Planit:Details of Pensions
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Details of Pensions
The Pension & Other Revenue Screen has undergone a significant makeover. Here’s an overview of all the changes, please make note of all the new changes to this screen.
Screen is Now Tab Driven: In the past if you wanted to see how records for the death and disability scenarios were affected by your entries, you would use “+” sign to expand the screen. However in the expanded view, the screen could be difficult to read and it also often extended beyond a single screen view and thus scrolling up and down was required. We have eliminated these issues by changing the screen to make use of tabs, as can be seen above. You now can move from one scenario to the next by merely clicking on the appropriate tab.
More Transparency of Assumptions: In the past the records displayed on this screen were only the salaries and government benefits such as CPP and OAS that the system created as well as any items that you entered while on the Pension screen. However, behind the scenes we were often doing more than what was visible on the screen. Things like:
- Payout of life insurance benefits
- Payout of disability insurance benefits
- CPP Death Benefits
- CPP Survivor Benefits
- Survivor Benefits on Defined Benefit Pensions
Easier to Make Edits: In previous versions, when you added a record to the Pension screen, to edit your record, you had to always open the record using the “Edit” button. While you still can edit the record in this way, we have made the more commonly edited fields accessible right on the screen without having to open the record. Thus you can now edit the description, the recipient, the amount, the Start Year, End Year and inflation assumption right on the screen. This is more convenient than having to open each record, edit and re-save.
Ability to Add Revenues Unique to the Modeled Scenario: In the screen shot above you’ll note that in addition to the Current scenario and the death and disability scenarios, you also have a tab for the “Model” scenario. This tab allows you to add revenue streams that will ONLY be used in the modeled scenario. An example of this might be where the client has some large shortfalls and indicated they would sell their cottage or perhaps downsize their residence if necessary. On the “Model” tab you can now add a revenue stream for “Sale of Cottage” or “Residence Downsize” and thus recognize in the ultimate strategy for the client that this additional action by the client is needed in order to create a workable strategy.
Increased Intelligence on When Revenues Begin and End: One of PlanPlus Planit’s most powerful and time saving features is the AutoModel TM process. By setting your client’s AutoModel thresholds, you provide the system with the information it needs to do up to 100 “what if” scenarios with the ultimate objective being to find a combination of behaviors changes that result in an achievable strategy. One of the things considered in the Auto Model process is the client’s willingness to postpone their target retirement until they are older. If this indeed is necessary, it can introduce a variety of issues because a postponement of the retirement date will affect your assumptions on when pensions start, when salaries end, when goals happen if they are tied to the retirement date. These are just a few examples of the issues that can arise when you change the retirement age. To deal with this we had a feature associated with all revenue streams and all goals called “Model As”. This allowed you to define if your revenue stream or goal was to “Start At Retirement” or if it had a fixed start date. This gave the auto model the intelligence to defer the start date of the revenue stream or goal if indeed the client had to work longer.
With this new version we have enhanced the intelligence to apply not only to the “From Year” but also the “To Year”. Below you’ll see a screen shot of the detailed pension record. You’ll note that we now have drop down lists for both the “From Year” and the “To Year” where you can specify how both of these variables are to be treated should the Auto Model make the client’s work longer. Making these two fields more intelligent also helps if you decide to make changes on the “Planning Assumptions” screen. For example if you originally set the target retirement Age to 55 and the mortality assumption to 90, and then later changed these to 60 and 95 respectively, you would have had to check any of your records on the Pensions or Goals screen to be sure they aligned with these changes. Often manual edits were necessary to realign. With these two new drop downs, such changes will ripple through to the both the Pensions screen and the Objectives screen so that all start and end dates are kept in sync.
Separate Index Rate for the Prior to and From Revenue Start Date: This feature has been introduced primarily to accommodate defined benefit pension plans that are NOT indexed on receipt, or that have a maximum index rate upon receipt. Here’s how you would use this feature.
Since the pension record is entered in today’s dollars, based on the client’s current income, you would set the Index Rate Prior to Start Date to the default inflation rate as seen above. This will recognize that the client’s income between today and the actual start of the pension benefit would index with the general inflation rate used for the client. You would then set the Index Rate From Start Date to either 0% if the pension is non-indexed or the specified maximum index rate . . . such as 1.5% as seen above. This will recognize the full indexation of the benefit for the years leading up to retirement and the lower index rate or zero indexation upon receipt of the benefits. Note that if a pension is indexed then it’s recommended you use the “Default” inflation flag for both the pre and post periods.
Percent Taxable: You now have three options when identifying if a revenue stream is taxable or not. The first option and the default is “Fully Taxable”. The second option is “Non Taxable” and the third is “Partly Taxable”. When you select partly taxable you’ll be provided with a field to specify the percentage.
Withdrawal from Account: An exciting new feature to the Pensions and Other Revenues is that you now can create a forced withdrawal from your registered accounts. In the past our approach has always been to do withdrawals from the non-registered accounts first, leaving sheltered money
This feature has another powerful benefit. If you have clients who have a significant amount of capital in their locked in registered accounts (LIF/LRIF etc.), you can now set up a structured withdrawal in order to force the money in those locked in accounts to last for the whole of the client’s life. Let’s look at an example:
Here I have a client with a significant amount of their registered capital in locked in accounts, $75,000. I have created a “Withdrawal from Account” record and called it “LIF Withdrawal”. Note I’ve set the amount to $5,000 indexed to inflation running to mortality. This will ensure that this $75,000 is not withdrawn using the “Use as Required” approach thus recognizing the limitations the client has when accessing the locked in capital. I used the Registered Payout Calculator to identify the amount of the withdrawal using a target withdrawal indexed to inflation.
Hover Over to See Settings Behind the Record: As mentioned previously, you now can more conveniently edit many of the fields on the Pension screen without having to actually open the record. You also can use the “Hover Over” feature to see the Start Year, End Year and Inflation settings as seen here.
The “Add” button will allow you to insert additional revenue expected.
Index Rate – Defaults to the inflation rate set on the Personal Information screen but can be adjusted as required on each revenue stream.
Percent Taxable – Identifies the portion of the revenue stream that will be subject to tax at your normal rates. Note some revenue streams, such as an inheritance would be non-taxable and thus a tax rate of 0% is used. In this example the revenue is a pension and thus it will be fully subject to tax in the year or receipt.
% On Death or Disability – Because many documents incorporate needs analysis on death, or disability, you need to identify how each revenue stream will be impacted by these events. Sometimes it’s obvious what’s appropriate here, but other times you have to give some thought to the issue.
You’ll also note that the Pensions & Other Revenue screen has an expand option. If you click on the “+” symbol beside a revenue, that item will expand to show you the percentage and/or amount that will continue on Death or Disability based on the data entry you did in each item. You may also expand the whole screen by using the “+” symbol on the title bar.
Model As – One very sophisticated feature of Planit is the ability to have the system model a solution to your client’s shortfalls. We call this the Auto Model process. However, when this modeling takes place, we need to know how to treat these revenue streams in the event that the client has to defer his/her retirement due to their inability to achieve their objectives. The “Model As” field allows you to identify if this particular revenue stream has a “Fixed Period” associated with it . . .meaning that it will be paid out on those dates and a change in the retirement date will have no impact. This would be the case for something like an inheritance. However, with a pension as illustrated above, if the client has to work longer, we have to recognize that the pension will also be deferred. Thus we set this item to “Start During Retirement”.
Additional Increase – In the earlier fields we already identified if revenue is indexed to inflation, but we also have to recognize with pensions that are formula driven that the benefits under the pension may increase if the client works longer. A typical example would be a 2% defined benefit pension plan. If the client works 2 years longer . . . his pension would be 2% higher for each year of service. Thus in the above example we have indicated that the Additional Increase will be 2%.
Tax Deductions/Relief’s – In rare cases you may wish to incorporate some extra ordinary tax deduction into a long-term analysis. This flag identifies an item to be not a revenue stream, but rather a tax deduction.
TIP: This is the screen where you would identify any defined benefit pension plan benefits that the client anticipates receiving. Pensions are entered in today’s dollars assuming the client works with their employer to their target retirement age. Thus when calculating the pension, the formula would be used recognizing their years of service to date, plus the remaining years they will work until retirement.
Once you have reviewed and entered all the revenues you may then click on the “Next” arrow to proceed to the next client data entry screen.
Mini Movies on Pension and Other Revenues Screen
Shows how to enter in a Life Pension:
Length: 3min 55 sec
Briefly shows how to enter a Pension Bridge:
Length: 1min 39 sec
Defined Benefit Pension Plan:
Length: 1min 46 sec
How to enter into an Inheritance:
Length: 1min 57 sec
How to enter the appropriate date for a Sale of a Business:
Length: 2min 59 sec
