions, year-end bonuses, new employee referral bonuses (up to $1,000) and profit sharing for salaried positions. The company also offers retirement planning assistance services for all employees.
• Mosaic ensured that architects consulted directly with employees in the design of their new head offices in downtown Regina. The modern head office is located on the top 4 floors of one of the tallest and newest buildings in the city, complete with a rooftop patio and a theatre-style conference centre plus convenient access to a shared-use fitness facility

Innovation Credit Union
Innovation Credit Union with branches in North Battleford, Swift Current, Meadow Lake and Regina has 325+ employees.

• Innovation Credit Union offers employees a range of financial benefits including discounted financial services, new employee referral bonuses (up to $1,750), retirement planning services and a defined contribution pension plan.
• Innovation Credit Union invests in the long-term development of its employees through tuition subsidies for courses that are both related and indirectly related to their current position.
• Innovation Credit Union and its employees support approximately 250 charitable and community organizations every year. The credit union’s charitable focus includes initiatives that support arts and culture, business, charity, community, education, and sports and youth.

Saskatchewan Research Counsel
Three hundred and forty-four employees conduct research activities in Prince Albert, Saskatoon, Regina, Uranium City and Calgary AB.

• Saskatchewan Research Council provides maternity and parental leave top-up payments for employees who are new mothers or adoptive parents, up to 95% of salary for up to 17 weeks.
• Employees working at Saskatchewan Research Council’s head office can take advantage of a number of onsite amenities including a cafeteria with healthy and special diet menus, a fully-stocked employee lounge and shared access to an onsite fitness facility, complete with sauna, squash courts and instructor-led classes
• In addition to 3.6 weeks of starting vacation allowance, Saskatchewan Research Council offers up to 15 paid personal days off to help employees balance personal commitments.

Check out the websites of these and other top Saskatchewan employers to see if they are hiring. In addition, make note of the enriched programs these top Saskatchewan employers offer if  you are evaluating other employers when you are looking for work in the province.

Written by Sheryl Smolkin
	Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.