US State Pension Shortfalls Get Worse

A new report from the PEW Charitable Trust shows that funding for public sector retirement plans in states across the US is getting worse.

New Jersey, for example, has only set aside 38% of what it needs to meet its pension commitments. Because public sector workers’ plans are guaranteed by state constitutions, this means taxpayers will be on the hook for any future shortfalls, or retirees may have their benefits cut. At current levels in New Jersey, this works out to USD $10,648 per person. Only two states in the union, South Dakota and Wisconsin, are in surplus positions. The other 48 states have a combined shortfall of approximately $1 trillion.

Compounding the problem is the fact that many states have also made commitments to cover retiree healthcare needs. These healthcare and other post retirement benefits get even lower funding priority than the retirement plans, generally, and unlike the retirement plans, post retirement benefits are not guaranteed by state constitutions. This means that pensioners could be left without coverage if states decide to rewrite the rules when they can no longer afford to pay the benefits.


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Withdrawals from Pension Plans Due to Financial Hardship or Medical Disability Costs

Did you know that you (or members of your Canadian pension plan – if registered under the Pension Benefits Standards Act, 1985) may be able to make one or more withdrawals from your pension plan for financial hardship or disability?

For financial hardship, the amount that can be unlocked depends on your expected income. If your income is projected to be zero, you can make a withdrawal up to 50% of the YMPE (Year’s Maximum Pensionable Earnings). In 2020, the YMPE is $58,700. If your projected income is 75% of the YMPE, you are not eligible to unlock or withdraw for financial hardship.

Note that you can make more than one withdrawal for financial hardship in a calendar year, but you only have 30 days after the first withdrawal to make another withdrawal.

You can also unlock for medical or disability costs, if those costs are expected to be 20% or greater of your expected income in the calendar year. If they are, you can withdraw an amount up to the full medical disability cost, to a maximum of 50% of the YMPE.

There are a number of forms to fill out to make a withdrawal for financial hardship or medical costs, which are reviewed for approval by the relevant regulator.


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80 Million People in Caribbean and Latin America at Risk of Poverty in Old Age if Pension Changes Not Made

Angel Gurria of the OECD launched the first edition of “Pensions at a Glance: Latin America and the Caribbean” at the Inter-American Development Bank (IDB) in Washington DC. The Pensions at a Glance report provides detailed comparative indicators of pension structures in 26 countries.

One key finding is that 63 to 83 million people in the region will be at risk of living in poverty by 2050 due to inadequate savings and pensions, as a result of only 45 per cent of workers contributing to any kind of retirement plan.

IDB president Luis Alberto Moreno, speaking at the April 20 meeting, said that governments in the region must act now to take advantage of “a demographic dividend that cannot be missed. If we get more people to contribute to our pension systems, and if we adjust the systems to rising life expectancy, we will be able to provide adequate coverage to future generations.”

One key finding of Pensions At a Glance is that today there are eight people of working age for every person in retirement, but that rate will drop to 2.5 to 1 by 2050, which underlines the need for governments to act now to ensure that workers are steered into adequate schemes while there is still time.


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Should Workplace Pension Plans be More Mandatory?

Governments everywhere are trying to nudge people to save more through various incentives such as tax-exempt pension contributions and structures such as automatic pension accounts (though in most cases members can opt-out). But what about employers? What is their view on providing pensions and, in particular, auto-enrolment plans? One would think that employers’ self-interest would tend to push them away from any mandate to provide retirement savings mechanisms and responsibility to collect and remit deductions from payroll.

Well, some data just came in and it appears that in the UK at least, employers think it is a good idea to provide retirement savings accounts and in fact expand their availability. A recent survey conducted by CBI (Confederation of British Industry) and Scottish Widows found wide support for auto-enrolment plans and a desire to extend enrolment to more workers. In the UK, an auto-enrolment framework for worker pension accounts was phased in between 2012-2016, where each employer was required to set up a plan with payroll deductions and automatically enrol each worker. However, workers are exempt from auto-enrolment if they earn less than GBP-10,000 or if they are self-employed contract workers.

In the “Future Savings” survey of 240 employers, 74% wanted to eliminate or reduce the GBP-10,000 earnings trigger and to also make pension accounts available to self-employed workers. As well, 71% of the companies think that employers need to make more contributions to workers’ pension accounts to help them provide needed retirement income.

Because the auto-enrolment scheme was just recently introduced, the CBI/Scottish Widows survey also asked if company leadership supported employer-provided workplace pensions. Ninety-eight percent agreed there is a business case to do so, and 95% agreed there is a moral case.

In Canada, meanwhile, Québec is the only provincial jurisdiction to mandate workplace pension plans. Starting in 2014, employers without other pension vehicles were required to enrol in the VRSP (Voluntary Retirement Savings Plans) program. The VRSP is a variant of the PRPP (Pooled Registered Pension Plans). Administration and fund management of PRPPs and VRSPs is outsourced to the financial institutions that provide the plans, so individual employers don’t get bogged down with running pension plans.

Meanwhile, other countries also have mandatory pension plans for workers. For example, in 2004 Nigeria launched a national contributory scheme for employers with three or more workers. Perhaps the UK and Québec thought this was a good idea and therefore followed suit a few years later. What about the other Canadian provinces or other countries?


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Download New Penad Newsletter

Click here to download the PDF issue of Penad’s latest newsletter (opens in new tab in your browser).

Cover of Penad Signature newsletter
Penad Signature Newsletter


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2020 YMPE Announced

On November 1st, the Canada Revenue Agency (CRA) announced the maximum pensionable earnings for 2020 will be $58,700, up from $57,400 in 2019.

Contributors who earn more than $58,700 in 2020 are not required or permitted to make additional contributions to the Canada Pension Plan (CPP).

The basic exemption amount for 2020 remains as $3,500.

The CRA announced the increase in YMPE reflects the growth in average Canadian weekly wages and salaries, calculated using a CPP legislated formula.

The 2020 contribution rate for employees and employers has increased to 5.25% from 5.1% in 2019. The 2020 contribution rate for self-employed has increased to 10.5% from 10.2% in 2019.

The increase in contribution rate is due to the CPP enhancement implemented in January 2019 as reported by the CRA.

The 2020 maximum employer and employee contribution has increased to $2,898 from 2,748.90 in 2019.

The 2020 maximum self-employed contribution has increased to $5,796 from $5,497.80 in 2019.


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2019 YMPE Announced

On November 1st, the Canada Revenue Agency announced that the maximum pensionable earnings for 2019 will be $57,400, up from $55,900 in 2018.

Contributors who earn more than $57,400 in 2019 are not required or permitted to make additional contributions to the Canada Pension Plan.

The basic exemption amount for 2019 remains $3,500.

The 2019 contribution rate for employees and employers has increased to 5.10% an increase of .15%.

The 2019 contribution rate for self-employed will also increase to 10.2%.

The 2019maximum employer and employee contribution to the plan will be $2,748.90, up from $2,593.80 in 2018.

The 2019 maximum self-employed contribution will be $5,497.80, up from $5,187.60 in 2018.

Check out our website for a breakdown of these rates and others.



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Updates for Pensioners in Canada Pension Plan

Click the link below for updates on a number of CPP updates for pensioners, including:

  • Annual indexation
  • 2017 Tax statements
  • Do you have to pay income tax every year when you file your tax return?
  • Coordination of benefits with the Canada Pension Plan and Quebec Pension Plan
  • Marriage after retirement
  • Enrol now for direct deposit!
  • Important reminders
  • Contact information

Click here to open new tab with CPP updates …Facebooktwitterredditlinkedinmail

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Direct Deposit for Retirees Abroad

Thinking of retiring outside Canada and liking the idea of your Canada Pension Plan pension payment deposited directly into your bank account? Get it done easy! Send a written request to the Pension Centre (LINK BELOW) with a void cheque or a document with the IBAN/NUBAN/CLABE number (or bank sort code) and your bank account number. The link below will also take you to a list of participating countries.

Click HERE for link to Pension Centre …


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Marriage after retirement

If you are a retired member  of the Canada Pension Plan or Quebec Pension Plan and marry after retirement, your spouse is NOT entitled to a survivor pension in the event of your death. However, you may choose to provide your spouse with a pension at the time of your death, by having your pension reduced. You must apply for this option within one year from the date of your marriage or one year from the date your pension starts, whichever is later.Facebooktwitterredditlinkedinmail

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