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August 16, 2019

Someday really will come one day

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.

A new retirement plan for physicians

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 members. The ThoughtLounge survey took place from Feb. 7-14, and a random sample of 10,181 physicians were invited to participate.

That survey found that 20 per cent of physicians felt very confident in their level of retirement readiness. More than a third of our members said they felt “not very confident” (22 per cent) or “not at all confident” (13 per cent). Further, 30 per cent 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 per cent of physicians were “very satisfied” with their retirement planning[1].

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:

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 years[1]. 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 and 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 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 the government in Canada this consists of Old Age Security (OAS) 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 per cent 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 per cent agreed (and 64 per cent strongly agreed) that the OMA should provide options and tools to build retirement security. Approximately 75 per cent of our members agreed (and 52 per cent 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.

 

Strongly agree

Somewhat agree

Neutral

Somewhat disagree

Strongly disagree

I don’t know

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

75 per cent

18 per cent

Five per cent

One per cent

One per cent

One per cent

The OMA should provide physicians with options and tools to build retirement security

64 per cent

24 per cent

Eight  per cent

Two per cent

Two per cent

One per cent

If the OMA was to provide a cost-effective group retirement plan, I would be interested in joining

52 per cent

23 per cent

11 per cent

Three per cent

Five per cent

Five per cent

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 more than 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 eight 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.

Most popular insurance solutions by career stage

Insurance types

Students

61 per cent*

Residents

75 per cent*

Early career

74 per cent*

Established

79 per cent*

Retired

49 per cent*

Group Life

2,291

1,592

4,125

10,900

482

Group Disability

1,567

1,359

4,294

12,124

-

OPIP

-

-

3,195

13,420

1,059

Home & Auto

344

714

-

-

875

*Percentage of members with at least one OMA Insurance policy

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

Ninety-three per cent 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. Eighty-six per cent 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 OAS
  • How to turn your savings into a predictable stream of income in retirement

Seventy-one per cent 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 per cent of members said they wanted a plan they could contribute to no matter where or how they were working, and 80 per cent wanted flexibility on their monthly contributions. This flexible plan addresses these requests.

Guaranteed income

While members want flexibility, they also want certainty and security. Eighty-two per cent 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. Sixty-eight per cent 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 No. 1 reason why physicians incorporate, and 96 per cent 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.

 

GP/PF

Specialty

All MDs

 

All

Male

Female

All

Male

Female

All

Male

Female

2001 - 2015

68

69

64

70

71

67

69

70

66

2001 - 2005

67

68

62

69

69

66

68

68

64

2006 - 2010

69

70

65

70

71

65.5

70

71

65

2011 - 2015

68

69

65

71

71

68

70

70

66.5

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 per cent 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.


[1]Michelle Pannor Silver & Laura K. Easty, “Planning for retirement from medicine: a mixed-methods study,” CMAJ Open (2017).