The Saskatchewan Pension Plan
The Saskatchewan Pension Plan has been offering Canadians an alternative to the traditional RRSP, and the new government retirement savings framework – the PRPPs (Pooled Registered Pension Plans) – very much resembles what the SPP has been offering for almost 27 years. PRPPs are fashioned in the spirit of a large fund with low fees as a retirement planning option for individuals and smaller businesses.
Operating from Kindersley, Sask., a town of 5,000, the Saskatchewan Pension Plan (SPP) has over 32,000 members, and manages a portfolio of over $300 million in assets, with over $200 million placed in the plan’s balanced fund. These numbers make SPP the 28th largest “Defined Contribution” plan in Canada.
Despite its name, SPP provides services to clients across Canada. SPP provides fast, personal service and its strengths lie in low management overhead, low fees, and investment simplicity. SPP does not operate a sales force, and it does not pay commissions. That’s how the SPP is capable of operating with a management expense of around one per cent, while producing an average return of eight per cent annually.
Funds of members who have not yet retired are pooled in the Contribution Fund, and the accounts of members who have retired are pooled in the Annuity Fund. The Contribution Fund allows members to invest in a balanced portfolio or a short-term fund. The balanced fund investment strategy is to maximize earnings for members and minimize the risk while the purpose of the short-term fund is capital preservation.
The goal of SPP is to help Canadians save for retirement, catering to people who work for small—or mid-size businesses without pension plans. SPP allows members to contribute up to $2,500 annually, or transfer up to $10,000 a year from an existing RRSP. Regular contributions into the plan receive the same tax rebate as RSPs.
The economic downturn saw successful companies disappear, and people’s pension plans disappeared with them. This economic shakedown gave incentive to people to start saving if they want to retire comfortably, and people are starting to take their retirement savings more seriously, not relying solely on employers’ retirement plans.
The Canadian Business Journal spoke with Katherine Strutt, General Manager, and Bonnie Meier, Manager of Client Services, discussing the upside of SPP for those who wish to add another level of retirement contribution to their portfolio. “We started in 1986 as a way of providing pension plan to people who did not have access to either private or work place pension plans. It was originally meant to be a supplemental plan. From this we can see that even 27 years ago there was a recognized need, and that there were many people who did not have this access. Giving people place to save for their retirement, and make their retirement better has been the common theme throughout our history,” says Strutt.
The SPP gives people the opportunity to invest in a quality investment product — an institutional investment accompanied by very low fees. According to Strutt, many people do not have access to such a fund on their own, but they can get that when they join the SPP.
To keep the expenses low, rather than increasing its overhead by marketing its services through traditional, large-scale marketing and sales channels, the SPP focuses on talking to its members and various business groups and large organizations such as Chambers of Commerce to promote the SPP.
As a fund, the Board of Trustees sets the fund’s investment policy, and the fund hires investment managers to invest within the board’s policy, with regular reporting, performance monitoring, and oversight. “I think that our Balanced Fund has been successful because we are not asking our members to make a choice. We have a relatively conservative investment policy, but that’s due to the nature of the fund – being a retirement plan,” says Strutt.
“What’s unique about us is the relationship we have built with our members – we call them members as opposed to clients – and our members are fiercely loyal to us, and we are loyal to them. We built a high degree of trust in this plan. It is due to this relationship and loyalty that we were able to grow this fairly large fund in a small town in Saskatchewan,” says Meier.
With provinces coming on board, the federal government hopes that PRPPs – fashioned in the spirit of a large fund with low fees – will be the national answer to retirement planning for individuals and smaller businesses. A PRPP will enable members to benefit from lower administration costs as a result of participating in a large, pooled pension plan. These plans do not tie to one’s professional life, but move with members wherever their career takes them – a private solution for the Canadians’ retirement needs. “The PRPPs are still a ways away, but the federal government already passed the legislation, and every province will have to pass enabling provincial legislation. We (SPP) will be in this market space. We do not need to create a new product – we already have the product – and we will continue to market our product to businesses,” says Strutt.
With the PRPP coming into picture, the SPP expects the market for its product to grow. “We see people joining regardless whether their employers join the SPP, and we see our members asking to increase limits to transfer more money into the fund. This speaks to loyalty, good investment return, and the overall well-rounded value of the plan, and I think we will see this continuing. We found that increased complexity increases the product’s cost, and that’s not a road we are interested in. Our member loyalty is based on being stable, long-term investment. We are not a retail fund, we are a retirement plan,” concluded Strott.
According to Strutt, people recognize that they need to save for their retirement, however, creating a plan and actually contributing to a plan is a more difficult proposition. “This is what makes retirement saving easy with the SPP – everything is voluntary and people can contribute as much as they can. Once people start contributing on a systematic basis, people tend to continue to contribute because it becomes a habit. This is what we want people to do — making saving a habit.”