Solvency ratio of Canadian defined benefit pension plans falls to 90.6% in 2014 + MORE Jan 1st

TORONTO – Consulting firm Aon Hewitt says a decrease in long-term interest rates has left Canadian defined benefit pension plans worse off in 2014.The company, citing a survey of 449 plans it administers, says the drop in long-term interest rates more than offset investment returns.According to the survey, the median solvency funded ratio, stood at 90.6 per cent as of Dec. 31.That represented a decline of 0.5 percentage points from Sept. 30, and a 2.7 percentage point drop from plan solvency at Dec 31, 2013.Long-term interest rates, which are used to calculate a pension plan’s liabilities fell nearly one full percentage point in 2014, increasing the amount needed by pension plans.Meanwhile, the survey also showed the number of plans that were more than fully funded fell to 18.5 per cent as of Dec. 31, down from 23 per cent the previous quarter and 26 per cent at the end of 2013.

A decrease in long-term interest rates has left Canadian defined benefit pension plans worse off this year, consulting firm Aon Hewitt says.

(Photograph by Raina + Wilson)
Q: I am 58-years-old in 2015 and retiring with a defined benefit pension plan. My pension will be $60,000 a year receiving 100% increases equal to the Consumer Price Index. I have a modest RRSP of $65,000 and a small TFSA. I have no debt. My question is if it is advisable to begin to transfer money from my RRSP to my TFSA, incurring the tax implications now, or keep my RRSP intact and allow the tax free growth component to thrive and deal with the tax issues when I turn 72?–Joe
A: Retirees are often tasked with choosing different pools of money to fund their retirement. For those like you, Joe, who retire early, it becomes even trickier. That’s because you won’t be forced to withdraw from your RRSP for another 14 years–but should you take early withdrawals?
I’d say your decision needs to be based on a few factors, namely:
-Are you going to need some or all of your RRSP savings to fund your retirement spending?
-What is your investment risk tolerance?
-What is your life expectancy?
If you’re going to need some or all of your RRSP savings to fund your retirement spending, that would make me more inclined to consider early RRSP withdrawals…

Last column, we looked at the topic of Extreme Early Retirement, whereby practitioners try to “retire” in their 20s or 30s. I’m using air quotes there, for two reasons.
First, I don’t believe becoming financially independent at such a tender age can properly be called “retirement” in the classic sense of the phrase. Second, I believe advances in longevity mean those who are still working should plan for much later retirement—the polar opposite of extreme early retirement.
In blogs on this theme, I’ve mentioned Mark Venning, who runs a site ChangeRangers.com, which focuses on the business and social aspects of aging demographics. Venning believes aging baby boomers shouldn’t be planning for classical retirement but rather should plan for extended longevity. The latter, he says, “is more in line with the reality of financial, health and social conditions that now evolve incrementally over a wider period of time.”
As financial planner Dan Houston writes in a recently published collection of essays on the topic, The Upside of Aging, “longevity changes everything…

Canada Pension Plan (CPP) benefits will increase by 1.8% in 2015, Employment and Social Development Canada announced Monday.