SPP in your financial plan
When you’re thinking about your financial security in retirement, there are two important areas to look at —
- How much income will you need? It’s generally believed that on average most people will need about 70% of what they’re earning pre-retirement to maintain a decent lifestyle during retirement.
- What sources of income will you have when you’re no longer working? For most people, these sources include some combination of publicly-administered income plans from the government, income you get from money you’ve saved on your own in an RRSP, TFSA or other savings vehicle, and income from an employment-based pension plan like SPP. These sources are often called the three pillars of the Canadian Retirement System.
“In a global market where bubbles are popping and people are losing their futures all the time because of companies going bankrupt, having it separate from the employer and operated by union members gives me a lot of confidence.”
Cody Alexander, USW Local 9548
The Three Pillars of the Canadian Retirement System
Publicly Administered Plans
Personal Retirement Savings
Employment Pension Plan
Let’s take a closer look at these three pillars –
Government or publicly administered plans like the Canada Pension Plan (CPP) were not designed to be your sole source of income during your retirement. The CPP was originally designed to replace 25% of your pre-retirement income. Even with the recent reforms to the CPP, that will gradually increase to only 33% of the average industrial wage.
In 2021, the maximum monthly amount you could receive as a new CPP recipient starting the pension at age 65 is $1,203.75. However, because most people haven’t made the maximum contribution while working, the average monthly CPP payment in March 2021 was just $619.44.
The Old Age Security and Guaranteed Income Supplement (GIS) can provide more income but are meant for low-income families and are clawed back if your income passes certain levels.
In almost every case, if you want to retire comfortably you will need to supplement your government-provided retirement income through personal retirement savings and/or an employment-based pension plan.
While Personal Retirement Savings are a key pillar in the Canadian Retirement system, the reality is simply that too few Canadians are putting aside money to fund their retirement, and those that are able to do so are generally higher income earners.
Personal savings also require very careful management to ensure they can provide a source of income that lasts a lifetime.
Employment pension plans, such as your Steelworkers Pension Plan, are a key pillar in securing your financial future. This is why the SPP was created for USW members. Your predictable and lifelong monthly income from SPP can help supplement other retirement income streams so you can reach the income level you need to retire with dignity.
You can calculate the pension you will earn in the coming year using this benefit formula (as set periodically by the trustees) tied to the level of contributions. You can confirm the amount received by SPP in contributions on your behalf by logging in here.
- Your monthly pension is now equal to 1.5% of total contributions received on your behalf (if contributions are above $0.50 per hour).
- For example, for a contribution of $1.50 per hour for 2,000 hours worked in a year, you would earn an additional monthly pension of $45 (calculated as 2,000 x $1.50 x 1.5%). If this continued for 25 years and the benefit rate remains unchanged, your monthly pension is expected to be $1,125.
- If you contribute at a rate of $3.00 per hour for 25 years (at 2,000 hours per year), the current benefit rate would provide an expected monthly pension of $2,250.
You can see above how important the contribution level is to your pension payments. So encourage your unit to continue to negotiate contribution increases with your employer. The more money that goes into the plan in the form of contributions today means the greater your retirement benefit will be in the future.
Each year the pension administrator (BPA) will mail you a personal statement showing the pension you have earned to date, and what your monthly retirement benefit is expected to be once you retire at 65 based on contributions that have been received so far. If you did not receive your statement, or need a new copy, please contact BPA – click here.
1Statistics Canada. Table 11-10-0044-01 Selected characteristics of tax filers with Registered Retirement Savings Plan (RRSP) contributions
2 Statistics Canada. Table 11-10-0239-01 Income of individuals by age group, sex and income source, Canada, provinces and selected census metropolitan areas
Where do you stand?
For a better idea of what level of retirement income you can expect from government, personal savings and pension sources, you may want to try Canada Revenue Agency’s Retirement Income Calculator.
You’ll need information about your various sources of income and it should take about 30 minutes.
When you notify the plan administrator (BPA) that you want to retire, BPA will send you retirement forms and ask for copies of your and your spouse’s (if you have one) birth certificates. Getting copies of those documents ahead of time will speed up the processing of your retirement application.