Someday really will come one day

A New Retirement Plan for Physicians.

This feature article is the first in a series of three, reporting on the research the OMA conducted around physicians’ retirement readiness. The OMA is responding to members’ needs for greater financial stability and the tools to build retirement security. This article shares what the OMA has learned over the past two years and outlines key elements of a retirement plan that OMA Insurance has developed with the help of our members.

Will physicians be ready to reserve their retirement?

Like a lot of Canadians, many physicians do not feel financially prepared for retirement. As part of the OMA’s research on physicians’ retirement needs, we collaborated with Common Wealth, a mission-driven business that specializes in providing group retirement plans to Canadians without access to traditional pensions. In February 2018 the OMA conducted a survey of 1,235 of our members1. That survey found that 20% of physicians felt very confident in their level of retirement readiness. Over a third of our members said they felt “not very confident” (22%) or “not at all confident” (13%). Further, 30% said they were not contributing to a retirement savings plan at all. These results are consistent with a recent independent study of physician retirement readiness conducted by University of Toronto’s Michelle Silver, which found that only 10% of physicians were “very satisfied” with their retirement planning2.

A physician’s financial life is as unique as their work life. The OMA’s research on retirement security for the medical profession identified several attributes that create a distinct set of retirement security needs. These are:

  • Self-employed and incorporated. Most physicians are self-employed, incorporated professionals, often drawing income from multiple sources. Due to not having an employer-employee relationship, physicians are not eligible for traditional pension plans and must find other ways to generate reliable income in retirement. For physicians going on maternity or parental leave, the challenge of saving for retirement is that much greater. On top of this, the financial situations physicians face are typically more complex, creating unique issues with respect to taxation and requiring a more tailored approach to planning.
  • Unique earning patterns. Although total earnings over a physician’s lifetime can be significant, these earnings tend to start later and then climb rapidly, compressing high-earning years into a relatively short window, compared to other Canadians.
  • Student debt. Physicians spend more time in school, with more associated student debt than most Canadians. In the early years of practice, debt repayment can compete with retirement and other forms of long-term savings as a financial priority for physicians, shortening the amount of time for their savings to grow.
  • Longevity. Many physicians can expect to live longer than the Canadian average, especially as the number of female physicians continues to rise. This means planning for a longer period in the post-retirement phase is especially important.
  • Phased, later retirement. The vast majority of physicians view retirement as a gradual process rather than a one-time event, preferring to wind down their practice over several years3. Further, physicians tend to retire an average of about seven years later than the average Canadian. The median retirement age of OMA members is 69.
  • Time-starved. Physicians are extremely busy people. Many do not wish to engage in time-intensive approaches to retirement planning. The combination of physicians’ time scarcity with the complexity of their financial lives creates a unique challenge in developing retirement solutions for this group.

Taken together, these factors mean that physicians require a different approach to retirement planning than other public service professionals. They require a new retirement model — one that combines the characteristics of a good pension with the flexibility that physicians want and need.

OMA Insurance & your retirement

When the OMA began work on redefining physician retirement, we knew there was a long-standing desire by physicians for some kind of retirement plan. Over the past decade, two OMA Council resolutions — the first in 2009, the second in 2017 — have called on the OMA to investigate the possibility of a pension plan for physicians. A similar resolution was recently passed at the Canadian Medical Association. The more we studied the issue, and the more we engaged with our members, the more we realized that the OMA could and should play a role in creating a retirement savings program dedicated to doctors. Together with members, we determined that a group retirement plan would be the ideal step toward helping physicians save for the retirement that they both want and deserve. With this input, OMA Insurance along with the retirement security experts, Common Wealth, began the work required to investigate and develop a comprehensive, first-of-its-kind retirement plan that would address what physicians wanted while leveraging universal best practices.

According to a widely adopted approach pioneered by the World Bank, a healthy retirement system has three pillars. The first is provided by government; in Canada this consists of Old Age Security and the Canada Pension Plan. The second pillar is provided through the workplace in the form of pensions and other group retirement arrangements. And the third is provided through individual private savings. We realized through talking to our members and the evidence we collected, that workplace-based approaches to retirement planning were different than individual approaches. While many physicians will continue to rely on private, individualized savings for part of their retirement planning, they also expressed the need for a collective option as well. In our survey, 93% of members agreed that:

Physicians, like others, should have access to a high-quality pension or group retirement income plan.

We also realized members weren’t just asking for a solution, but for their association to play a leadership role in creating that solution. When we surveyed members, 88% agreed (and 64% strongly agreed) that the OMA should provide options and tools to build retirement security. Approximately 75% of our members agreed (and 52% strongly agreed) they would be interested in joining a cost-effective group retirement plan. Our response was to direct OMA Insurance to provide such a plan.

Finally, the OMA realized OMA Insurance had some unique assets that could make OMA Insurance an effective sponsor of a group retirement plan. Physicians tend to stay with the OMA throughout their career, and in some cases into retirement. This long period of engagement is a good fit with the long time horizon associated with retirement planning. Further, we are a member-driven organization, and evidence from around the world shows such organizations are behind many of the world’s best-performing retirement security organizations. The OMA has offered an insurance program to members for over 60 years, and that has a lot in common with what members were asking us to do in the retirement space. OMA Insurance has been using its group purchasing power to create value-for-money member benefits tailored to the needs of physicians at every stage of their life and career. OMA Insurance’s offerings range from life to health to disability to critical illness to home and auto and more. Nearly 8 in 10 physicians have at least one policy, and OMA Insurance has launched eight new products in the last 10 years, each in response to expressed member needs. Like retirement security, insurance is a complex financial topic where there is a lot of competition in the market. But by following a set of member-centric principles, we’ve been able to build a suite of benefits that many members trust and that creates a great deal of value for members and their families.

For these reasons, OMA directed OMA Insurance to take action and create a new retirement plan for Ontario physicians.

Guided by the OMA’s members, and by the evidence our research found about what works in retirement security, OMA insurance is creating a new retirement plan for Ontario physicians and their spouses. Details about the plan will be released in the coming months. The plan is based on the following principles:

Members first
93% of members told us a group retirement income plan should have a legal duty to act in their best interests. So the Advantages Retirement Plan was set up and will be administered with the interests of members in mind. It will follow the same profit-for-members structure as OMA Insurance’s offerings which have delivered value to members for decades. In other words, as the plan scales, the benefits of scale will accrue to the member, not to corporate shareholders.

Value for money
Not surprisingly, low fees were the second-most important feature our members identified. The Advantages Retirement Plan will aim for costs in line with those of a large pension plan, which can be two to three times less than what individuals pay for in the private market. The goal is to maximize the retirement value of our members’ money.

Expertise
Our members have encouraged OMA Insurance to seek out top external financial and asset management with experience in retirement security. 86% of our members also asked that the plan be overseen by an independent board. OMA Insurance has assembled an expert-led committee to develop and oversee the investment program for the retirement plan, composed of experts in institutional investing as well as physician representation. In addition, partnerships have been formed with leading asset managers and retirement experts to help OMA Insurance deliver this plan.

Education and planning
Retirement isn’t just about saving, which is why our members have also asked for help with some of the key questions associated with planning for retirement. These include:

  • How much to save for retirement
  • How much monthly retirement income to plan for
  • How your savings interact with the Canada Pension Plan and Old Age Security
  • How to turn your savings into a predictable stream of income in retirement

71% of members surveyed said they wanted education on retirement planning issues. That’s why through a combination of digital tools and educational resources provided by our partner, Common Wealth, the Advantages Retirement Plan embeds evidence-based education throughout to give you a better understanding of the considerations you will need to take into account when making decisions about your retirement planning.

Flexibility
Members have asked for a plan that is more flexible than a traditional pension plan. They need it to be portable from workplace to workplace, to accommodate frequent fluctuations in physician income, and to work with the phased and diverse retirement patterns of physician members. When surveyed, 88% of members said they wanted a plan they could contribute to no matter where or how they were working, and 80% wanted flexibility about how much to contribute every month. This flexible plan addresses these requests.

Guaranteed income
While members want flexibility, they also want certainty and security. 82% of members surveyed said they wanted assistance in converting their savings into a regular paycheque in retirement. Even if a traditional pension wasn’t possible, members are looking for a way to get pension-like income for life to protect against the risk of outliving their money, or the danger of an ill-timed market downturn as they are approaching or entering retirement. That’s why the Advantages Retirement Plan has a guaranteed lifetime income feature that offers members a flexible, cost-effective way of converting a portion of their nest egg into income for life.

Simplicity
Physicians are busy. Retirement services can be complex, confusing, and opaque. 68% of members said they were looking for a simple plan. This plan is easy to use and helps simplify decisions and minimizes the paperwork involved. For each major retirement planning decision a member needs to make, the plan includes evidence-based suggestions that are sensible for the majority of physicians, as well as resources for those physicians who want to dig into these decisions in more detail.

Continuous improvement
This physician retirement plan is designed to evolve and improve as it scales, and in response to feedback from members. Physicians can think of the Advantages Retirement Plan as their plan. Something that belongs to them. This plan is a utility for the physician community and a vehicle to serve physicians’ retirement needs to help reserve their retirement. Members have already identified areas in which the plan could be enhanced over time, and we look forward to their continued input as OMA Insurance prepares to launch this important initiative.

Adapting to the changing tax landscape. Be retirement ready

Recent changes by the federal government to the taxation of Canadian-controlled private corporations (CCPCs) have also made retirement planning more challenging for physicians. OMA data suggests retirement planning is the number one reason why physicians incorporate, and 96% of physicians are “likely” or “somewhat likely” to draw on investment income through their corporation over the course of retirement. Recent federal changes have also removed some of the tax advantages of such retirement planning strategies, as the federal government is encouraging incorporated professionals to use outside-the-corporation vehicles, such as Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs).

Inadequacy of retirement preparedness can have important personal consequences for physicians. Inadequate savings can also lead physicians to work longer than they would ideally like to work.

In addition, inadequate retirement preparedness can lead to physicians and their families having to reduce their standard of living in retirement, after a lifetime of service and hard work.

The lack of physician retirement readiness also has important consequences for patient care and for our health care system. Financial anxiety has been shown to be an important cause of burnout and stress, and can affect a physician’s productivity. Inadequate retirement planning can also lead to continuity of care challenges for patients, where physicians are not able to make a transition plan to find a suitable replacement before retirement.

About half of all Canadians have access to a retirement plan through their work. In the public sector, nearly 90% of workers have access to such a plan. Evidence shows access to a workplace retirement plan can have a dramatic effect on a person’s retirement preparedness. The challenge physicians face is they need to rely almost entirely on the third pillar — private, individual savings — for their retirement security. Only a small minority of doctors have access to a workplace retirement plan. In other words, when it comes to retirement, most physicians are left on their own. This makes it much more difficult to achieve an adequate level of retirement income.

A collective retirement plan for physicians needs to combine the critical elements of other workplace-based retirement plans with a design that meets the needs of physicians, and we look forward to engaging further with our members as OMA Insurance launches this group retirement plan. Retirement is better together.

References

  1. The survey was conducted through the OMA’s ThoughtLounge on February 7-14, 2018. A random sample of 10,181 physicians was invited to participate.
  2. Michelle Pannor Silver & Laura K. Easty, “Planning for retirement from medicine: a mixed-methods study,” CMAJ Open (2017), http://cmajopen.ca/content/5/1/E123.full
  3. Michelle Pannor Silver & Laura K. Easty, “Planning for retirement from medicine: a mixed-methods study,” CMAJ Open (2017), http://cmajopen.ca/content/5/1/E123.full. OMA Economics, Research, and Analytics.
  4. OMA Economics, Research, and Analytics.
  5. Statistics Canada, CANSIM Table 282-0051.