Canada's Retirement Income System


Introduction:
The Canadian's Retirement Income System is different from other countries. This system is based on three levels, which are:
  • The personnal savings and investments
  • The government pension benefits
  • The employer pension





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I/ The personnal savings and investments

The person savings and investments. It holds all the money that you can accumulate during your working years. We can define the personnal savings and investments as follow:

1-Money in saving accounts
2-Investments in stocks and bonds
3-Registered Retirement Savings Plans (RRSP) and Registered Retirement Income Funds (RRIF)

3-1/RRSP definition:
It is an account for holding savings and investments assets. It was introduced in Canada in 1957, and we have three types of RRSP:

3-1-1/. Individual RRSP
It is associated with only a single individual. It is an account holder.
3-1-2/ Spousal RRSP
It allows a higher earner, called a spousal contributor. In this case, the spouse who is the account holder.
3-1-3/ Group RRSP
In this situation, the employer arranges for employees to make contribution through a sheduled of regular payroll deductions.









http://www.youtube.com/watch?v=0TE2DJE_yD8&feature=player_embedded

3-2/RRIF definition:
It is a tax deferred retirement plan under canadian tax law. Individuals use RRIF to get income from the savings accumulated under their RRSP.
A RRIF is a retirement fund that you establish with a carrier that the goverment registers. Establishing a RRIF can be done at anytime, but must be done before the annuitant turns 71. Since a RRIF is established, we can't change anything. With a RRIF , starting the year after the plan is opened, an annual minimum payement ( from RRSP ) should be taken each year and is considered taxable income.

Age
Minimum Annual Withdrawal (%)
Age
Minimum Annual Withdrawal (%)
55
2.86%
75
7.85
56
2.94
76
7.99
57
3.03
77
8.15
58
3.13
78
8.33
59
3.23
79
8.53
60
3.33
80
8.75
61
3.45
81
8.99
62
3.57
82
9.27
63
3.70
83
9.58
64
3.85
84
9.93
65
4.00
85
10.33
66
4.17
86
10.79
67
4.35
87
11.33
68
4.55
88
11.96
69
4.76
89
12.71
70
5.00
90
13.62
71
7.38
91
14.73
72
7.48
92
16.12
73
7.59
93
17.92
74
7.71
94+
20.00
http://www.campbelllee.com/rrif.htm





http://www.youtube.com/watch?v=T5ExcHfAN_s&feature=player_embedded


4.Tax-Free Savings Accounts (TFSA)

The Tax-Free Savings Accounts (TFSA) was announced in the 2008 Federal Budget, is an account for Canadian residents. They can have their savings that are growing with tax-free. Since 2009, eligible contributors can deposit as maximum $5 000 to their TFSA and they can get withdrawls for free tax. To be eligible to a TFSA, the government of Canada imposed these requirements:
  • be at least 18 years of age
  • have a social insurance number
  • reside in Canada

II/The government pension benefits

1-The Canada Pension Plan (CPP) retirement pension
It is the Canada Pension Plan for all people who are 18 years and above to participate with a prescribed portion of their wages income to a nationally administered pension plan . This plan is administered by Human and Social Development Canada for all the employees in Canda except Quebec. So the pensions are the provincial responsability.

The Historical Growth of CPP


Date
Net Asset Value (CAD)
Rate of Return (annual)
Mar 2003
$55.6 Billion
-1.1%
Mar 2004
$70.5 Billion
+10.3%
Mar 2005
$81.3 Billion
+8.5%
Mar 2006
$98.0 Billion
+15.5%
Mar 2007
$116.6 Billion
+12.9%
Mar 2008
$122.7 Billion
-0.29%
Mar 2009
$105.5 Billion
-18.6%
Mar 2010
$127.6 Billion
+20.9%
Mar 2011 (Projected)
$140.1 Billion
9.8%


http://en.wikipedia.org/wiki/Canada_Pension_Plan


2-The Old Age Security (OAS) pension
This system provides the retired person a modest pension at age 65 if he has lived in Canada for at least 10 years, and It is a taxable monthly social security payment available to most Canadians 65 years or older. To be eligible for the Old Age Security pension the person should


  • Be 65 years of age or older.
  • Live in Canada and be a Canadian citizen or a legal resident at the time the goverment approves his/her pension application.
  • Lived in Canada for at least 10 years after turning 18.

OR
  • Be 65 years of age or older.
  • Be a Canadian citizen or a legal resident of Canada the day before he/she left Canada.
  • Lived in Canada for at least 20 years after turning 18.


3-The Guaranteed Income Supplement (GIS)

The Guaranteed Income Supplement provides additional money, in addition of a OAS to low-income seniors living in Canada. To be eligible for the GIS benefit, you must be receiving the Old Age Security pension and the eligibility also depends on the combined income of you and your spouse or common-law partner.


4-The Allowance and the Allowance for the Survivor
The Allowance provides money for low-income seniors who :

  • His/her spouse or common-law partner receives or have the right to receive the Old Age Security pension and the Guaranteed Income Supplement;
  • Is 60 to 64 years of age;
  • Is a Canadian citizen or a legal resident at the time your Allowance is approved or when you last lived in Canada; and
  • Has lived in Canada for at least 10 years after turning 18, (and is still living in Canada).
  • Lived in Canada for at lest 20 years after turning 18, (for the person who left Canada).



III/ The employer pension

Employer pension plans is a defined benefits or on defined contributions.

1. Defined-benefit:
In defined-benefit plans, benefits are usually calculated on the basis of a fixed percentage of employment income for each working year . The goal is to replace about 60 to 70 percent of pre-retirement employment income.

2.Defined contribution:
In defined-contribution plans, the level of the pension is not predetermined. The value of the pension is determined by the funds accumulated in the employee's account when he or she retires.

Conclusion
To sum up, the Canadian retirement income system is performing well, providing Canadians with an adequate standard of living upon retirement. In some cases the situation is opposed for several factors are job losses, inadequate saving discipline, losses in wealth due to bad luck or poor investment choices and late migration to Canada without much saving.




Biography
http://www.servicecanada.gc.ca/eng/isp/cpp/soc/50-70/today.shtml
http://en.wikipedia.org/wiki/Registered_Retirement_Savings_Plan
http://en.wikipedia.org/wiki/Registered_Retirement_Income_Fund
http://en.wikipedia.org/wiki/Tax-Free_Savings_
http://en.wikipedia.org/wiki/Canada_Pension_Plan Account
http://www.servicecanada.gc.ca/eng/lifeevents/retirement.shtml#tools
http://www.campbelllee.com/rrif.htm
https://srv111.services.gc.ca/INT_01.aspx?lang=e