Since the members of the committee for our pension plan are all in favor of joining the college pension plan,
there needs to be a voice which is pointing out the disadvantages. I personally think it's a unwise for us to join the college
pension plan. We give up way too much flexibility that is available to everyone under our Sun Life plan.
Here are my (our) reasons.
1: The college plan is an annuity type plan. You get paid for life.
If you live long, you win big. But if you don't, you lose big.
If you and I both retire at 65, and I live to 95 and you die before 75,
then I basically get half of your money. You only get 10 years
of pension (this is the default option) and I get 30 years.
In contrast to this our Sun Life plan allows us to take out either
a Life Income Fund (a LIF) or an annuity. I want to take the LIF.
In a LIF I will get all the money in my pension plan - and none of yours.
In a LIF one takes out something like 6% per year until either
one dies or the fund is depleted. If one dies, what's left goes to
your spouse (or estate). One does not lose the capital when one dies.
Basically, what you get out is what you put in plus the earnings.
A LIF removes the gamble of not living long.
It also provides mechanism for leaving something for our children.
In the college pension plan we lose the option of taking out a LIF.
2: The reason we are about to vote on the college pension
plan is the committee doesn't think we are saving enough
for our retirement (some numbers were presented to back this
up) and, we should be forced to save more.
But living here in the lower mainland is expensive because of house prices.
Many of us have chosen not to put more money into our pensions and instead
put it into a house, which we can enjoy now. For many of us our house is
worth more than our pension. Our house is also an investment.
When the committee looks at how much SFU faculty are saving they
don't see the extra money we invested in our houses.
Our current SFU plan gives us the option of putting 10% of our income
into our pension OR using it to buy a house, or for any other purpose,
e.g. a family member that we need to look after.
3: If you decide to move to a different university/company which is not
in the college pension plan, say at age 50, you lose in the college
pension plan. Why? Because the college pension plan payout is
multiplied by the average of your best 5 years of salary.
For most of us that will be the 5 years before we retire.
An example.
Consider someone who starts at SFU at 35 years old and at 50
is earning $120,000 per year and would earn $150,000 per year
on average between 60 and 65 if they stayed at SFU until 65.
If they leave SFU at 50, they give up 20% of the value of
their savings in the college pension plan.
4: If you are thinking of working beyond 65 at SFU, perhaps working
part time after 65 at SFU, you lose big. For each year you don't
retire you lose a year of your pension in the college pension plan.
So if you live to be 80yrs old, then you lose about 3/15=20% of your
total pension if you stay on working at SFU till 68 before your retire.
So basically the college pension plan forces us to retire from SFU
at 65 - the financial penalty is high if we don't.
There is no such penalty in our current DC plan.
5: In our Sun Life plan we have options for where we put our
investments. We can put them in the new climate friendly fund.
This option is gone in the college pension plan. The college
pension plan is invested in fossil fuels.
6: We have been told that we will have to put in 10% of our salary.
But that 10% number can go up or down depending on the economy.
If there is a severe recession, members of
the college plan and the employer SFU could be asked to put in more than
the 10%. As David pointed out to me, the 10% number could also go down
if there is a very good earnings period. The 10% is not guaranteed.
7: The committee has not told us if the college pension plan is earning
more than our SFU balanced fund or the SFU growth fund. If it is not,
then, on average, we are better off staying with the SFU plans.
That this analysis has not been done is troubling to me.
Barbara Sanders has corrected us on this. If the SFU growth fund
performed identically to the college pension funds, there is an
advantage in the college pension plan if one wants an annuity.
Under our Sun Life plan, if we choose to purchase an annuity,
instead of moving a LIF, then we do so because we think we will
benefit from it by living long. If we knew/think we will not live long,
we would (some of us) choose a LIF. The banks know this.
Sun Life knows this. So they charge us a premium for purchasing an annuity.
In the college pension plan, everyone (including those who think/know
they will not live long) is in the same boat so the college pension
plan can give us a more. So basically what is happening with the college pension
plan, the people who don't live long are transferring their wealth
to those who do.
Our conclusion is the following.
If you want a pension for life, and not a LIF, and you are going
to retire at 65, and you think you will live to the average
age or beyond, and you can afford to lose about 7% in your salary
(7% = 10% contribution - about 3% tax credits)
then the college plan is very good.
But the college pension plan puts everyone into one box with few options.
I don't think we should be forcing all faculty into this box.
We prefer the flexiblity of our current plan and the option of a LIF.
Michael Monagan
Nilima Nigam