If the company you work for doesn’t offer a pension plan or group RRSP, or you are self-employed, and you’re not interested in spending a lot of time reading and researching about investing, consider the Saskatchewan Pension Plan.
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You don’t have to reside in Saskatchewan to join this pension plan.
What is the Saskatchewan Pension Plan?
The SPP started over 25 years ago. It is open to any Canadian resident between the ages of 18 to 71. Members are allowed to contribute up to $2,500 annually, or transfer up to $10,000 a year from an existing RRSP.
You must have contribution room inside your RRSP. This usually isn’t an issue as most people have tons of available contribution room. All new contributions are tax-deductible just like a regular RRSP.
It is suitable for pension amounts received from former employers.
How do you contribute?
You can sign up for the Saskatchewan Pension Plan online, or download an application and mail it in. Once you are assigned a plan number you can make your contributions. You can either go old school and mail in cheques, or set up a pre-authorized payment plan to have your contributions taken out of your account. You can also set up a payment plan through your VISA or MasterCard (and get points at the same time).
Is this a good plan for you?
The SPP is simple and easy to use. So simple, in fact, that there are only two investment options to choose from – a balanced fund (60% stocks, 40% bonds) and a money market fund. Not surprisingly, most assets are held in the balanced fund.
Administration fees are low compared to other mutual funds. Unlike other financial institutions, the SPP is not set up to make a profit.
There are no fees to join, annual fees, or charges to change your contributions – only the management fees.
Contributions are voluntary. There’s no obligation if some emergency comes up and you want to skip a contribution.
It offers competitive returns. The average rate of return since the Saskatchewan Pension Plan began is approximately 8% per year. Check the rate of return here to compare with your own portfolio.
Disadvantages of the plan
The main disadvantage is the low annual contribution limit unless you start when you are younger. Otherwise, it works best as a supplemental plan to what you already have.
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There is a limited choice of investments.
Funds are only available when you turn 55 years of age (like a locked-in RRSP), so there is limited flexibility for withdrawals.
No advice is offered.
The Saskatchewan Pension Plan offers a pension plan so everyone can save for his or her retirement. It works like a defined contribution pension plan.
It’s ideally suited for the self-employed, or those who work in small or medium sized companies that don’t offer pension plans.
If you are interested in learning more about the SPP, visit their website.