Planning Institute Of British Columbia

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Planning Institute Of British Columbia Planning
Considerations for Retirement April 20, 2005
Victoria, BC

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Agenda

• Demographic Trends
• Workforce Transition Planning
• Retention and Retirement Options
• Pension Plan Basics
• Planning for Retirement

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The Coming of Age

• Baby boom (1946 to 1966)
• Largest group in society
• Largest number born in 1961
• 9.8 million people in Canada
• 30 of 2006 estimated population
• Retirement 2001 to 2031

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2003 Municipal Plan Employer Distribution
124
148
23
57
182
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Age Distribution Municipal Plan
36 over 50

73 over 40
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Municipal Plan Employees Eligible to Retire

• Within 5 years
• Within 10 years
• Within 15 Years

• 36
• 55
• 73

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Group Distribution Municipal SectorCities,
Districts, Towns, Villages, Regional Districts

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Group Distribution Hospitals

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Retirements by Age 1996
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Retirements by Age 2003
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Retirement Trend - 1996 versus 2003

• Age 55 increase of 4
• Age 56-59 increase of 6
• Age 60-64 decrease of 2
• Age 65 decrease of 8

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Canadian Labour and Business Center Survey

• 21 of public sector managers believe 25 of
  their workforce will retire within 5 years
• 57 cite skill shortages as a serious problem
• 28 consider phased in retirement an option
• 48 of PS unions cite phased in retirement as an
  option to meet skill shortage.

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Human Resources and Skills DevelopmentCollective
Agreements and Older Workers

• Due to shortage of skilled workers and rapidly
  ageing workforce Incentives to leave are being
  replaced with incentives to stay
• A focus is emerging on ways to retain older
  workers and transition to full retirement

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Recruitment and Retention

• As Baby Boom generation retirements accelerate
  each year from 2001 onward,
• Retention of seasoned, knowledgeable older
  employees will have to be part of the workforce
  shortage solution.

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Workforce Shortages

• All employment categories will experience
  shortages
• Shortages will accelerate over the next ten years
  as baby boomers retire in greater numbers
• Aging, experienced workers will be available to
  meet shortfall

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Work Force Expectations

• Given a choice many will opt for a gradually
  reduced workload rather than one abrupt change
• Some will wish to defer retirement past 65
• Some will wish to work part time and also be on
  pension
• Phased Retirement programs can facilitate these
  expectations

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Employer Expectations

• Ability to replace skilled people
• Ability to manage an ageing workforce
• Ability to meet service delivery cost pressures
• Ability to provide alternative work schedules
• Ability to hire any worker available to meet needs

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Why is Succession Planning Important?

• Employers will not readily replace retirees as in
  the past
• Demographics do not allow a continuation of
  existing replacement practices.
• of employees retiring will exceed of younger
  recruits available for replacement.
• Demographics will create an HR crisis in
  recruitment shortfall

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Revised Definition of Succession Planning

• Systematically identify the replacement needs for
  employees in the organization
• Develop recruitment strategies to attract young
  high potential replacements
• and
• Pursue retention strategies to keep key older
  employees in the workforce

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What is Phased Retirement?

• Allows an employee to go to pension and
  re-employ usually on a part time, or casual
  basis.
• Or re-employ on a contractual basis
• Or modified work schedule, reduced hours

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Pre Retirement Options

• Reduced workload and hours
• Allow transition from full time work to full
  retirement over a period of years
• Provides access to younger workers,
• Provides training and mentoring

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Post Retirement Age Options

• Retirement deferral past normal age (65)
• Work after retirement
• Part time employment or contract to supplement
  pension income
• Challenges current pension design and retirement
  practices

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Transition Planning Challenges

• Existing collective agreements
• Pension regulations and mandatory retirement age
• The perceived issue of double dipping
• Succession planning early enough to meet the
  organizations needs

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Succession Planning and Analysis

• Requirement analysis by employment category
• Vacancy projections
• Outsourcing options
• Program restructuring to reduce labour needs
• Older worker retention possibilities

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Identify Retirement Projections

• Produce age distribution by occupational grouping
• Produce service distributions by occupational
  grouping
• Interview target grouping to obtain better
  assessment of retirement dates
• Produce projections

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Succession Program Development

• Develop external recruitment strategies
• Develop internal training and promotional plans
• Assess ability to retain older employees
• Prepare plans by department and or occupational
  group.
• Identify key jobs

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Organizational Issues

• Seniority rights, and re-entry as new hire
• Employee benefits, if phased retirement positions
  carry no benefits.
• Potential different salary grid, if position
  carries lower salary.
• Re-employment issues with pension plan.

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Organizational Benefits

• Inter generational transfer of skills
• Job sharing with seasoned employee
• Offsets recruitment gap
• Not competitive with career employees
• Potential lower labour costs
• Transition staffing in times of organizational
  change

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Individual Benefits

• Softer transition into retirement
• Additional income to maintain standard of living
• Addresses need to be involved in worth while
  activity
• Partial employment, with new found free time.

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Phased Retirement Example

• Camosun College Phased Early Retirement Program
  (PERP)
• Negotiated collective agreement
• Eligible if age 55 plus 10 years of service.
• Offered a 50 teaching position guaranteed for 1
  year

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Post Retirement Employment Example

• Vancouver Police Department
• Offered 18 month contracts to new retirees
• Designed to reduce the recruitment lag
• Supported by Council and Union
• Time limited offer to meet operational
  requirements

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Personal Phased Retirement Example

• Registered Nurses
• Large percentage over age 55
• Unwilling to work full time
• Retire and return on casual or call status.
• Not a formal employer program but could be.
• Keeps qualified nurses in workforce longer while
  replacements are trained and hired

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New Municipal Pension Plan PolicyTermination of
Employment Amendment

• Denies a pension if an employment arrangement is
  made prior to retirement with the same employer.
• The pension plan never intended for people to
  leave work knowing that they are returning or
  have a right to return, thus collecting a pension
  income in addition to salary.

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Prohibition on pre-arranged re-employment

• No pre-arrangement prior to retirement, orally
  or written
• Employer and employee must sign written
  declaration or pension is denied.
• Can not be placed on casual list
• Can not be on a pre- arranged contract

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Canada Revenue Agency

• No restrictions on re-employment
• Receiving a pension and making contributions in
  the same plan is prohibited

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Next Steps

• What are your organizations issues?
• Collect the demographic information
• Assess your trends and needs
• Review phased retirement options
• Review labour saving options.
• Review collective agreement issues
• Review Pension plan issues

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Second Agenda
Good Stuff!!

• Pension Plan Basics
• Retirement Income
• CPP OAS
• Planning for Retirement

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Defined Contribution Plan

• Also called money purchase plan
• Investment risk with plan member
• Pension is based on capital growth and investment
  return

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Defined Benefit Plan

• Monthly income usually indexed
• Capital not available to Plan Member
• Investment risk with pension plan
• Pension benefits fixed by formula

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What makes it work?

• In either case, it is investment return that pays
  for the pension income
• About 70 of the pension promise is attributed to
  investment return
• 30 comes from plan member and employer
  contributions

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Plan Formula Comparisons
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Options at Termination of Employment

• If under earliest retirement age (55)
• Defer pension to age 55
• Commuted value transfer to RRSP
• Transfer to another pension plan
• If over age 55 pension only, no CV

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Decisions at severance or early retirement

• Use of Lump sum payment
• RRSP transfer versus paid leave
• Early pension or deferred if age 55
• Commuted value or deferred pension if not age 55

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Commuted Value VS Deferred PensionIllustration
at age 50, Salary 64,000

• Commuted Value
• 285,000
• 5 years _at_ 6
• 381,395
• Needs 8 return
• No indexing,

• Deferred Pension (55)
• 2267 to age 65
• 1797 after age 65
• 5 years _at_ 2
• 2503
• Indexed to CPI

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Early Retirement Planning

• Some Payments eligible as a retiring allowance
  under tax legislation
• the incentive payment
• Payments for long service
• the 50 sick bank
• A retiring allowance can be transferred directly,
  without tax deductions, to an RRSP, up to a
  limit

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Early Retirement Planning

• Dollar limit on retiring allowance roll over to
  an RRSP
• 2,000 per calendar year in which you were
  employed by same employer up to and including
  1995 plus 1500 for service prior to 1989, if
  not in pension plan.
• The roll over has to be made directly to your
  RRSP (not a spousal RRSP)

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Pension Formula
Your basic (monthly) pension is calculated in two
steps
A. Pension Formula
5-year Highest Average Salary (monthly)
Years of Pensionable Service
2(0.02)
x
x


from this is subtracted...
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Pension Formula
B. The Bridge Benefit
Lesser of 5-year Highest Average Salary (monthly)
or YMPE (monthly)
Years of Pensionable Service since Jan. 1, 1966
0.65
x
x


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Pension Formula Example

• Pensionable service 28 years
• 5-year HAS 4,000 per month
• Basic monthly pension to age 65
• 2 x 4,000 x 28 2,240
• Minus the bridge benefit
• 0.65 x 3,450 x 28 628
• Monthly life pension
  1,612

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Pension Options at Retirement

• Indexed Life Pension plus Bridge to 65
• Reduced 3 up to 15 for early retirement
• Medical, extended Health and Dental (varies by
  plan)
• Survivor benefits

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Single life 5,10,15 Year Guarantee

• Option to buy a set number of guaranteed payments
  if death occurs during the guarantee period.
• Pension is paid to beneficiary if spouse, or to
  estate in a lump sum

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100 Joint Life

• Highest form of income protection for spouse
• Usually the most money is paid as two peoples
  lives are involved
• 100 of the life pension is paid until the last
  survivor dies.

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Reduction for Joint life Option

• Pension is reduced when spouse is added
• Reduction increases with age difference
• Same age about 12 reduction from Single life 10
  to Joint life 100
• There after reduces by about 3/4 for each year
  of age difference

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60 Joint life, 40 Single life Combination

• Survivor Pension options can be combined
• 60 joint life guaranteed 5,10, 15 years
• Premature death in the guarantee period, 100
  paid for balance of the period
• after guarantee period, pension is reduced to 60

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Marital Breakdown

• Pension is a family asset governed by the family
  relations act
• Pension split for period of marriage
• Spouses have right to pension assets
• Former spouses may have limited rights

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Marital Split Example

• 15 years married while a contributor
• 30 years total plan membership
• 15/30 0.5 x 50 25 of pension to spouse
• Spouse can be a limited Member
• Apply for pension at termination or retirement

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Past Service Purchase Costs

• Current Salary and contributions x no. of months
• Reinstatement at two rates
• Refund rate, Net earned rate of fund

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Pay back Analysis

• Determine the cost
• Calculate the extra monthly pension
• Calculate months to pay back cost
• Calculate rate of return
• Decide if it is worth it

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Payback Analysis

• Purchase Cost
• 8546
• Buys one year
• of service

• Purchase Benefit
• 86
• Per month
• extra pension

8,546 divided by 86 99.37months 8.3 years
to get your money back Or 12 annual return
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Sources Of Retirement Income
Federal Government CPP/OAS/GIS (indexed)
Your Pension Basic Bridge Indexed
Personal RRSP Savings investment Other income
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Canada Pension Plan

• Contributions by employees employers
• Normal retirement age is 65
• Reduced pension as early as age 60
• Reduced 6 a year to a maximum of 30 (590 in
  2005)

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Old Age Security

• No contributions
• Residency requirements (20 years)
• Payable at age 65
• Benefit taxed back if income is too high(60,806
  in 2005)

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Gross Income by Age

• 55 60 65

Temporary Annuity
CPP
CPP
Bridge Benefit
OAS
Life Time Pension
PRIVATE FUNDS
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Analyzing Your financial Position

• Where are you now?
• 0??
• Where do you need to be?
• pension
• assets
  
• other

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Life Cycle Savings Spending Pattern
NETWORTH

INCOME
SAVINGS
CONSUMPTION
0
AGE
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Your Current Status

• Your Cash Flow
• Income
• Expenditures
• Savings Activity

• Your Net Worth
• Assets
• - Liabilities
• Net Net Worth

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How much do you need?

• Determine expenses
• Develop schedule
• Housing
• Entertainment and Hobbies
• Health

• Determine Income needs
• Salary replacement ratio
• Capital needed
• Sources of capital
• Assets
• Income Sources

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Important Points

• Understand your Pension Options
• Review Income and Expenditures
• Plan Lifestyle Change

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For Further Information Please Contact

• Jerry Woytack
• J. Woytack Associates
• 3509 Plymouth Road Victoria BC V8P 4X7
• Tel [phone] Fax [phone]
• Email jwoytack_at_retirebydesign.ca
• WWW.Retirebydesign.ca