Ready to Make the Jump? Some Tips for Finding Work that Feeds the Soul

March 13, 2014 11:46 am

They’re called second acts, encore careers or reinventing yourself – they’re the completely new and different jobs people take in midlife or later.

Today, making that jump is more likely to be a matter of following the heart than it was during the throes of the economic recession, when professionals caught up in corporate lay-offs discovered they were too old to find jobs in a poor market and too young to retire. They started second careers not to follow a vocation but to pay the bills.

“I’m glad to see the tide turning again – especially for all the Baby Boomers who don’t want to  retire but do want to do something gratifying,” says Betty Hechtman (, who was on the eve of her 60th birthday when her first mystery series prompted a bidding war between St. Martin’s Press and Berkley Books.

She has since published eight “cozy mysteries,” including her newest, “Yarn to Go” – the first in her Berkley Prime Crime Yarn Mystery series.

Hechtman has had a lot of practice reinventing herself. She has volunteered as a farmworker on a kibbutz in Israel, waitressed and worked in retail sales, and made connections as a telephone operator, among a host of jobs.

“I’ve held jobs just for the pay check and I’ve pursued my passions, so I know how profoundly different it is to do one versus the other,” she says. “No matter what age you are, if there’s work you feel called to, you should most definitely give it a try — you may well experience a joy unlike any you’ve ever known.”

Hechtman offers these tips for people considering an encore:

• Do your homework. There’s nothing more disappointing them jumping in to something new only to become disillusioned and frustrated because you didn’t take the time to prepare. If your dream is to open a particular business, research the market. Is there a demand for what you hope to sell? Should you give it a trial run as an online business before investing in shop space and other overhead? Start by checking the resources at, a non-profit supported by more than 12,000 volunteers dedicated to helping small businesses off the ground. For other encore pursuits, you might take classes or spend a few hours a week working as a volunteer to learn the ropes.

• Join a group of like-minded people. This is particularly helpful for aspiring artists who want to paint, play music, write a book or indulge some other creative talent. You can brush up on your skills and make valuable contacts by becoming a part of a community theatre, joining a writers circle, or finding a group of hobbyists. You may find your skills develop much more quickly with the support and guidance of collegial peers who are all helping one another achieve a dream.

• Consider working in one of the five most popular encore fields.  Most people seek second their careers in health, education, government, environment and non-profits — all fields expected to provide abundant job opportunities in the next couple of years, according to, a non-profit that supports second careers “for the greater good.” If you need training to qualify, now is the time to get it, Hechtman says. “Invest now in the education, and you can soon have a job that feeds the heart, the mind – and the body!”

About Betty Hechtman

Betty Hechtman is the author of “Yarn to Go,” the first book in the Berkley Prime Crime Yarn Retreat mystery series, as well as the author of the best-selling Berkley Prime Crime Crochet  mystery series. The eighth book, “For Better or Worsted,” comes out in November.  She has also written newspaper and magazine pieces, short stories and screenplays as well as a children’s culinary mystery. She has a bachelor of fine arts degree and has been active in handicrafts since she was a small child. Hechtman divides her time between Los Angeles and Chicago.

In the Line of Fire: Long-Term Disability Insurance Coverage

April 9, 2013 11:58 am

Few things in life are guaranteed, including long-term disability (LTD) insurance plans. While long-term disability protection may be offered through an individual’s employer, not all plans are created equal.

Basically, there are two types of LTD. The first is the Insured Benefit LTD where the plan sponsor (the employer) pays a premium to an insurance company which then covers employees. Thus, it is the insurance company itself, and not the employer, assuming the financial risks involved. In this capacity, insurers are required to set up reserves against future payments.  In other words, when an individual goes on long-term disability, the insurer has to set aside enough money up front to cover the expected payments for that individual. So, even if the employer sponsoring the plan does go bankrupt, the coverage and benefits that the employee receives will continue. In addition, insurers in Canada are subject to a stringent regulatory regime requiring that reserves are held separate from the general funds of the insurer and that they hold an additional capital cushion over and above their other liabilities. At the end of the day, employees on long-term disability with fully-insured benefits can be assured that their LTD payments will continue for however long they remain disabled and unable to work.

The second type of LTD insurance plan is the Uninsured Benefit Plan or Administrative Service Only (ASO) plan. With an ASO, it is the employer who pays all the benefits to employees and a third-party administrator simply helps to manage the plan. Under such an arrangement, the third-party company focuses primarily on examining claims and administering payments on behalf of the plan sponsor. More often than not, uninsured LTD plans function as a “pay-as-you-go” plan. The Canadian Life and Health Insurance Association (CLHIA), which represents Canada’s life and health insurers, notes that these “pay-as-you-go” plans “rely on the plan sponsor being able to continue to generate adequate cash flow each year over the lifetime of the plan and to pay benefits for the duration of the benefit period.”

With an uninsured LTD, the plan sponsor is not required to establish a reserve fund against long-term disability payments. In that case, should the employer enter bankruptcy, there likely would not be adequate funds available to cover the future long-term disability payments of employees. It is not unknown for employees to face a complete loss of coverage in such circumstances.

While the vast majority of employers who offer disability benefits do so on an insured basis, those who do it on an ASO basis are generally large employers.

CLHIA President Frank Swedlove explains that although “situations [where employers go bankrupt] don’t arise that often, when they do, they tend to arise with large national companies and affect a lot of people.” One high-profile instance was the evaporation of the LTD benefits for former Eaton’s employees when the iconic Canadian retailer went bankrupt in 1999. Another that hit the Ottawa region hard was the recent bankruptcy of Nortel.

Recognizing these challenges, Canada’s insurance industry has examined many proposals to ensure the continued delivery of LTD benefits in the event of a plan sponsor’s financial collapse. As Swedlove notes, “the industry believes that the most effective solution is to ensure that all long-term disability plans in Canada are offered on a fully insured basis only.” The federal government has taken note of the risks associated with uninsured LTD plans in light of Nortel’s bankruptcy. The Jobs, Growth and Long-Term Prosperity Act has been used to amend the Canada Labour Code, requiring federally-regulated private-sector employers who provide LTD insurance benefits to use insured rather than uninsured plans. Swedlove believes this is a good starting point, but that more still needs to be done to cover all Canadians because “the changes to the Canada Labour Code only affect companies that are under federal jurisdiction, but the vast majority of companies here in Canada are under provincial jurisdiction.” To bring all the players to the table to create a better system to protect all employees would ultimately benefit everyone.


A Unique Private Sector Solution to Protect Canadians’ Prescription Drug Coverage

January 21, 2013 12:30 pm
6 Free Digital Backgrounds For Portrait or Still Life Photography

With the widespread benefits arising from continuing advancements in the efficacy of prescription medications used to treat acute and chronic medical conditions, it is easy to lose sight of an important side effect which often accompanies the undeniable benefits these medications provide. That side effect is their cost. And due to the fact that Canada lacks a national, comprehensive catastrophic drug program, the high costs of certain drugs can be particularly problematic. This is especially true for those employers who have their drug coverage provided by Canada’s life and health insurance companies where the number of annual insurance claims for prescription drugs in excess of $25,000 per patient has been increasing steadily at above 20 per cent per annum for the past five years — and it shows no signs of abating. In fact, in all likelihood, the frequency of these high-cost drug claims will rise in the years ahead as advances in research continue to produce effective but expensive drugs needed to treat familiar and newly discovered medical conditions ranging from cancers to auto-immune and genetic enzyme disorders.

Recently, the increasing volume and frequency of high-cost, recurring claims for expensive prescription drugs has placed a financial burden on many of Canada’s small and medium-sized businesses that offer their employees a fully-insured health care plan. Fully-insured employer plans are subject to annual changes in their premiums to reflect the forecast cost of their drug plan. This means that an employer who has a very large and recurring drug claim will often be subject to significant increases in premiums. These increases are particularly difficult for small and medium-sized employers to absorb, many of whom are unable to manage the new, higher premiums. That can force employers to take drastic actions, such as cutting back on their drug plan coverage. In some circumstances, the employer may even be unable to offer the plan to any employees for the lack of available funds required to pay for the increased insurance premiums resulting from the high-cost drug claim of an individual employee. Stephen Frank, Vice President, Policy Development and Health for the Canadian Life and Health Insurance Association (CLHIA) — the trade association representing Canada’s life and health insurers — explains: “What happens when small and medium-size employers who provide a fully private health insurance plan to their employees and who have a claim for one of these high-cost drugs is that their costs can quickly escalate to a point where they can no longer afford to provide that coverage to their employees.”

In order to stop this from happening, Canada’s insurance providers have worked together to share the costs of the extremely expensive drugs for private-sector businesses which offer their employees fully-insured drug plans. Canadian health insurance providers have all agreed to shelter employers with fully-insured plans from the full financial impacts of high-cost drugs and, therefore, will increase the sustainability of employer- offered drug insurance plans. In addition, they have created a national, industry-wide drug pool that will allow insurers to spread the costs of such expensive drugs among all insurers in Canada. This new arrangement came into effect on January 1st, 2013. Twenty-four health insurance companies, which account for 100 per cent of Canada’s supplementary drug market, have agreed to participate in the industry- wide drug-pooling plan.

The core tenet of the pooling framework, as Frank explains, is that the premiums for an employer’s drug plan are calculated without “any reference to the pooled amount of any high-cost claims. In essence, insurers are required to set the premium… assuming that the high-cost claim did not exist. Furthermore, in order to help each participating insurer sustain the costs of offering this protection to their clients, the industry will set up an industry-wide pooling framework to spread the risk of recurrent, high- cost prescription drug claims across all participating insurers.” Aside from these basic standards, all other aspects of how insurers structure and price their drug plans to employers is customizable and will be a source of competition in the marketplace.

This pooling agreement is a good start to addressing this issue for all Canadians. The CLHIA estimates that it will protect between seven and nine million Canadians. Frank points out that the prescription medication pooling plan was driven by the Canadian insurance industry and is a unique experiment in the Western world. “This is the first and only fully private national prescription drug-pooling initiative in the world.” Frank expands upon the special nature of Canada’s prescription medication pooling. “Elsewhere in the world, you can find similar national pooling arrangements. However, they are mandated by government and not initiated by the private sector, as is the case in Canada’s health insurance industry.”

TOP PHOTO: Stephen Frank, Vice President, Policy Development and Health, CLHIA

Financial Literacy: An Essential 21st Century Skill

November 15, 2012 9:00 am
page25_Leslie Byrnes, Vice President, Distribution & Pensions at CLHIA

It may surprise you to learn that November is Financial Literacy Month. And yet, financial literacy deserves to be given more prominence in today’s world of complex mortgages, loans, insurance policies, complicated investment products and sophisticated financial scams. As Leslie Byrnes, Vice-President, Distribution and Pensions at the Canadian Life and Health Insurance Association (CLHIA) — the trade association representing Canada’s life and health insurers — puts it, “These products can be very intimidating, to say the least.”

Financial literacy means the sharing of knowledge, skill sets, wisdom and experience that Canadians need to make informed, reasoned and responsible financial decisions. Being financially literate helps an individual know when he or she is spending money responsibly. It gives consumers the capacity to discern between financial products that may facilitate their short- and long-term investment goals. And it gives them the knowledge and foresight to effectively weigh the legitimacy of the financial advice they will receive throughout their life. Increased financial literacy provides important life skills that are particularly necessary in this day and age for a number of reasons. First, in the words of the Government of Canada’s Task Force on Financial Literacy: “Canadians today have to make an ever-larger number of financial decisions, at an ever-younger age — and these decisions are increasingly complex and fraught with consequences.” Second, the stakes are much higher today since the ratio of household debt to disposable income in Canada has now surpassed an unprecedented 163.4 per cent. Third, when we consider the historical trends, Canadians, as a whole, currently have minimal personal savings rates.

These three factors have contributed to the development of a dangerous environment for those with minimal financial literacy. A few noteworthy figures from a working paper prepared by the Special Surveys Division of Statistics Canada, and which was presented to the Canadian Task Force on Financial Literacy in the summer of 2010, sheds some much needed light on the current perilous environment. The report claims that “70 per cent of Canadians were fairly or very confident that their retirement income would provide the standard of living they hoped for; though just 40 per cent of Canadians have a good idea of how much money they will need to save to maintain their desired standard of living in retirement.” It also found that only 51 per cent of Canadians have drawn up a personal budget to keep track of expenses and that those with less education are less likely to have a budget. Furthermore, the report identified that many prospective home buyers have only enough savings to cover between 5 per cent and 10 per cent of their desired home’s purchase price — a trend which will likely make it difficult for them to secure a mortgage.

Fostering greater financial literacy for all Canadians will not be accomplished overnight. It must begin early and continue throughout an individual’s life. It requires advocacy-building through the mass media, the financial and insurance industries and all levels of government. The federal Minister of Finance has sponsored Bill C-28, known as the Financial Literacy Leader Act, which is now being considered by the House of Commons. Provincially, following the lead of British Columbia, Manitoba and Ontario have committed to including courses on financial literacy in their curriculums. In so doing, younger Canadians will acquire the tools and skills needed to make sound financial decisions early in life.

The financial industry is well aware of the need to increase financial literacy and has taken steps to achieve this end through the many informational resources that it publishes and makes available online.

Regardless of where the information intended to improve Canadians’ financial literacy originates — from the government, from school boards or from the financial services industry itself — the information must be relevant and tied to real-life circumstances if it is to be understood by Canadians at large. The concern is that financial products are continually becoming more complex and that today it is easier than ever before to accumulate crippling debt. As Leslie Byrnes points out, “as a result, choosing the proper insurance policies or financial products that best suit an investor’s goals has become a more complicated task. But with increased financial literacy, together with a qualified financial advisor, that need not be the case.”

Pensions & Peace of Mind Series: Long-Term Care

September 28, 2012 3:46 pm

It is no secret that a secure and enjoyable retirement requires critical thinking, strategic planning and diligent budgeting. Many Canadians are aware of this but are unaware of the fact that a portion of that retirement budgeting must be allocated for long-term health care costs. This may come as a surprise to some since, for the most part, Canada’s single-payer health-care system has been designed in a way that rarely requires individuals to fund their own health-care costs. Yet, the Canada Health Act (CHA), which simultaneously establishes the framework for the Canadian health care insurance system and dictates the conditions that the provinces and territories must meet to receive their maximum share of federal funding for health-care delivery under the Canada Health Transfer (CHT), does not guarantee publicly funded insurance for long-term care. What this means is that a person who no longer is able to live independently due to a debilitating illness or a chronic disease and who has to rely on long-term care whether it be received in one’s own home or in an assisted living facility — may need to pay a significant portion of  the tab.

In terms of public funding, there are a variety of programs — most of which are at the provincial level —intended to help offset long-term care costs, but these programs vary substantially across the provinces and territories and also the socio-economic landscape. Yet even with the existing limited patchwork of provincial programs, a significant portion of the costs must still be absorbed by the individual requiring care.

It is no secret that a secure and enjoyable retirement requires critical thinking, strategic planning and diligent budgeting.

Over the coming decades, Canada’s changing demographics will begin to place an increasing level of stress on the existing long-term care system in Canada. There will be a dramatic rise in the costs of long-term care and, at current funding levels, also a massive funding shortfall to pay for the increasing demand for long-term care services. Why will this happen? To put it simply, Canada’s large population of baby boomers is beginning to move into old age. Analysis shows that by 2036, about 25 per cent of all Canadians will be over 65 years of age, compared to 14 per cent today. This double-digit expansion in the percentage of elderly Canadians will push up the demand  for long-term health care since a larger number of older Canadians means that a greater number of Canadians will be diagnosed with chronic diseases like Alzheimer’s or other forms of dementia as well as strokes and cancers. The consequence will be a substantial increase in the demand for long-term health care services, a demand which will quickly outstrip the current supply of physicians, nurses and other health care practitioners across the country who specialize in geriatrics.

To make matters worse, if the existing model of long-term care remains unchanged, costs will continue to rise due not only to the impact of demographics, but to the inefficiencies that also plague Canada’s long-term care delivery system. Often, individuals receive care in relatively expensive settings (like hospitals) when they could just as easily be helped in a less expensive long-term care facility or even in their own homes. Stephen Frank, Vice-President, Policy Development and Health for the Canadian Life and Health Insurance Association (CLHIA) — the trade association representing Canada’s life and  health insurers — explains this problem. “Currently, 7 per cent of hospital beds in Canada are occupied by patients who could be more appropriately supported in a long-term care facility. There are also many Canadians who move into a long-term care facility because of inadequate home care support.” Put differently, because many Canadians must currently rely on more expensive forms of long-term care, the costs are adding up. A recent study by the North East Ontario Local Health Integration Network (LHIN) calculated that the average daily cost of a bed in a hospital is $842, while the daily cost of a bed in a long-term care facility is $126 and the cost of administering long-term care in the patient’s home is about $42 per day. With our current system’s bias towards providing acute care, we are not managing long-term care optimally, not only from a cost-effectiveness point of view but even more importantly, we are not providing continuing care in the most appropriate settings from a patient perspective.

Structural reforms are required to create a more efficient, cost-effective and patient-specific approach to long-term health care delivery in Canada.

Structural reforms are required to create a more efficient, cost-effective and patient-specific approach to long-term health care delivery in Canada. As Frank puts it: “In order to meet the increased demand, all of those involved, including health care professionals, long-term care providers, volunteers and governments have to work together to find solutions.” The cost of inaction is too high to ignore. For instance, it is estimated that the cost in current dollars to provide long-term care to Canada’s baby boomers as they pass through old age is roughly $1.2 trillion. But the current support programs and funding channels are not adequate to meet this need and there is currently a massive long-term care funding shortfall. The CLHIA broke new ground by quantifying the size of this funding shortfall in a recent study which identified that “at current levels of coverage, all governments in Canada have programs in place that will cover roughly $595 billion of future long-term care costs over the next 35 years. Clearly, this is well short of what is needed and leaves a funding shortfall of just over $590 billion to be financed either through government initiatives or individual savings by Canadians.”

While Canadians may hope that painful individual belt-tightening could be precluded by increased government spending, meaningful reform cannot be accomplished by these means. To do so would require permanent annual corporate and personal tax increases that would be unpalatable to most. As a result, the burden of responsibility for Canada’s long-term health care delivery system will largely fall on the shoulders of individual Canadians who will need to learn the importance of allocating a portion of their retirement savings to cover the costs of their own future long-term care.

Pensions & Peace of Mind: To Pool Or Not to Pool?

August 2, 2012 10:07 am

Pooled Registered Pension Plans (PRPPs) are Canada’s latest pension-planning tool.

To pool or not to pool? That is the question – at least among Canada’s retirement experts. Pooled Registered Pension Plans (PRPPs) were proposed last November by the federal government and are intended to provide workers within small and medium-sized businesses — as well as the self-employed — with a simple low-cost, way to save for retirement. But are they right for you?

Your retirement income will be made up of several pieces. For most Canadians, the major income sources will be the Canada Pension Plan and Old Age Security, company pensions and Registered Retirement Savings Plans, non-registered savings and amounts in a Tax Free Saving Account and maybe an inheritance or the proceeds from the sale of a home.

But government research says that almost two-thirds of Canadians are expected to have insufficient retirement savings. (Around 60 per cent of Canadians have no workplace pension plan.) And while Registered Retirement Savings Plans (RRSPs) started out in 1959 with a focus on retirement, they are increasingly used for other purposes – buying a first home or going back to school, hanging a big flat-screen TV on the wall, or simply as temporary savings to help escape winter’s chill. And many Canadians don’t use the savings capacity that RRSPs provide, perhaps thinking they can save later. But that leads to choosing potentially risky “catch-up” investment strategies.

RRSPs started out in 1959 with a focus on retirement, they are increasingly used for other purposes.

Traditional pension plans – whether they provide a “defined benefit” that pays you a known percentage of your salary after you retire or use “defined contributions” to build an investment nest-egg — impose significant management and reporting duties on employers. And while large employers can hire staff or consultants to do that, smaller employers need a simple “off the shelf” approach. Increasingly, employers have used “group RRSPs” to fill that role. But because workers can withdraw RRSP funds for any reason, group RRSPs may not meet employers’ or workers’ retirement funding objectives.

PRPPs attempt to bridge this gap between traditional pensions and RRSPs by providing pensions that focus on retirement income, without the administrative complexity of traditional pension plans or the higher cost of “retail” RRSPs. (High management expenses, lower returns), PRPPs represent a “wholesale” model with much lower costs that are normally only available through pension plans for large companies.

PRPPs will be administered by licensed providers – probably banks and life insurance companies – since they already provide similar services to group RRSPs and pension plans. Other providers, like large pension plans for teachers and government employees, might also be permitted to run PRPPs.

Employers will automatically enroll workers, but workers will have the right to opt out at any time. Rules that are still being developed by Finance Canada may allow workers to be automatically re-enrolled at a later date, again with an opt-out right. The idea is that even if they aren’t prepared to contribute today, workers should be given the opportunity to review that decision periodically, rather than opt out now, only to find that they “never got around to saving” when they reach retirement age.

Plans will offer a limited number of investment options, so that consumers aren’t overwhelmed by too much choice — what international research has called “paralysis by analysis.” Investment options will have to be designed to allow the creation of a “prudent portfolio.”

Life Cycle investing gradually adjusts the mix of investments to become more cautious as we age.

One likely approach to investments is the use of “lifecycle” funds as a default investment option. These arrangements gradually adjust the mix of investments to become more cautious as we age. The rationale is that bonds are more likely to produce secure and stable retirement income, so the investments held in your plan should better match your income needs as you approach and move into your retirement years. For instance, if you’re 25 when you enter a lifecycle fund, the investments might be 75 per cent in stocks, and only 25 per cent in bonds. By age 65, the mix might have shifted to 35 per cent stocks, and 65 per cent bonds. If the rules allow you to draw your retirement income from the PRPP, the investment mix might be 20 per cent stocks and 80 per cent bonds by the time you’re age 80.

In Quebec, Sun Life Financial, one of Canada’s largest insurers, has already mapped out the structure of its Voluntary Retirement Savings Plan (VRSP, the Quebec version of the PRPP) product. Sylvain Bouffard, director of public affairs for Quebec at Sun Life, said the VRSP product would give two-million Quebecers access to a retirement savings plan. “The VRSP will give us a chance to reach them,” Bouffard said, adding Sun would “offer lifecycle funds as a default investment option.”

In addition to automatic enrolment and default investment options, PRPPs will probably be designed to permit your contribution rate to increase automatically over time. The logic is that starting to save gradually allows you to adapt more easily to any change in your take-home pay, and to develop smart savings habits. And as with simply participating in the plan, you’ll be able to opt out of automatic increases in your contribution rate or select a higher or lower contribution rate, as well as choose different investment options.

Not everyone is convinced that PRPPs are a good idea. Some prefer RRSPs and the ability to withdraw funds for purposes other than retirement. Others suggest that defined benefit plans are better, but if employers won’t offer them, that seems to be a moot argument. Similarly, some have argued that expanding the Canada Pension Plan would provide the best option.

Not everyone is convinced that PRPPs are a good idea.

While Canada’s Finance Ministers unanimously agreed, in December 2010, to move forward with PRPPs, so far only the federal government and Quebec have taken action. Of course, the creation of the Pooled Retirement Pension Plan is also contingent on the support of the provinces. The federal Bill C-25 creates a PRPP framework, but it will only apply directly in workplaces that are subject to regulation by the federal government: banking, airlines, railways, shipping and communications. Most of these industries already have pensions. For other types of businesses, the provinces will need to enact legislation and set up their own licensing and regulatory regimes for the PRPP framework to fully come into effect. That may be where the headaches come into it.

Bill C-25 has stuck in the craw of several provinces, including Ontario. The Ontario Government made its displeasure clear during its 2012 budget slamming PRPPs as an inadequate solution to Canada’s pension savings crunch. Ontario stated the presence of PRPPs would fail to boost the total number of Canadians with a registered pension plan (RPP) – it would just add another product into the mix. (A mere 38 per cent of all employees had an RPP in 2008 – the majority of them (84 per cent) in the public sector. Just 25 per cent of private sector employees had an RPP that year.) Ontario favours enhancements to the existing Canada Pension Plan, and seems to want CPP expansion at the same time as any adoption of PRPP. Ontario has also expressed concern that the employees’ contributions might not be accessible in cases of financial hardship.

While federal, provincial and territorial governments have committed to considering modest and gradual changes to the CPP, what those terms mean is unclear. And importantly, changes to the CPP require the consent of 2/3 of the provinces with 2/3 of the population. (Those fractions include Quebec, even though it runs its own, broadly parallel, pension plan, the QPP.) So it isn’t clear that agreement to amend the CPP is likely in the near term.

Quebec has had a warmer response to the federal legislation – which is seen as a solution to Quebec’s low retirement savings rate. The provincial government estimates 30 per cent of workers, mostly in the $20,000 to $60,000 earning bracket, have no retirement savings at all. Starting in 2013, Quebec will implement its VRSP. All employers in the province with five or more employees with no existing pension plan or group RRSP will be obliged to enroll staff in a pooled plan. Companies with fewer than five employees, the self-employed and individuals would also have the choice to participate. Participating employers wouldn’t be required to contribute. And under the Quebec model, employees would be able to withdraw their own contributions under certain conditions.

Frank Swedlove, President of the Canadian Life and Health Insurance Association

While the provinces’ reaction has been mixed, the reaction from Canada’s small and medium businesses is mostly positive. A poll conducted by Leger Marketing in January 2012 on behalf of the Canadian Life and Health Insurance Association (CLHIA) shows 68 per cent of small and medium enterprise owners (SMEs) are interested in providing PRPPs. Over 800 companies were surveyed in the poll. Two-thirds of employers interviewed also believed employees would embrace the opportunity to contribute to a PRPP. The CLHIA represents the vast majority of Canada’s life and health insurance industry; its members manage more than two-thirds of Canada’s private sector pension plans. Frank Swedlove, president of the CLHIA, said the poll shows that “these savvy employers know a good thing when they see it.”

“Small and medium-sized business executives are ready to embrace PRPPs as they look for new ways to keep employees and attract new people,” says Swedlove. “We are on the cusp of making a fundamental shift in the pension landscape.”

Another sign of employer support of PRPPs is the 73 per cent of SME executives who indicated they would not only provide PRPPs to employees but would “look at ways their business could contribute to the plan over and above what the employee puts into it.” Under the current legislation, it is not mandatory for employers to contribute to the PRPP.

Although it is unclear whether all Canadian provinces will adopt legislation to implement PRPPs, one thing is certain. Despite its pros and cons, the mere concept of Pooled Registered Pension Plans certainly has Canada’s pension world talking.

Beyond Old Age Security

June 21, 2012 8:56 am

Sifting through the minefield of pension terminology is not for the faint of heart. With terms such as defined DB plans and DC plans right through to DPSPs, EPSPs, group and individual RRSPs, LIRAs, LIFs and TFSAs, to name but a few, retirement pension plans can be confusing to the uninitiated. However, a basic pension vocabulary is a must and may make the difference between hitting pay dirt or retirement penury. For starters, DB plans refers to defined benefit plans and DC to defined contribution plans. A DB plan means future returns on the pension plan are guaranteed regardless of the fund’s financial performance. A DC plan, on the other hand, is one in which the employer’s annual contributions are specified but at the end of the day the pension received depends on the performance of the market. Knowing which best suits your individual situation can literally make or break the bank.

The ABC of retirement terminology starts with Canada’s two federal public pensions – Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) received by 95 per cent of Canadian seniors and which, like universal health care, are fundamental to Canada’s social safety net. (Around five million Canadians receive OAS while another 1.8 million are in receipt of GIS.) However, while OAS and GIS are familiar terms to Canadians, the exact details as to how they operate, the benefits received and eligibility requirements remain less clear. Adding to this are the changes announced in the March 2012 Federal Budget that will increase the age of eligibility for the OAS from 65 to 67 years of age.

Changes to the OAS were driven by Canada’s pension crunch. There will be nearly twice as many seniors in 2030 as there were in 2011, growing from 5 million to 9.4 million. At the same time, there will be fewer taxpayers to support them. Put another way, sometime between 2015 and 2021, the number of seniors in Canada will outstrip the number of children (under 15 years) for the first time ever. The result, according to the Government, is that Canada can no longer maintain OAS payments at their current level. With the average retirement age in Canada at 61.1 years, the trend isn’t about to end anytime soon. Statistics Canada projects the number of persons aged 65 years and over doubled between 1981 and 2009 and will double again by 2036.

Frank Swedlove, President of the Canadian Life and Health Insurance Association

So what are the changes to the OAS and how might Canadians best prepare for them? First, some background. Old Age Security, Canada’s single largest federal program, was founded in 1927 to provide a means-tested pension for men and women 70 years of age and over with little or no income. From that time to the present, the pension has undergone several changes. In 1952, the OAS was a $40-a-month universal, flat-rate pension for Canadians 70 years of age and over. By 1965, the age of eligibility was moved to 65 over a five-year period to 1969. In 1971, the GIS, a tax-free income-tested supplement, was introduced to assist pensioners in receipt of the OAS but who had little or no other income. (The GIS is a benefit received on top of the OAS for seniors whose incomes are below $16,368 for a single person.)

In 1972, the OAS came closer to its current form with the indexation of benefits and income-testing. The handing down of the Federal Budget, however, marked a whole new era for the OAS.

The main change – the increase in age of eligibility – means all Canadians currently under the age of 54 will have to wait an extra two years to receive the benefit. The change to the OAS, worth more than $6,000 a year, will be phased in beginning in 2023 with full implementation by 2029. About one-third of all Canadians will be deeply impacted by the change.  According to a Bank of Montreal survey conducted in April 2012, 32 per cent of Canadians between the ages of 25 and 54 will rely on OAS and Canada Pension Plan and Quebec Pension Plan benefits as a major source of retirement income. That is, these Canadians will be reliant not only on Registered Retirement Savings Plans or RRSPs as their retirement mainstay, but on federal pension plans.

What does this all mean for that cohort of Canadians who will now have to wait an extra two years to receive OAS benefits? In brief, Canadians will have to take charge of their retirement years sooner and save harder and longer than ever.

The financial shortfall to be made up – around $13,000 in entitlements – may not seem much, but for those who are already ill prepared for retirement, it is significant. Figures from Statistics Canada for 2009 show that around 65 per cent of Canadians who are approaching retirement anticipate their retirement income to be adequate or more than adequate to maintain their standard of living. However, 19 per cent of Canadians expect it to be barely adequate and 9 per cent less than adequate. The loss of income received under OAS will fall particularly hard on this group of Canadians. That other income supplement provided through the Government, the Guaranteed Income Supplement (GIS) intended for low-income seniors, can’t be counted on to provide much income relief. Just as the OAS is subject to clawbacks based on income, so is the GIS – but an even steeper clawback. The maximum amount received under OAS is $540.12 a month which begins to be clawed back for individuals with net income above $69,562 in 2012. The OAS clawback begins at a rate of 15 cents for every dollar earned over this amount. (Receipt of the OAS is eliminated at incomes above $112,772.) The GIS, on the other hand, is clawed back at 50 cents for every dollar of income above $3,500. Clearly, Canadians will somehow have to make up for the OAS shortfall – likely through setting aside extra amounts in private pension plans. TriDelta Financial estimates that in order to make up for the lost OAS income, the average Canadian in their forties will need to set aside an extra $45.00 to $50.00 per month for retirement.

Frank Swedlove, President of the Canadian Life and Health Insurance Association (CLHIA), says the OAS changes make “it clear that private retirement savings will become increasingly important for Canadians.” The CLHIA represents the vast majority of Canada’s life and health insurance industry whose members manage more than two-thirds of Canada’s private sector pension plans.

The main change – the increase in age of eligibility – means all Canadians currently under the age of 54 will have to wait an extra two years to receive the benefit.

Swedlove suggests pension plan innovations such as the Government’s proposed Pooled Registered Pension Plans (PRPPs) which “focus on allowing employees to save more easily at the workplace” will help Canadians “fill the gaps.” PRPPs are essentially group-administered

Registered Retirement Savings Plans (RRSPs.) Unlike RRSPs, where contributions are not mandatory and can be made on an ad-hoc basis, PRPPs require contributors to make regular mandatory payments through their workplace pension plan, often as a payroll deduction. Advocates of PRPPs claim it would offer a retirement savings alternative to the 3.5 million Canadians who don’t have any kind of registered pension plan through their workplace (such as a defined benefit pension plan or a group RRSP). Defined benefit pension plans or group RRSPs are often only available to employees who work for the government or large private employers. PRPPs would give self-employed individuals and employees or small firms an alternative to RRSPs or TFSAs by allowing them to tap into a large pension plan. The plans would be administered by insurers and other financial institutions. PRPPs came one step closer to becoming a reality in the Canadian workplace with the Federal Government’s tabling of legislation in November 2011.

However, critics of PRPP (including the Government of Ontario) worry that the compulsory nature of contributions might present financial difficulties for employees who face an unexpected or immediate financial hardship. The need to establish licensing and regulatory regimes for the new PRPPs, the cost of the plans and the prospect of PRPPs replacing other forms of retirement savings are also concerns. Either way, solutions to the retirement savings conundrum need to be found. Canadians literally cannot afford to count on the OAS or the GIS, both intended to be an income supplement, as their primary retirement income source.

Or as Swedlove puts it: “The publicly-funded Old Age Security (OAS) program and the CPP offer important forms of basic assistance. Given recent funding reforms, the CPP is recognized around the world as a successful universal DB plan. But OAS and CPP are not intended to be the only sources of retirement income for Canadians.” With the changes to the OAS, planning for a retirement nest egg starts now.

No Silver Lining to Golden Years

April 4, 2012 2:45 pm

Pensions & peace of mind series

Retirement issues are hot these days. The Tories’ muse about increasing the retirement age and the words ‘pension reform’ are loaded ones. There is no question Canada is facing a pension crunch. In the coming years, the number of Canadian retirees will dramatically increase as Boomers age and there will be fewer working age taxpayers to support them.

Adding to the strain on the public purse will be rising costs in health care. As the population ages, so too do the demands. Extra health-care expenses will cut into Canada’s ability to provide adequate pensions. So what are the options? Cut public sector pensions, cut guaranteed pension income available to all from the Old Age Security (OAS), Guaranteed Income Supplement (GIS) and the Canada Pension Plan (CPP) or reform all pensions to create a more uniform retirement income level for all Canadians? Opinions are divided on how to ensure every Canadian senior retires in dignity and with only one out of three Canadians stating they will be able to retire comfortably, pension reform is needed – and fast. The political sensitivity of the issue was illustrated when the Prime Minister mused in Davos, Switzerland this January about reforms to Old Age Security, with the government then moving quickly to soften its stand in the face of a public backlash. While reforms may be needed, there are no easy options available able to maintain its regime of pensions at its current rate.

Frank Swedlove, President of the Canadian Life and Health Insurance Association

It is helpful to put the current system in context. It was created a generation ago when poverty rates were highest among old people. CPP, OAS and other elements largely succeeded in fixing this problem and ensuring that most retirees could avoid poverty in old age. However, as the population ages and life expectancies grow, funding comfortable retirements for all is a growing challenge. Here are some other facts. As it stands, two-thirds of elderly Canadians receive a total annual income of $25,000 or less and three quarters of their total income is from public pensions – Old Age Security and the Canada Pension Plan. While to some, this may seem bleak, internationally, Canada fares well. Elder poverty is defined as individuals over 65 years of age with a disposable income less than 50 per cent of the median income. According to the Conference Board of Canada, Canada has a 5.9 per cent overall elderly poverty rate (a poverty rate lower than that of working age Canadians), coming second place only to the Netherlands (which has an overall elderly poverty rate of 2.0 per cent) among OECD countries. Pensions play a key role in ensuring our seniors don’t fall into the poverty trap. Despite this, many Canadians within this select group live in poverty. Up to 43 per cent of unattached elderly women and 31 per cent of unattached elderly men lived in poverty in 2001.

Alarm bells are going off everywhere. In a report to the Ontario government in mid-February, economist Don Drummond stated pension expenses are spiraling out of control. Drummond arrived at his conclusions after a year long examination of Ontario’s economy that resulted in 362 recommendations. The federal government estimates Canada’s liability in public-service pension plans is $147 billion a year. William Robson, chief executive of the C.D. Howe Institute, a Toronto-based think tank puts it even higher. In a study released December 2011, Robson concluded the federal government’s pension liability was $80 billion higher at $227 billion. Either way, trouble lies ahead.

The nature of pensions with different categories doesn’t help the situation. There are “defined benefit” DB pension plans and “defined contribution” (DC) pension plans. Nearly all public-service plans in Canada are DB plans, meaning future benefits are guaranteed regardless of how the fund does financially. Those benefits are based on a formula that might include the employee’s earning history, age and length of service. By contrast, DC plans – in which the employer’s annual contributions are specified but the ultimate pension provided will depend on investment returns – are increasingly common in the private sector. Over two-thirds of pension plans are DC, and they tend to be for small and medium-sized businesses, since large private sector employers have traditionally offered DB plans. But this is changing as many large private sector employers shift to DC plans in order to better manage costs for the employer.

Returns on defined contribution plans depend on the vagaries of the market.

What this means is the defined benefit plans for public sector employees have guaranteed payouts – regardless of the government’s or the taxpayer’s ability to pay. Returns on defined contribution plans however, depend on the vagaries of the market. Furthermore, a key variable in the calculations actuaries make to determine if a DB pension fund is properly funded or not are interest rates- the lower rates, the more likely a fund is to be in deficit. In today’s low interest rate environment, many DB pension funds face staggering deficits straining the finances of employers.

There is no question that guaranteed pension returns strain the public purse. As an example, the City of Montreal saw its annual pension contributions increase to $609 million in 2011, up $132 million from a year earlier. Other municipalities are experiencing the same situation. Saint John has a $163 million shortfall in its civic pension plan. In both cities, city officials are reducing municipal services or increasing the tax burden on municipal taxpayers to cope. In Ontario, select public sector employees are experiencing reductions in benefits. The Ontario Teachers’ Pension Plan shortfall was $17.2 billion as of 2011. Then there is the disparity in the ratio between the number of senior Canadians and working age Canadians. Recent Statistics Canada findings indicate there were just over five people aged 15 to 64 for each person aged 65 years and older. (This compares to 1956 when there were eight working age adults to every person aged 65 years and older.) If Canada continues at its current rate, there will be a further decline to 2.2 working-age persons for each elderly person. Associated with the increased ratio of seniors are health care costs. With age comes disability. Seniors have the highest disability rate of any group. While 11.5 per cent of working aged Canadians (those aged 15 to 64) has a disability, 43.4 per cent of seniors do. A third of recently retired seniors defined as aged 65 to 74 have even higher rates of disability. More than half or 56.3 per cent of seniors aged 75 and above have a disability. – While not directly related to pensions, the combination of rising health care and pension costs with an aging population will simultaneously strain public finances.

Frank Swedlove, President of the Canadian Life and Health Insurance Association which represents the vast majority of Canada’s life and health insurance industry and whose members manage more than two–thirds of Canada’s private sector pension plans, has a few ideas on solutions to the crunch.

There is no question that guaranteed pension returns strain the public purse.

Front and centre is the concept of Pooled Registered Pension Plans (PRPPs.) PRPPs are government regulated, private sector fund workplace pensions aimed at the more than 50 per cent of Canadians working in the private sector who do not have access to a retirement plan at their workplace.

PRPPs would play a role in supplementing or replacing Register-ed Retirement Savings Plans and other retirement savings vehicles. A major advantage of PRPPs would be their easy accessibility in the workplace and their affordability. The federal government tabled legislation in November 2011 to introduce PRPPs. Stipulated in the legislation is a legal requirement that financial institutions provide the funds at “low cost.” (One of the problems with mutual fund RRSPs is that they usually have very high management expenses, lowering returns and making it harder to earn a good rate of return on investments over time.) Ted Menzies, Minister of State of Finance, stated the PRPPs would be aimed primarily at the self employed and workers at small and mid-sized firms, which lack the resources to administer a private sector plan.

Swedlove views Canada’s pension challenge as an unprecedented opportunity for Canada to get it right on pensions. “We are at a moment of opportunity to build on existing strengths and to create a better retirement savings system for future generations. We need to expand and promote more use of workplace-based programs.”

But DB and DC pensions and PRPPs are not the only options. In addition to the government-run OAS, GIS and CPP/QP, there is a veritable alphabet soup of pension and retirement plans, including DPSP’s, EPSPs, group and individual RRSPs, LIRAs, LIFs and TFSAs to name a few.

At the heart of the debate over these options is whether DC plans or DB plans are the most effective and affordable solution for Canadians. While many argue that Canada cannot afford to keep up its defined benefit plans provided to the public service, there is also evidence that they are a better option long term. A 2008 study by the U.S.-based National Institute on Retirement Security found that DB plans trump DC plans as being more affordable and that DB plans yield pension results that are three times those of a typical DC plan. Can the public sector continue to have a DB system while the private sector moves increasingly to DC? Can this disparity be resolved by raising benefits for those lacking them or does affordability dictate that the only affordable way to bring about equity is to lower retirement security for those enjoying the most generous plans?

Canada needs to find its way out of its current pension crisis and ensure every Canadian’s later years truly are golden.

No matter what solutions are selected in the end, ensuring all Canadians have an adequate or better still a comfortable retirement won’t be easy. According to the experts, $20 of savings is required for every dollar of retirement income you wish to receive. For instance if you would like to retire on $50, 000 a year, you would need to save $1 million by retirement age. For $25,000 a year, you would require half this amount. Problem is the average Canadian has only around $60,000 in his or her RRSP at the time of retirement.

Either way, Canada’s pension crunch makes for interesting times. But less interesting perhaps, than that of the Greeks where a blowout in public sector wages including pensions has resulted in a financial crisis. Austerity measures agreed to by the government to stem the financial bleeding of the state include reductions in the minimum wage and annual salaries of government employees as well as substantial reductions in pension benefits for retirees.

Though it is highly doubtful that Canada will ever reach this point, it is clear that action needs to be taken, so Canada can find its way out of its current pension crisis and ensure every Canadian’s later years truly are golden.

***Pension Facts***


• Canada’s population aged 65 and older has more than doubled in the past 35 years to 4.3 million, or 13 per cent of the population, in 2006. Medium-growth scenarios suggest the senior population will grow to 23 per cent in 2031.

• Most Canadians (65 per cent) approaching retirement anticipate that their retirement income will be adequate or more than adequate to maintain their standard of living. However, 19 per cent of Canadians expect it to be barely adequate and 9 per cent less than adequate.

• Canada Pension Plan (CPP), Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits are key components of Canada’s public pension program.

• As of January 1, 2012, the maximum basic OAS pension, paid to people 65 years of age and over, will be $540.12 per month. GIS and Allowances payments will also increase by 0.4 percent.

• Since July 1, 2011, seniors with little or no income also receive a GIS and Allowances top-up benefit of up to $600 for single seniors and $840 for couples.

• The number of registered pension plans (RPPs) in the country, as of January 1, 2009, was 19,200.

• Only 38 per cent of all employees had an RPP in 2008. The coverage rate in the public sector was 84 per cent. In the private sector, it was only 25 per cent. It is not known how these uncovered individuals will sustain themselves in their retirements.

• Membership in registered pension plans increased 1.7 per cent during 2008 to stand at 6 million.  All of the growth in pension membership in 2008 came from the public sector. Overall, membership in pension plans in Canada is about half men and half women.

• Due to the economic downturn, 75 per cent of RPPs had a funding deficiency at the end of 2008. In other words, their liabilities were greater than their assets.

• On average, Canadian workers had family disposable incomes at age 75 (when most are retired) that were 80 per cent of their incomes at age 55 (when they were working).

Recent Posts