My6 y65+: an innova vative ve retirement plan for modest-ea earni - PowerPoint PPT Presentation

My6 y65+: an innova vative ve retirement plan for modest-ea earni ning ng wo worker kers wi with h no no pens ension Presentation to the SHARE BC Pension Forum February 24, 2017

Why y SEIU Healthcare chose to take action on retirement security Half of members (~30,000) have no pension Retirement security is a top priority for members No existing product / plan for the needs of our members and working Canadians like them. Current offerings suffer from high fees, lost government benefits, and a lack of portability. Believe that labour needs to provide solutions for challenges facing working people, in collaboration with progressive businesses, governments, and other stakeholders 2

High fees for RRSPs can significantly y reduce a worker’s savi vings Ca Cana nada ha has the he hi highes hest mut utua ual fund und fees ees in n th the world Results of a recent global survey on mutual fund fees 1 These fees can Th an erode a a third or more of a th worker wo er’s saving ngs A Impact of fees on a typical SEIU member 2 B/ B/B- Fees C+ C+ 36% Nest D+ egg 64% D- Ranked last of all 25 countries surveyed 1 Morningstar, Global Fund Investor Experience Study (2015) 3 2 Assumptions: 5% annual contributions. Start saving at age 25. RRSP has fees of 2.2% (average Canadian mutual fund fee). Starting salary of $30,000 with 2% wage inflation. Withdraw 4% per year from nest egg from age 65-90. Gross returns of 5.3% age 25-65 and 4% post age 65

Th The GIS “cl clawback ck” has a punitive ve effect on lower-income save vers Results in a loss of 50 cents of government benefits for every dollar withdrawn Th The Guaranteed Income Supplement (GIS) 32% o % of C Canadian s seniors r rely o y on G GIS IS “cl clawback ck”: ”: a a welfar are wal all in retireme ment Savings Benefits are A ty A typic ical l SEIU member r who saves Low-income “clawed back” benefits Low-income at 50 cents on th through an RRSP could lose se $70,000 or (“GIS”) benefits the dollar (“GIS”) more of mor of gov overnme ment benefits Worker who Worker who does not save saves “ [T [T]h ]he G GIS IS cl clawback ck … … provides a a “Most financial advice fails to take into di disincentive for po poorer Canadians “For many Canadians — those with account the availability of the to to s save f for r re retire rement … [F]or employer pensions or significant Guaranteed Income Supplement for poorer Canadians, saving money wealth … RRSPs are a very effective low-income seniors. ... Advising a low- in an RRSP is the last thing they investment tool. Bu But fo for other her income person to save within an RRSP , should be doing, because they will Ca Canadi dians, RRSPs are a terrible for example, can be very bad advice… actually lose more than a dollar for investment. These futile savers have in Wh When adv dvising g a low-in incom ome person on every dollar they have in been misled. They are victims of a about sav ab aving for retireme ment, retirement income.” fraud, however unintentional.” recommend saving within a TFSA rather re than in an RRS th RRSP .” - Diana Chisholm & Robert - Richard Shillington,“New Poverty Brown,“Negative Effects of the Traps: Means-Testing and Modest- - John Stapleton, “Planning for Canadian GIS Clawback and Income Seniors” (CD Howe Institute, Retirement on a Low Income” (toolkit Possible Mitigating Alternatives” 2003) posted on openpolicyontario.com) (2007) 4 1 Richard Shillington, An Analysis of the Economic Circumstances of Canadian Seniors (Broadbent Institute, February 2016).

Workers like SEIU Healthcare’s members are less likely y to have ve access to to a pension 44% 44% >2 >20% 28% 28% Women Of women age 85+ Private-sector female likely to have Poverty rate for single workers with a inadequate retirement female seniors 3 workplace pension 1 income 2 Latino 38% % of US workers People of covered by a Black or Asian 54% colour workplace retirement plan 4 White 62% Pension coverage by sector 5 Pe Service-sector / Health care / social Accommodation, food, Public administration assistance and other services precarious 85% 85% 55% 55% 51% 51% 15% 15% 9% workers of men and women of men of women of men of women 1 Sheila Block, Canadian Centre for Policy Alternatives, Presentation to the National Institute on Aging Conference (2016) 2 Healthcare of Ontario Pension Plan, Health and retirement security research (2016). 3 Richard Shillington, An Analysis of the Economic Circumstances of Canadian Seniors (Broadbent Institute, February 2016). 4 National Institute on Retirement Security, Race and Retirement Security in the United States (2013). Analysis on pension coverage from a race 5 perspective does not appear to be available in Canada due to data limitations. 5 Statistics Canada, New facts on pension coverage in Canada (December 2014).

In Introducing My6 y65+ ü Can deliver 3-4 times more My My65+ is is a new retirement value for money retire re rement plan, than a typical RRSP sp sponso nsored ed by SEI SEIU Heal He althcar are, designed ü Designed based on the principles used by some of fo for working ng Cana nadians ns the world’s best pension with no pension wi plans earni ea ning ng less ess tha than n $50,000 p $50,000 per ye year ü Puts members’ interests first 6

Low, tran Low ansp spar arent fees 0.22% 0.22% Investment fee Compared to an average RRSP… + ~$ ~$100k $7 $7 mor ore retir irement in incom ome fo for a a typ ypical al me memb mber 1 per m pe r mon onth Administration fee 1 Assumptions: 5% combined employee/employer contributions. Start saving at age 25. RRSP has fee of 2.2% (average Canadian mutual fund fee). Starting salary of $30,000 with 2% wage inflation. Withdraw 4% per year from nest egg from age 65-90. Gross returns of 5.3% age 25-65 7 and 4% post age 65. Calculation of lost government benefits assumes GIS clawback rate of 50% and does not factor in that clawbacks can in some cases be higher, or that income from RRSPs can affect eligibility for other government supports (e.g., housing, prescription drugs).

Preserve ves gove vernment benefits The plan is registered as a Group Tax Free Savings Account with the Canada Revenue Agency TFSA TF Compared to an average RRSP… ~$ ~$70k structure No No GIS GIS mor ore retir irement in incom ome fo for a a typ ypical al me memb mber 1 clawba cl back ck 1 Assumptions: 5% combined employee/employer contributions. Start saving at age 25. RRSP has fee of 2.2% (average Canadian mutual fund fee). Starting salary of $30,000 with 2% wage inflation. Withdraw 4% per year from nest egg from age 65-90. Gross returns of 5.3% age 25-65 and 4% post age 65. Calculation of lost government benefits assumes GIS clawback rate of 50% and does not factor in that clawbacks can in 8 some cases be higher, or that income from RRSPs can affect eligibility for other government supports (e.g., housing, prescription drugs). Analysis does not factor in taxes.

My6 y65+ case study Amy and Frank are two typical SEIU Healthcare members with a lot in common. They both: Start their careers at age 25 with salaries of $30,000, receiving 2% wage increases each year § Save 5% of their salary each year for retirement (starting at $1,500 at age 25) § Retire at age 65, withdrawing 4% of their nest eggs each year until age 90 § But Amy and Frank use different retirement plans. Amy contributes to My65+ from SEIU. Frank contributes to a typical RRSP from a financial institution. The difference their retirement incomes is significant. Am Amy Frank Fra nk Sa Saves es with h My65+ Saves Sa es with h a a typ ypical al RRSP $253, 253,000 000 $173,000 $173, 000 Nest egg at age 65 Additional retirement Loses 50 cents $10, $10,200 200 $6, $6,600 600 income at age of benefits for 66 (4% of nest every dollar egg) withdrawn $0 $0 ($3,3 ($ ,300) from his RRSP Lost GIS benefits $10,200 $10, 200 $3, $3,300 300 Net additional retirement income per year (age 66) As Assumptions : 5% combined employee/employer contributions. Start saving at age 25. RRSP has fee of 2.2% (average Canadian mutual fund fee). Starting salary of $30,000 with 2% wage inflation. Withdraw 4% per year from nest egg from age 65-90. Gross returns of 5.3% age 25-65 9 and 4% post age 65. Calculation of lost government benefits assumes GIS clawback rate of 50% and does not factor in that clawbacks can in some cases be higher, or that income from RRSPs can affect eligibility for other government supports (e.g., housing, prescription drugs).