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Your Pension, Your Future Simon Fraser University Faculty Association Seminar.

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Presentation on theme: "Your Pension, Your Future Simon Fraser University Faculty Association Seminar."— Presentation transcript:

1 Your Pension, Your Future Simon Fraser University Faculty Association Seminar

2 2 “Do you have a minute to talk about your retirement years?” © The New Yorker Collection 1997 Robert Weber from cartoonbank.com. All rights reserved.

3 3 Agenda Different pension modelsDifferent pension models The SFU Academic Staff Pension PlanThe SFU Academic Staff Pension Plan The College Pension PlanThe College Pension Plan Why join the College Pension Plan?Why join the College Pension Plan? Wrapping it upWrapping it up

4 4 The facts: Canadian retirement plans Many Canadians’ retirement plans include: Selling their homesSelling their homes Receiving an inheritanceReceiving an inheritance Working into their retirement yearsWorking into their retirement years Relying on the federal pension benefitsRelying on the federal pension benefits Winning the lotteryWinning the lottery An RRSPAn RRSP Less than half of Canadians have an actual pension plan

5 5 The facts: pension plans Pension plans come in three basic forms: Defined benefitDefined benefit Defined contributionDefined contribution Targeted benefitTargeted benefit These three forms are designed to allocate risks: LongevityLongevity InvestmentInvestment TimingTiming

6 6 The facts: defined benefit plans Formula tells members what their pension will beFormula tells members what their pension will be Typically based on years of service in the plan × salaryTypically based on years of service in the plan × salary All risk is born by the employer or employers and active membersAll risk is born by the employer or employers and active members

7 7 The facts: defined contribution plans A member accumulates some money, which is available at retirementA member accumulates some money, which is available at retirement Each member bears all the riskEach member bears all the risk

8 8 The facts: target benefit plans Money is pooled to provide the pensionMoney is pooled to provide the pension There is a specified targeted amount for the pension, but it's not guaranteedThere is a specified targeted amount for the pension, but it's not guaranteed All risk is born by all the members as a groupAll risk is born by all the members as a group

9 9 The SFU Academic Staff Pension Plan Defined Contribution – Employer pays 10% into each faculty member’s account.Defined Contribution – Employer pays 10% into each faculty member’s account. Members can add extra, but often don’t (at least not at the start)Members can add extra, but often don’t (at least not at the start) At retirement, a member can allocate longevity and investment risk by annuitizing or the member can bear those risks and self manage.At retirement, a member can allocate longevity and investment risk by annuitizing or the member can bear those risks and self manage.

10 10 The SFU Academic Staff Pension Plan Annuitizing:Annuitizing: −$300,000 would provide a 60 year old with an income of $1,531/month −$300,000 would provide a 65 year old with an income of $1,748/month Self Managing – tax laws force withdrawal earlier than one might likeSelf Managing – tax laws force withdrawal earlier than one might like

11 11 The College Pension Plan

12 12 The basic pension benefit Defined Benefit PlanDefined Benefit Plan –Service and Salary (best 60 months salary) Contributions and investment returns fund the plan.Contributions and investment returns fund the plan. 70% of the plan’s assets are from investment returns70% of the plan’s assets are from investment returns The College Pension Plan is undergoing plan design changes effective January 1, 2016 Did you know?…

13 13 Basic pension benefit is guaranteed Actuarial valuations – every three years The plan was almost fully funded (97 per cent) as at August 31, 2012 Solid investment policies Very inexpensive investment management Access to wider variety of investment options

14 14 Defined contribution vs defined benefit SFU Academic Staff Pension Plan College Pension Plan Pension payments are based on… Contributions and investment returns Age, years of service and salary Who takes the risk?You doMembers and employers Who makes investment decisions? You doExperts What do you get?Annuity/RIFPension for your lifetime Early retirement?Yes Health benefits?NoYes, access to group rates Are faculty contributions required? No Yes – enrolment is mandatory in most cases

15 15 Cost Approximately 19.2¢ on every dollar grossApproximately 19.2¢ on every dollar gross –Half from employer, half from faculty member Contributions are tax deductible (on salary up to approximately $170,000)Contributions are tax deductible (on salary up to approximately $170,000) You get the pensionable service for free while you are on an approved LTD leaveYou get the pensionable service for free while you are on an approved LTD leave More information is available at: www.college.pensionsbc.caMore information is available at: www.college.pensionsbc.ca

16 16 Guaranteed benefit Monthly income for the rest of your lifeMonthly income for the rest of your life Early retirement optionEarly retirement option Pension = 2% × highest average salary (HAS) × pensionable servicePension = 2% × highest average salary (HAS) × pensionable service

17 17 Cost-of-living adjustments (COLA) May be granted annuallyMay be granted annually Based on Consumer Price IndexBased on Consumer Price Index Cap in place to ensure sustainabilityCap in place to ensure sustainability Future cost-of living increases are not guaranteed but cola once granted is guaranteed A pension worth $1,000 ten years ago is now paying approximately $1,195 today. Did you know?…

18 18 COLA Is a target benefit in the College PlanIs a target benefit in the College Plan Current target (in place since 2010) is a cap of 1.83%Current target (in place since 2010) is a cap of 1.83% Paid full inflation in four of the last five yearsPaid full inflation in four of the last five years Sustainability level is evaluated every three yearsSustainability level is evaluated every three years Agreement in place to raise contributions (over many years) to increase cap to 2.75%Agreement in place to raise contributions (over many years) to increase cap to 2.75%

19 19 Access to health and dental benefits Medical, dental and extended healthMedical, dental and extended health Group ratesGroup rates Group benefits are not guaranteedGroup benefits are not guaranteed A member retiring today will pay approximately $160/per month for these benefits. That’s a significant savings over using an individual plan. Did you know?…

20 20 How can I increase my pension?

21 21 Past service You may have service eligible for pension purposesYou may have service eligible for pension purposes Actuarial calculation to determine costActuarial calculation to determine cost –This is subject to approval by the College Pension Board of Trustees If the board approves the purchase of past service, you can pay by cash or RRSP or DC Pension (these funds must be used first)If the board approves the purchase of past service, you can pay by cash or RRSP or DC Pension (these funds must be used first) –Note that you must have RRSP room if you want to use cash

22 22 404550556065 70,000 11,392 12,653 14,284 16,331 17,564 15,590 100,000 16,560 18,408 20,793 23,783 25,778 23,169 130,000 21,727 24,164 27,303 31,235 33,993 30,748 404550556065 70,000 9,929 11,059 12,509 14,320 16,293 17,684 100,000 14,185 15,799 17,870 20,457 23,275 25,263 130,000 18,440 20,538 23,231 26,594 30,258 32,842 Estimated cost to purchase past service Estimated cost to purchase one year of service prior to 2016 Estimated cost to purchase one year of service after 2015

23 23 Purchase of service Leave of absenceLeave of absence Other typesOther types Deadlines applyDeadlines apply

24 24 Why join?

25 25 Why join Better benefitBetter benefit Studies show that the average benefit payable from a DB plan is 40% higher than the average benefit payable from a DC plan that has the same costStudies show that the average benefit payable from a DB plan is 40% higher than the average benefit payable from a DC plan that has the same cost Longevity, investment and timing risks are sharedLongevity, investment and timing risks are shared Plan can take greater investment risk than an individualPlan can take greater investment risk than an individual

26 26 The numbers add up Benefit from College Pension Plan for a 65 year old who retires with 22.5 years of service with a HAS of $120,000 is $54,000/yearBenefit from College Pension Plan for a 65 year old who retires with 22.5 years of service with a HAS of $120,000 is $54,000/year The average SFU faculty association member between 60 and 64 who has 20–25 years at SFU, has approximately $245,000 to pay for their retirementThe average SFU faculty association member between 60 and 64 who has 20–25 years at SFU, has approximately $245,000 to pay for their retirement

27 27 If SFU Faculty Association wants to join the College Pension Plan SFU needs to apply to the College Pension PlanSFU needs to apply to the College Pension Plan College Pension Board of Trustees would decide on acceptanceCollege Pension Board of Trustees would decide on acceptance Purchase of past service may be possiblePurchase of past service may be possible – would not be cheap, but would be worth it Enrollment would be mandatory for full-time and most part-time employees if SFU joinsEnrollment would be mandatory for full-time and most part-time employees if SFU joins Board representation is unlikely – Plan Partners appoint the trustees, but one of them could appoint an SFU faculty memberBoard representation is unlikely – Plan Partners appoint the trustees, but one of them could appoint an SFU faculty member

28 28 College Pension Plan Website college.pensionsbc.ca

29 29 Wrapping it up Cost-of-living increases are not guaranteed Income for life Cost-of-living increases on your pension Access to health benefits at retirement

30 30 Current Federal pension benefits Canada Pension Plan$1,038 per month (maximum) Old Age Security$585 per month (maximum)

31 31 Questions ?


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