Page 10 - Newcom

November 2020 BYB: RETIREMENT Being flexible about
retirement plans
INVESTMENT EXECUTIVE
10
The pandemic may cause your clients to rethink when to claim government benefits
l BY FIONA COLLIE
how comfortable your clients
are in retirement may depend on when they access various government benefits — and how flexible they are about their projected retirement date.
Covid-19 has forced many Canadians to become more flexible, and millions now work from home. Your clients may bene- fit from that new-found flexibility when mapping out their retirement, says Michel St-Germain, president of the Canadian Institute of Actuaries (CIA).
“There’s a blur now between private life and office work, and my sense is that this will contribute to much greater flexibility in retirement,” St-Germain says. The pan- demic, he adds, “changed the notion” that people will simply stop working at age 65.
Raising the retirement age is an idea that has been discussed in Canada and abroad as a means of ensuring the finan- cial viability of pension plans and gov- ernment benefits. A 2019 report from the CIA argues the federal government should consider increasing the target age for receiving certain retirement benefits.
For example, the CIA report suggests increasing the CPP/QPP target eligibil- ity age to 67 from 65 and raising the min- imum age at which the benefits can be claimed to 62 from 60. The CIA report also
recommends increasing the maximum age for deferring benefits to 75 from 70.
Like the existing CPP system, the CIA proposal would allow those who choose to retire later — at 67, for example — to receive a higher benefit payout, while those who retire at 65 would receive the same benefit that is available to them today. Similarly, the report suggests raising the eligibility age for claiming old age security (OAS) to 67 from 65 and increasing the maximum age for deferring that benefit to 75 from 70.
For registered pension plans (RPPs) and RRSPs, the CIA report argues the gov- ernment should “provide greater flexibil- ity for individuals to manage retirement income by deferring the maximum age for commencing receipt of income from 71 to 75.” As well, the report suggests employ- ers that offer RPPs should be allowed to change the target retirement age from 65 to 67 on a “go-forward basis.”
One recent change to Canada’s retire- ment system is the adjustment to the CPP contribution rate. The contribution rate for employees will rise incrementally to 5.95% annu-
ally until 2023 — a
change that began
in 2019, when the
rate was 4.95%.
The political will to make fur- ther changes to the retirement sys- tem may be lack- ing because of the pandemic, dur- ing which the fed- eral government
generously loosened its purse strings. (See sidebar.) But Avery Shenfeld, managing director and chief economist in the capital mar- kets department of Canadian Imperial Bank of Commerce, argues that the retirement system should maintain flexibility while still
offering people incentives to keep work- ing, such as allowing people to defer CPP in order to receive increased benefits later.
“That leaves it up to the individual to decide [when to retire], but does create an incentive for some people to work longer,” Shenfeld says.
Perpetually low interest rates are another concern for retirees and people saving for retirement.
“The challenge to having a strong
retirement income in a period where inter-
est rates [are low] is not going to go away
with Covid disappearing,” says Shenfeld,
who adds that low interest rates also are
problematic for private pension plans that
need to generate income “in a world where
government bonds yield less than inflation.” Given the low-rate environment, Canadians may be faced with the choice of either reducing their consumption of assets in retirement or working longer,
St-Germain says.
Automatic enrolment in workplace
pension plans could potentially boost Canadians’ retirement savings, says Keith Ambachtsheer, president of Toronto- based KPA Advisory Services Ltd. and a senior fellow of the National Institute on Ageing at Ryerson University.
Automatic enrolment generally means that an employee has to opt out of a com- pany pension plan rather than opt in, which may increase the likelihood of employees contributing to workplace pen- sion plans.
The pandemic also highlights the ris- ing costs of health care — and long-term care homes in particular, which have been hit hard by the novel coronavirus.
“Our retirement programs, OAS and [the guaranteed income supplement] are quite sustainable,” St-Germain says. “What’s not sustainable are the health- care costs of an aging population.” He adds that the pandemic has only added to those costs, which will be transferred
to the next generation of workers. IE DECEMBER 2009
Perpetually low interest rates are of concern for retirees and people saving for retirement
When will the spending end?
Covid-19 relief programs such as the Canada Emergency Response Benefit have caused the federal government’s deficit to skyrocket. In late September, the Parliamentary Budget Officer predicted a deficit of $328.5 billion for 2020-21.
That number raises concerns about how the government will climb out of such a deep hole, but Avery Shenfeld, managing director and chief economist with Canadian Imperial Bank of Commerce, argues that government spending will be brought under control once pandemic-related programs are phased out.
“Presumably, two [or] three years from now, we won’t be paying massive wage subsidies [and] we won’t have a double-digit unemployment rate,” Shen- feld says. “A lot of the work to bring the deficit down will simply be to allow
those programs to phase out.” — FIONA COLLIE INVESTMEN
T EXECUTIVE
CANADA’S NEWSPAPER FOR FINANCIAL ADVISORS
FREE SUBSCRIPTION/CHANGE OF ADDRESS
w
_ _
Th
M
Mutual Fund Sales Banker Investment Counsel
I __
Wh
C __
Wh
I F I M
nsuranceSales AdvisorTAsosisstanutbscOrthiebre(pletaosespecify)_____________________ To subscribe to
at are your proIfNessVioEnaSl dTesMigEnaNtioTns?EXECUTIVE,
INVESTMENT EXECUTIVE
FP CIM CHFC CLU CA RFP CGA PFP Other _________
or the daily IE E-NEWS
ich one of the following best describes your firm? (check one only) or the daily IE E-NEWS,
simply visit
nvestment Dealer Discount Broker Credit Union Government
inancial Planner Bank simplyAccvouinstiintg Trust Company nvestment Counsel Insurer Mutual Fund Manufacturer
WWW.INVESTMENTEXECUTIVE.COM/
www.investmentexecutive.com/
utual Fund Dealer Other (please specify) ________________________________________
BLISHER RESERVES THE RI
GH
T
TO
DE
TE
RM
IN
E
r
SUBSCRIBE
n
e
w
s
p
a
p
e
QUALIFICATION
PU
s y
To qualify for a FREE SUBSCRIPTION you must sell financial products or services
To qualify for a FREE SUBSCRIPTION you must work in the financial
and your newspapers must be delivered to a business address. Home delivered subscriptions
industry. The publisher reserves the right to determine qualification.
are $25 annually (GST included), please enclose a cheque with order.
❏ STihginsaitsuraec(hreaqnugiredo)f _a_d_d__r_e_s_s__________❏___T_h_i_s__is__a__n__e_w__s_u_ bDsactreip__ti_o_n________________________ This is a change of address This is a new subscription
Name (please print) Title
CoNmampea(nplyease print)__________________________________________________________C__Toitrlpe_._A__ffi___li_a__t_e______________________________
___ Business address Suite Company______________________________________________________________________Corp. Affiliate________________________________
City Prov PC
Business address __________________________________________________________________________ Suite ___________________________
___Tel. Fax
City _______________________________________________________________________Prov ________________PC__________________________
Email
Tel. _____________________________________________________________Fax__________________________________________________________
Signature (required) Date
E-mail _______________________________________________________________________________________________________________________
Return this fully completed coupon or send the required information to us by:
Return this fully completed coupon to us by Mail: 25 Sheppard Ave. W., Suite 100 Mail : Newcom Media Inc., Attn: Investment Executive,
Toronto, ON M2N 6S7, attn: Investment Executive 5353 Dundas Street West, SuOitreC4a0l0l ,(4T1o6ro) 2n2to7,-8O2n6t6. M9B 6H8
Or Email information to subs@investmentexecutive.com Email : service@newcom.ca
Phone : 1-844-847-1261 (toll-free) NOV 2020
Yes, I want my own INVESTMENT EXECUTIVE and Daily IE eN
Yes, I want my own INVESTMENT EXECUTIVE print version, o e following 3 questions must be answered:
y primary occupation is: (check one only)
Investment Advisor Senior Manager Portfolio Manager/Analyst
Financial Planner Compliance Officer Accountant
e nl
ISTOCK.COM / JENPOL