The presentation can be accessed in online at: www.mcgill.ca/hr/node/2128 McGill University Pension Plan PENSION PLAN INFORMATION SESSION MacDonald Campus Nov 6, 2015 Human Resources 1
This presentation is intended to inform you about the McGill Pension Plan & the importance of integrating pension investment decisions to your financial management. This is not financial advice & should not be taken as such. It is meant to alert you to the matters to look into. Your individual needs & circumstances may not be adequately addressed by the info contained in this presentation. 2
Accumulation/Decumulation You have 35-40 years to save it and 25-30 years to spend it. 3
Retirement vs. Settlement You can retire from the University without having to settle your MUPP holdings = defer settlement Ability to settle MUPP holdings: Earliest of termination, retirement or the month following the one in which you turn 65 or Latest: December 31 st of the year in which you turn 71. 4
Primary Goals in Retirement Sustainable cash flow throughout retirement years Maintain desired standard of living 5
What are the Risks in Retirement? LONGEVITY RISK outlive capital RATE OF RETURN RISK Overly aggressive or conservative asset allocation INFLATION RISK 6
Projected Life Expectancy 96 95 Average Life Expectancy 94 93 92 91 90 89 88 87 86 60 65 70 75 80 85 90 Male Female Source: CPM2014 Publ Improvement Scale B 7
2. Inflation & Purchasing Power Income 10 years Assuming an inflation rate of 2.5% 15 years 20 years 25 years 30 years $30,000 $38,403 $43,449 $49,158 $55,618 $62,927 $50,000 $64,004 $72,415 $81,931 $92,697 $104,878 $70,000 $89,606 $101,381 $114,703 $129,776 $146,830 8
How can I Manage Risk? Purchase annuities Insurance company assumes investment and longevity risk LIF/RRIF & systematic withdrawal plan Adjust spending in case of poor markets Manage risk through portfolio management Monitor market risks and make changes as required. 9
Getting Started What is your spending plan? Do you know how much $ you need per annum? Segregate essential spending from discretionary (wants vs needs) 10
Create a budget essential vs discretionary needs Guide to financial planning for retirement 2015/2016 11 Web: www.questionretraite.qc.ca/fr/les-outils/
Retirement Income Variable income streams Life Income Funds Registered Retirement Income Funds Pension income streams QPP + other Gov t programs Annuities Defined benefit pensions Variable income streams with guarantees 12
Settlement Options Purchase an annuity Defer Settlement MUPP Combo annuity & LIF/LIRA Group LIF LIRA or LIF LIRA: locked in retirement account LIF: life income fund 13
Settlement Options Providing Retirement Income Annuity Exchange fixed amount for a future stream of payments Income amount is fixed at onset Offers protection from outliving capital Various optional forms of annuities LIF For locked-in holdings Subject to minimum & maximum annual withdrawal limits You assume investment risk & decide how to invest Rate of return is dependent on investment mix May convert to an annuity At death, LIF balance no longer locked-in. RIF For non-locked in holdings Minimum but no maximum annual withdrawal limit You assume investment risk & decide how to invest Rate of return is dependent on investment mix May convert to an annuity
What are Other Retirement Income Options? Registered Retirement Savings Plan (RRSP) Convert into a Registered Retirement Income Fund (RRIF) Locked-In Funds: Locked-In Retirement Account (LIRA) Convert into a Life Income Fund (LIF) Registered Pension Plan (RPP)
Self directed LIF/LIRA/RIF Plan Types Full service brokerage account Financial institution/insurance company Discretionary Management Account Money Management Firms Management Expense Ratio (MER) 16
LIF Annual MIN/MAX withdrawal % - Jan 1/15 Age MIN MAX 60 3.33 6.70 61 3.45 6.80 62 3.57 6.90 63 3.70 7.00 64 3.85 7.10 65 4.00 7.20 66 4.17 7.30 67 4.35 7.40 68 4.55 7.60 69 4.76 7.70 70 5.00 7.90 71 5.28 8.10 Age MIN MAX 72 5.40 8.30 73 5.53 8.50 74 5.67 8.80 75 5.82 9.10 76 5.98 9.40 77 6.17 9.80 78 6.36 10.30 79 6.58 10.80 80 6.82 11.50 81 7.08 12.10 82 7.38 12.90 83 7.71 13.80 Age MIN MAX 84 8.08 14.80 85 8.51 16.00 86 8.99 17.30 87 9.55 18.90 88 10.21 20.00 89 10.99 20.00 90 11.92 20.00 91 13.06 20.00 92 14.49 20.00 93 16.34 20.00 94 18.79 20.00 95+ 20.00 20.00 17
What happens to my LIF/RIF balance if I die? Balance of LIF is no longer locked in Annuitant is considered to have received, immediately before death, the value of the account and income is reported unless spouse or common law partner is successor annuitant Your spouse, or your beneficiary if you do not have a spouse, will receive the funds Qualified Beneficiary may transfer funds to RRSP, RRIF, annuity subject to conditions 18
LIF & Annuity Income Streams (annual) $25,000 $20,000 Assumptions: Initial Value of Account: $250,000 ROR on Investments: 4.5% Start Age: 60 (at beginning of year) CANNEX commissioned quotes (Life Only annuity) Minimum Payment Stream Maximum Payment Stream $15,000 Annuity Payment (female) Indexed Annuity Payment (2% - Female) $10,000 Annuity Payment (male) $5,000 $- 60 65 70 75 80 85 90 95 100 19
Pension Income Options Annuity LIF Potential to Grow or Lose Value Fixed Income Flexible Payments Convertibility Control of Investments Inflation Protection if indexed Estate Preservation Limited to remaining guaranteed payments 20
Preferential Arrangements Download information & brochures online at: www.mcgill.ca/hr/node/2109 21
Standard Life Group LIF Advantage Select Program Eligible Participants and Spouses Wide range of investment options Management Assets Expense Ratio (MER) Silver up to $99,999 1.55% - 2.5% Gold $100,000 - $249,999 1.25% - 2.2% Platinum $250,000 + 0.85% - 1.70% 22
Sun Life Group LIF/RIF Investment Fund McGill Rate BlackRock EAFE Equity Index 0.40% BlackRock Moderate *sample Balanced of fund Index lineup 0.35% BlackRock Conservative Balanced Index 0.35% BlackRock Aggressive Balanced Index 0.35% BlackRock S&P/TSX Composite Index 0.35% BlackRock Universe Bond Index 0.35% BlackRock US Equity Index 0.35% Jarislowsky Fraser Canadian Equity 0.40% MFS McLean Budden Global Equity 0.65% Sun Life Financial Money Market 0.15% 23
McGill University Group LIRA/LIF/RIF Locked-In Retirement Account (LIRA) Life Income Fund (LIF) Retirement Income Fund (RIF) 24
Open to MUPP: Active Members (over age 65) and Inactive Members (55 or more) who have yet to settle. Retired and/or terminated members who recently transferred out to LIF/RIF with a financial institution and whose funds continue to be administered under Quebec legislation Low investment management fees Easy to use website Group LIF/RIF Access to RIF for non-locked-in holdings 25
Group LIF/RIF Fees Low investment management fees: range of 0.20% - 0.30% Management Expense Ratio (MER) Initial Investment @ age 65 Estimated Management Fees (in today s $ - over 25 years 0.25% $250,000 $ 6,340 1.0% $250,000 $25,395 1.5% $250,000 $38,125 2.0% $250,000 $50,875 2.5% $250,000 $63,645 For illustrative purposes only. Assumes 5.5% net rate of return and max LIF payment stream. Other Fees: Record Keeping Fee: $43.11/annual (in 2015) for each LIF and/or RIF account + tax + annual indexation. Cheque Issuance Fee: $10/per periodic payment 26
Group LIF/RIF Investment Options Equity Pool TD Asset Management Canadian Equity (30%) US Equity (40%) Non-North American Equity (30%) Fixed Income Pool Philips, Hager & North (PH&N) Bond Fund (100%) Money Market Pool TD Asset Management Risk Target Balanced Options 27
Group LIF/RIF Risk Target Date Options Conservative Risk Profile Moderate Risk Profile Aggressive Risk Profile Money Market Option 20% 10% 10% Fixed Income Option 55% 55% 40% Equity Option 25% 35% 50% 28
Investing Accumulation Phase No withdrawals, only new contributions Focus is on investment return and accumulated value at retirement Accumulate assets through diversified allocation strategy which maximizes growth for acceptable level of risk Decumulation Phase No contributions to LIF/RIF, only withdrawals Focus is on rate of return required to provide target income cash flow Aversion to cash flow risk 29
Investing Decumulation Phase Traditional asset allocation strategies may not be well suited for this phase Market corrections and periods of sustained bears/bulls will continue Individual health (expected longevity) may change during retirement years Need to monitor and reassess continues throughout retirement 30
What is your investment plan? Look at all holdings not just MUPP Determine how much of portfolio to annuitize Annuity purchases and pension income streams hedge against future increases in life expectancy Match income streams against expenses Need varies based on wealth Asset allocation decisions 31
DECUMULATION PHASE ASSET ALLOCATION 32
What is Risk Tolerance? WILLINGNESS to take on risk ABILITY to take on risk NEED to take on risk Most investor profile questionnaires are tailored to assess willingness and focus on the accumulation phase. 33
Asset Allocation Decisions Project possible outcomes/scenarios Significant increases/decreases of portfolio due to market performance Depletion of assets due to unforeseen expenses Manage withdrawals and asset allocation throughout retirement Risk tolerance may change with age Inflation concerns ease in latter phases of retirement 34
What return is required to maintain desired cash flow? Each asset class carries different expectations Expected rate of return reflective of intended asset allocation What is probability of outcome? 35
Asset Classes Money Market Fixed Income Equity 36
Money Market Cash - near cash Liquid investments intended to cover current or emergency expenses Used to avoid selling off depreciated assets during market corrections or bear markets 37
Fixed Income Rising interest rates carry downside portfolio risk What is minimum/maximum allocation? Can elect to: cover fixed expenses over a number of years into future % of assets not allocated to equity or money market any other strategy based on individual needs 38
Growth in investments Equity Hedge against inflation Carries downside portfolio risk What is minimum/maximum allocation? Based on individual circumstances and risk tolerance Determine how much of a loss can assume and still cover fixed expenses 39
Investment Responsibility Understand the decisions that you need to make and select investment option(s) which are right for you. Review your investment portfolio & investment strategy Seek independent investment tax advice 40
How do I request settlement? New Retirement/Termination: Statement and settlement package forwarded to you following notification (Notice of Status Change or Notice of Termination issued by your department) and final pension contribution remittance. Previous Retirement/Termination: Contact the Call Centre for the McGill University Savings Programs at 1-855-687-2111 to request a settlement package. Settlement transactions: valued on 15 th or last business day of the month. 41
To learn more. Pension Plan Brochures (www.mcgill.ca/hr/node/2117) McGill University Savings Programs Call Centre: Web Site: www.mcgill.ca/hr/node/2122 Phone: 1-855-687-2111 One-on-one: 688 Sherbrooke St. West Suite 1420 Independent investment advisor or financial planner Information Sessions: General, Retirement, Decumulation www.mcgill.ca/hr/node/2128