Canada’s hidden pension plan: The Saskatchewan Pension Plan
If you’re one of the two-thirds of Canadian workers without the luxury of a company pension plan, the Saskatchewan Pension Plan (SPP) can bridge the gap and help you save towards retirement. With talks of Canada Pension Plan (CPP) expansion off the table for the foreseeable future, the onus is on workers to make up any income shortfall during their retirement years.
For most retirees, government benefits such as CPP, OAS and GIS simply won’t be enough to sustain their lifestyle in retirement.
Related article: How much will the government pay you in retirement?
Although there are voluntary savings vehicles like RRSPs and TFSAs, only a minority of Canadians contribute. RRSPs have been around for decades, yet less than a quarter (24 per cent) of Canadians contributed in 2011, according to Statistics Canada.
When it comes to retirement, there’s an alphabet soup of accounts – Pooled Registered Pension Plans (PRPPs), Target Benefit Plans (TBPs), and the proposed Ontario Retirement Pension Plan (ORPP) to name a few. With so many choices it can be overwhelming to say the least. An account worth considering is one few Canadians know about: the Saskatchewan Pension Plan (SPP).
What is the Saskatchewan Pension Plan?
The Saskatchewan Pension Plan (SPP) is a voluntary money purchase defined contribution pension plan. Don’t let the name fool you; anyone in Canada (not just residents of Saskatchewan) can join the plan. If you’re between the ages of 18 and 71 and have available RRSP room, you’re eligible to join.
How much can I contribute to the Saskatchewan Pension Plan?
Those eligible to join can contribute up to $2,500 annually. You’ll receive the same tax refund as you would from contributing to your RRSP. SPP contributions count towards your RRSP contribution limits for the year. You can also transfer up to $10,000 annually in cash from existing RRSPs, RRIFs and unlocked RPPs to your SPP.
Contributing to your SPP is easy – you can contribute through online banking, automatic debit from your bank account or credit card (earning reward points or cash-back), or by sending a cheque.
How has the plan performed?
SPP is the 27th largest defined contribution plan in Canada as measured by Benefits Canada in September 2013. Similar to mutual funds, SPP members benefit from professional investment management, but at a lower cost. The economies of scale that the $298-million SPP fund offers ensure low costs for members. The plan has averaged a return of 8.13% since inception, with a five year average of 8.91% and the ten year average of 5.74%.
What are the advantages of the SPP?
Investment fees matter – investors need to pay attention to their investment fees. Fees directly impact your investment return. The higher the investment fees, the more difficult it will be for your fund to outperform the market.
Related article: Investors need to pay attention to the investment fees
The SPP was created to offer investors the very best return possible at low investment fees. The SPP is free to join – there are no extra fees to change start, increase or decrease your account. The only fee is the Management Expense Ratio (MER) of 1% – that’s well below the average MER in Canada of all funds of 2.53% and a bargain for professional investment management.
When can I withdraw my money?
The SPP is a locked-in pension plan. It’s similar to transferring your Defined Benefit pension from your former employer to a Locked-in Retirement Account (LIRA). Although the SPP lacks the financial flexibility of an RRSP to withdraw your funds in a financial emergency, you won’t be tempted to raid your account before retirement. At age 55, you have the option of transferring your account to a Locked-in Retirement Account (LIRA) or a RRIF with another financial institution.
Related article: The Differences between LIRAs and RRSPs
Despite its low annual contribution limit of $2,500, the SPP is worth considering as a supplement to your RRSP. For more information on the SPP, including Frequently Asked Questions and to Join, please visit Saskatchewan Pension Plan.