Nov 16, 2019
HEB | HEPP Pensions
Rob:
If you're a healthcare provider in Manitoba, this is for you. I'm Rob Tétrault, Head of the Tétrault Wealth Advisory Group from robtetrault.com, here at Canaccord Genuity Wealth Management. I'm here with Adam Buss here at Canaccord Genuity Wealth Management. Adam, thanks for coming today.
Adam:
Thanks for having me, Rob.
Rob:
You are the pension expert, so I'm super thrilled to have you here. You've seen a ton of these. We're going to have a good time today talking about these Manitoba health care provider pensions.
All right Adam, first of all – HEB and HEPP. A bit of a tongue twister.
Adam:
It certainly is. And I would view those as rather interchangeable.
Rob:
Yeah?
Adam:
A lot of people deal with the HEB, the health care employees’ benefit side on a regular basis. The one that we often work with is HEPP, which is health employees’ pension plan. It really comes from the exact same place, but we're actually dealing with the pension plan side of the business majority of the time.
Rob:
Okay. So these are health care employees in Manitoba. They have a pension. What kind of pension do they have?
Adam:
This is a defined benefit pension plan. So there's two different types of plans out there, a defined contribution plan where you put the money in and choose kind of the investments that you want to deal with.
And there is a defined benefit, which is you still have to contribute, but it results in a, you know, a guaranteed payment stream for the rest of your life, which is what this is a defined benefit.
Rob:
Okay. So with respect to these pensions, how are they calculated? I mean, I know that t's probably a tough question, but I assume there's a formula with respect to years of service income.
Adam:
Yeah. So it's years of service. It's generally your best five years. Some plans are the best 10 years of your income, multiplied by a pension factor. In this case the health employees’ pension plan is a 1.5% up to YMPE and I know you're going to ask what is YMPE...,
Rob:
That's the song, right? Where they go …
Adam:
It's not the YMCA song, but they do get confused rather often. YMPE is yearly maximum pensionable earnings.
Rob:
Okay.
Adam:
That is basically the number is to what level of earnings do you pay Canada pension plan premiums on?
Rob:
Okay. Okay. Right now, that would be…?
Adam:
$57,400 I think is the magic number this year. It does change every year. So based on your pension, the health employees’ pension plan is a lesser amount up to that. And then over that amount, it's a 2% factor.
Rob:
Once we get one and a half of the first $56 K and 2% above that.
Adam:
Exactly.
Rob:
And that's your factor. That's multiplied by your years of service
Adam:
Correct, you do years of service, times the average pensionable income and that equals your guaranteed payment stream for life. There's added complexities. When you get your pension options, it's going to be 10 different options.
Okay, well what happens if you choose a guaranteed survivor option, you know, 100% or a single life or a 66% to survivor or you want, you know, a 10 year guarantee period. All of these different options effect that number as to what is going to be in it.
There's probably a baseline and then they adjust, whether or not you're guaranteeing it or you're not.
If you did the simple math, that's called a straight life, which is basically just for one person saying, okay, this is your payment stream guaranteed for the rest of your life. If you want to add the bonus aspects of leaving money for a surviving spouse or in a state for the beneficiaries, that's where that number starts to go down a little bit.
Rob:
Okay. Now, if I'm an employee, how do I know when I can retire? Is there a formula for like a magic number or something like that?
Adam:
Yeah, most of these plans do have a magic 80, which should be once your years of service plus your age equals the total number of 80. That's when you generally can retire without an unreduced pension. Some plans also have a minimum age of 55 years, which is when you're allowed to start drawing from your pension. Every plan is slightly different, but we certainly want to a work with our clients to identify what that looks like.
Rob:
Okay. Let's say I'm retiring in a year or two. And I'm a little stressed about these options. What should I do, and how do I know what option is for me? And is there are another option.
Adam:
There certainly are many options.
All we do with our clients is we work with our them to pick A, the best option, which isn't necessarily A, but it's trying to determine what is the best option on their pension for what their needs are. Hopefully you're coming to us to kind of navigate what some of those options are. There is also the option of taking a commuted value for your pension.
Rob:
Now that's interesting.
Adam:
Yeah. So commuted value is the lump sum of money behind the scenes that is being exchanged for that guaranteed payment for the rest of your life.
So, Rob, you have the option of transferring that commuted value out of the pension plan into your own investment choices. And then you get to pick as to how that money's invested. When do you want to draw from it? Do you want to take more upfront in more and less than the later years, you have a lot more options available to you and it's guaranteed to leave any money that's left to your beneficiaries.
Rob:
Basically, you own those assets.
Adam:
You own that money, not the pension plan.
Rob:
So contrary to, you know, you contribute to this pension, take the money out, you give it to them, they give you a stream forever. If here you say, give me my assets, I will put them in a locked in retirement account and maybe I can roll some of that to an RRSP and then that becomes my assets. Those are my assets, my pension. I can have quite a bit of flexibility on it because I can draw more or less. But more importantly, the big one is, it's in my name. If I pass my estate gets it, my spouse gets it, it goes onto my beneficiaries.
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Adam:
That is often the number one thing when we meet with clients is their goal is they want to make sure the bulk of that pension that they worked so hard for their entire career actually goes to their family if they pass away.
Rob:
Yeah.
Adam:
Right. Instead of that guaranteed payment stream, it's making sure that 100% of whatever money is left goes to what's most important. Their families.
Rob:
Makes a ton of sense. Talk to me really quick about the bridge benefit.
Adam:
Some pensions do have a bridge benefit, which gives you a little bit extra money prior to age 65 which is to bridge you until you start your Canada pension plan or your old age security. So it gives you a slightly higher pension until that point in time and then it drops your pension. But then your CPP and your old age security kick in, which boost up your income back to where it should be.
Rob:
It's an advantage.
Adam:
It is an advantage, right? It's extra money that you're getting to try to smooth out your income throughout retirement.
Rob:
Okay. And what about cost of living adjustments? Are there any for costs of living.
Adam:
When it comes to that, the HEPP pension plan, it is on an ad hoc basis, which means they will give you the cost of living increase when they feel they have the money to do so. There are no guarantees in place that your pension is going to keep up with the cost of living increases.
Rob:
Historically, some of them have happened, some of them haven't.
Adam:
Yeah, they do it on a year by year basis. Depends on how the pension's funded. Depends on all the performance has been a variety of different factors that may only be partially indexed to inflation or cost of living on a year by year basis. But of course, there's no guarantees.
Rob:
That's called COLA.
Adam:
COLA, Cost of Living Adjustment.
Rob:
All right, perfect. Well thanks Adam. I really appreciate your time. It's great to have you here live from downtown Winnipeg talking about the HEB and the HEPP pensions.
I'm Rob Tétrault from robtetrault.com, Head of the Tétrault Wealth Advisory Group here at Canaccord Genuity Wealth Management. Adam Buss, Senior Wealth and Estate Planner at Canaccord Genuity Wealth Management.
If you have questions on this or on your portfolio or on your planning, or if you're retiring soon and you're not sure what to do, go to speaktorob.com, we'll book a consultation free, no obligations. We'd love to hear from you. Thanks for tuning in. Have a great day.