Wednesday, May 18, 2016

Best Canadian Pension You Never Heard Of?

Bruce Johnstone of the Regina Leader-Post reports, Saskatchewan Pension Plan marks 30 years of quiet success:
Since 1986, the Saskatchewan Pension Plan (SPP) has been quietly been going about its business of providing a voluntary, no-frills and inexpensive pension plan for the two out of three people who don’t have access to a company pension.

But this year being its 30th anniversary, the SPP is emerging from its headquarters in the west-central town of Kindersley (pop. 5,400) to toot its own horn, but in a very quiet, understated sort of way.

“Incremental growth” has been the key to our success, said Katherine Strutt, general manager of SPP, in a recent interview with the Leader-Post.

“Growing by new members and members contributing more because they’re allowed to contribute up to $2,500, but also by being able to transfer from existing RRSPs to help their (SPP) balances grow, that’s been a big part of our success story as well.”

From humble beginnings, the SPP has grown to $445 million in assets and 33,000 members.

“We don’t have a lot of bells and whistles. People are just looking for a good investment with a low fee,” said Strutt, who joined SPP in 1990, serving the last 23 years as general manager.

In fact, the SPP is a model for other provinces looking to help people who are looking for a basic pension plan, in addition to Old Age Security.

SPP is a money-purchase, defined-contribution pension plan that in many ways works like an RRSP. In fact, you can transfer up to $10,000 in existing RRSP investments per year to your SPP.

Despite its name, it is not restricted to Saskatchewan residents. Anyone between 18 and 71 with available RRSP room can contribute.

The plan is aimed at the two-thirds of people who do not have the benefit of a workplace pension plan, including self-employed workers or employees of small businesses, farmers, artists, tradespeople, etc.

“For a lot of smaller employers, with fewer than 10 or 20 employees, … maybe they can’t commit to a registered pension plan. Maybe it’s too costly and they can’t afford to make the RPP contributions,” Strutt said.

“We found that the (SPP) resonates with a lot of these small employers,” Strutt said. “Employers like the SPP because it’s locked in, it’s going to be used for the employee’s retirement, it stays with them and follows them (if they change jobs).”

The SPP also allows smaller businesses to compete for employees with larger employers in terms of benefits. “Some employers are putting in the entire $2,500, or matching the employee’s contribution and some are doing it as a bonus, top-up.”

In 2010, the SPP changed its contribution limit from $600 to $2,500 but the contributor has to have earned income. “Social contributions” are also allowed. “For those people who have a lower-earning spouse or stay-at-home spouse and they want to have a pension plan for them, they can do that.”

“It’s like having access to the top money managers with no minimum investment. It really helps people bridge that gap between what they’re going to get from OAS and private savings. This is just a cost-effective way of putting a cap on that.”
It was exactly four years ago that I covered Canada's secret pension plan in detail. I'm happy to see the contribution limit has been raised to $2500 (it should be raised to a much higher amount) and that the plan is steadily growing offering its 33000 members a safe, low cost pension solution to help them save for retirement.

If you're a professional with no workplace pension or if you own a small business and want to cover your employees' pension needs, you should definitely get in touch with the folks at the Saskatchewan Pension Plan (SPP) by clicking here. You can even transfer up to $10,000, in cash, per calendar year into your SPP account from existing RRSPs, RRIFs and unlocked RPPs.

Equally important, if you, your spouse or any of your children suffer from a disability, learn all you can about the Registered Disability Savings Plan and keep this in mind:
Effective July 1, 2011, for deaths occurring after March 3, 2010, the existing registered retirement savings plan (RRSP) rollover rules are extended to allow a rollover of a deceased individual’s RRSP proceeds to the registered disability savings plan (RDSP) of the deceased individual’s financially dependent child or grandchild with an impairment in physical or mental functions. A qualifying beneficiary is referred to as an eligible individual. For more information, see Eligible individual. These rules also apply to registered retirement income fund (RRIF) proceeds, to certain lump sum amounts paid from registered pension plans (RPPs) and, under proposed changes, to the Saskatchewan Pension Plan (SPP).
Why is the Saskatchewan Pension Plan the best Canadian pension plan you never heard of? Because absent an enhancement of the Canada Pension Plan which I've been arguing for a long time, we need better solutions to cover many hard working Canadians getting fleeced by banks and mutual funds charging them outrageous fees for mediocre returns (they aren't all bad, as I stated here, I like Calgary-based Mawer Balanced Fund run by Greg Peterson, which gained 10.5% in 2015 and has been performing exceptionally well over the last three, five and ten years ).

And those fees add up over the years, eating away a huge chunk of Canadians' retirement nest eggs. In fact, as Diane Urquhart stated in my comment on a reality check for pensions: "Canadian mutual fund investors that save regularly over the next 30 years would have close to 25% higher retirement savings if Canadian mutual fund suppliers were charging the world average mutual fund fees rather than Canadian mutual fund fees."

But Canadians remain oblivious to this reality and that is a function of how illiterate people generally are on constructing a well-balanced retirement portfolio based on fairly easy principles like using ETFs, rebalancing and diversifying their portfolio and using the power of dividends to build long-term wealth. Go read my comment on building on CPPIB's success and pick up and read classics like William Bernstein's The Four Pillars of Investing and The Intelligent Asset Allocator, Marc Litchenfeld's Get Rich With Dividends and my favorite, Peter Lynch's One Up on Wall Street

In my opinion, there should be mandatory high school or college courses covering these principles because most Canadians are clueless and "just go to the bank and deal with some representative which makes them check off boxes" or they get bamboozled by some broker which places them in high fee managed products. If you think hedge funds are a scam, you should dig deeper into the Canadian mutual fund industry, it's the biggest scam of all, enriching banks, insurance companies and mutual fund companies while impoverishing many hard working Canadians (there are exceptions but in general, this is the sad reality).

But the truth is markets are volatile and with interest rates at historic lows and turning negative all over the word, I expect a lot more volatility in public markets, so it's best that Canadians focus on their work and let experts focus on their retirement needs. This is why the Saskatchewan Pension Plan (SPP) makes so much sense for many self-employed professionals and small business employees with no workplace pension looking for a low-cost professionally managed pension.

But make no mistake, when it comes to bolstering the country's retirement policy, Canada's secret pension plan isn't the best solution and it pales to enhancing the CPP. Why? The Saskatchewan Pension Plan is great but it's not a large, well-governed defined-benefit plan, the gold standard of pensions.

The SPP is a large defined-contribution plan which means over a very long period, it cannot compete with Canada's large well-governed DB plans. Sure like them, it uses its size to lower fees, which is a good thing but unlike them, it cannot attract and retain qualified pension professionals who invest directly across public and private markets and offer the security and stability of defined-benefits. Like defined-contribution plans, it too is subject to the vagaries of public markets.

This is why I keep harping on enhancing the CPP. Despite what those hacks at the Fraser Institute think, CPPIB is cost efficient and you're not getting less bang for your CPP buck. This is all nonsense financed by Canada's powerful financial services industry.

Speaking of nonsense, CBC reports that a group representing manufacturers and exporters wants the Ontario government to halt implementation of its new provincial pension plan until a federal review of the Canada Pension Plan is completed:
The Canadian Manufacturers & Exporters said Tuesday that the costs of administering the Ontario Retirement Pension Plan can be avoided by working with Ottawa on a national approach to retirement income security.

"Manufacturers play a key role in ensuring the strength of the Ontario economy," said Ian Howcroft, Ontario vice-president at CME. "These changes need to make sense for them."

Howcroft said mandatory cost increases put manufacturers at a competitive disadvantage.

"Employers already offering pension plans should be exempt from further increases associated with either an ORPP or a CPP change," he said.

In February, the Ontario government said it was pushing back the rollout dates for the ORPP to give larger businesses more time to enroll.

The new provincial plan would cover some three million Ontarians who don't have workplace pensions.

Workers at large companies (with 500 or more employees) were scheduled to start contributing in January 2017, but contributions now won't begin until 2018.

At the same Ontario made that announcement, federal Finance Minister Bill Morneau said he hopes to introduce an enhancement to the CPP before the end of 2016.
I can't understand groups like the Canadian Manufacturers & Exporters or the Canadian Federation of Independent Business crying foul every time policymakers discuss the ORPP or enhancing the CPP.

They really need to get informed on why ORPP is going ahead despite what happens to enhancing the CPP, and more importantly, they need to understand why these policies will ultimately benefit their members, the Canadian economy and hard working Canadians.

Importantly, enhancing the CPP or introducing the ORPP isn't a tax, it's implementing smart long-term economic and retirement policy that will benefit the country for decades to come.

By the way, these trade groups should look at the rules to understand who is exempt and who isn't and they should contact the Saskatchewan Pension Plan if they want to cover the employees. I doubt this will exempt them from the ORPP or the enhanced CPP but it makes a lot of sense to look into it.

As far as the ORPP, Mitzie Hunter, Ontario's Associate Minister of Finance, ORPP, Multicultural Minister, tweeted this announcement (click on image):


These are all excellent choices. Eileen Mercier is a professional director and was the Chair of the Ontario Teachers' Pension Plan from 2007 to 2014. She currently serves on many boards, including Intact Financial Corporation. She is one great board member to have on this nominating board.

Carol Hansell is the is Senior Partner of Hansell LLP. Over her more than 25 years in practice, she has led major transactions for public and private corporations and governments and has served on many boards of organizations across a variety of sectors. She was a board member at PSP Investments for many years where she oversaw governance and human resources and other activities and was recently named to serve on the advisory council to update Ontario business law.

Susan Wolburgh Jenah is President and Chief Executive Officer of the Investment Industry Regulatory Organization of Canada (IIROC), a position she has held since the regulator was established in June of 2008.

These are all very accomplished professionals with great experience and lots of wisdom and knowledge which will serve them well as they take part in ORPP's Board Nominating Committee.

Below, Katherine Strutt, general manager of SPP, goes over how the Saskatchewan Pension Plan is celebrating 30 years in 2016. I also embedded a clip on how to become a member of the SPP.

Get informed, absent and enhanced CPP or ORPP, for many of you, this may be the best Canadian pension option you never head of.

Lastly, another option for incorporated professionals and business owners with no workplace pension is to set up a Personal Pension Plan (PPP) offered by INTEGRIS. Jean-Pierre Laporte, its CEO and founder, sent me an INTEGRIS white paper to go over what his company offers, so do your due diligence and look into what they have to offer. I embedded a short clip below explaining their approach.

Jean-Pierre also shared this with me:
The SPP is a stunted DC arrangement. The contribution limits are too low to allow for a meaningful pension in the long run, no matter how prudently it is managed.  Just like you can't truly retire on a TFSA (unless you are Warren Beatty, I guess). 
He's right the contribution limits are too low and that is something which needs to be addressed in the future, but for now, this plan does offer many Canadians without a workplace pension another option.



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