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. For most retirees, government benefits such as CPP, OAS and GIS simply won’t be enough to sustain their lifestyle 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 only 46 per cent of Canadians made a contribution to their RRSPs in 2016, according to a BMO RRSP survey.
An account worth considering is one few Canadians know about: the SPP.
What is the Saskatchewan Pension Plan?
The 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 $6,000 annually (increased from $2,500 on January 29, 2018 for the 2017 tax year). The maximum contribution is now indexed to the YMPE and will change January 1st each year. 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 one of the largest defined contribution plans in Canada with over 500 million in assets. Similar to mutual funds, SPP members benefit from professional investment management, but at a lower cost. The economies of scale that the SPP fund offers ensure low costs for all members no matter how much you have in your account. The plan has averaged a decent return of 8.1% since inception.
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.
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% or less – that’s well below the average MER in Canada of all funds of 2.5% and a bargain for professional investment management.
You can have a “Spousal” pension plan with SPP. Other pension plans don’t offer that option.
The SPP isn’t just for individuals. It can be used as a workplace pension plan by businesses of any size. It allows business owners anywhere in Canada to offer a pension plan to employees without a lot of paperwork. Employees can save in the easiest place possible, right off their paycheque. In fact, a portion of any employee’s bonus or raise could be directed to the SPP so they have something to retire on. The SPP is completely voluntary and can be customized to serve the business and the employee well. And there’s no liability for the business owner and no cost, making it a viable option for small businesses.
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.
With an annual contribution limit of $6,000, 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 the Saskatchewan Pension Plan website.
Sean Cooper is the bestselling author of the book, Burn Your Mortgage: The Simple, Powerful Path to Financial Freedom for Canadians, available now on Amazon and at Chapters, Indigo and major bookstores, and as an Audiobook on Amazon, Audible and iTunes.