By Sheryl Smolkin
Read this article and comments at Moneyville.ca
Canada’s best-kept pension secret may well be the recently improvedSaskatchewan Pension Plan, an easy-to-understand, well-managed retirement savings plan that is open to all Canadians.
The SPP is a pension plan introduced by the Saskatchewan government in 1986,originally designed to provide a nest egg for homemakers and self-employed people who had little or no access to other pension plans. It is a voluntary program operated at arms length from the government by an independent Board of Governors appointed by the Lieutenant Governor in Council. Because it is a pension plan, contributions are locked in until age 55.
The Saskatchewan plan has $268 million in assets and 31,000 members with about 8 per cent living outside the province. Until recently, the maximum annual contribution was $600 a year, but as of 2010 members can annually contribute up to $2,500, providing they have RRSP contribution room.
That suddenly makes the plan more attractive because with higher contribution levels members can accumulate more robust pensions. There is also more scope for small employers to add the SPPs to their benefit package and contribute all or part of this amount to employee accounts.
Why should Ontario residents be interested in a Saskatchewan program?
Patrick Longhurst, a pension actuary and certified financial planner with the firm of Longhurst and Jack in Toronto, says, “I don’t see why they shouldn’t be, really. It’s not as if there is a different tax regime or anything. It’s Canada. I wouldn’t have a problem investing in it.”
“We don’t market outside the province, but we welcome interest from any part of the country, and we don’t turn away business — that’s for sure,” says SPP Manager Katherine Strutt.
The Saskatchewan Pension Plan is managed independently and maintains a balanced portfolio of 55 per cent stocks, 5 per cent real estate, 35 per cent bonds and mortgages and 3 per cent T-bills. There is also a short-term fund for members who want to minimize risk and preserve capital. The plan’s average rate of return since inception is 8.4 per cent, and the the return was 12.7 per cent in 2009.
Strutt says that in addition to competitive returns, members benefit from low fund expenses which on average are 1 per cent or less per year, and compare favourably with conservative mutual funds whose annual investment expenses average 2 to 3 per cent per year.
Marilyn Lurz, a Toronto pension consultant and independent financial planner, thinks that the Saskatchewan plan’s competitive returns and reasonable fees offer Canadians a low risk, high value alternative for a portion of their retirement savings.
“There are other low cost investments like Exchange Traded Funds out there but you have to be pretty sophisticated,” says Lurz, who also teaches pension professionals at the Humber College Centre for Employee Benefits. “This is one retirement savings plan where you can just contribute and more or less forget about it.”
In 2010, the maximum RRSP contribution limit for Canadians is $22,000. Strutt believes sending $2,500 of that limit to the Saskatchwan Pension Plan is a good option, based on the past performance of the fund. “With the SPP’s professional investment managers projecting an average 6 per cent net return going forward, a member’s individual account would grow to around $100,000 in 30 years,” she says.
Furthermore, at retirement Saskatchewan Pension Plan members can elect to take a monthly annuity — a payment — from the plan. “I tell my clients not to put all their investment eggs in one basket. One reason I would introduce clients to the SPP is to give them an easy-to-understand and reasonably priced annuity option for part of their savings,” says Lurtz.
According to Strutt, 70 per cent of people take the annuity because it’s easy. “We’re paying a competitive rate and a lot of people don’t want to have to make investment decisions.” Someone retiring at age 65 with an account balance of $100,000 could expect an annuity of approximately $668 a month from the Saskatchewan Pension Plan.
Both Longhurst and Lurz also like recent changes to the plan that will allow all members to top up their account balances by annually transferring an additional $10,000 in RRSP savings into the Saskatchewan plan. “This will be appealing to people who believe they will get a better net return in the SPP than in their personal RRSP,” says Lurz.
With this year’s Saskatchewan Pension Plan enhancements, Strutt thinks the program will be of interest to more people in Saskatchewan, and now across the country. “In particular, we think our niche is the self-employed and small employers who in many cases are not well-served by existing financial products.”
Longhurst says, “What hit me is that all the other provinces make such a fuss about pension coverage but Saskatchewan has been trundling along below the radar and suddenly they have a great plan. Why isn’t Ontario doing this?”