“…Demons with whips of chain and claws of steel….shrouded in fire, darkness and shadow…”
“This is a foe beyond any of you” -Gandalf
Would I be so bold as to equate the HOOPP pension with one of the most monstrous horrors of J.R.R. Tolkien’s The Lord of the Rings? Should I go that far? Is it really that bad? Hmmm… So many rhetorical questions, about to be given concrete answers! Perhaps in matters such as this, the question is not “if” you find something of a Balrog caliber, but “when”… So… The answer to these questions is yes. The deeper we dig, the more we’ll find. And in this episode, we’re going to unearth the buried; quantify the un-quantifiable! And Uncover hidden secrets! Read on if you dare!
First thing’s first. I want you to watch this short promotional video about HOOPP. Watch ALL of it! Don’t worry, it’s only about 4 minutes long. Just do it!
Deception and Manipulation
The marketing in this video is ON POINT! For a piece of propaganda that is. The amount of marketing scare tactics that they use to try and demonstrate why it’s a “bad idea” to leave HOOPP is impressive. From the music, to the animation, to their short sound bites. From the light, bubbly, care-free jingles with accompanying pleasant and emotionally uplifting colours when “you stay with HOOPP”, to the dark, stormy, depressing feelings and animations they present you with if “you try to invest on your own”.
It’s smooth, it’s polished, and it sounds convincing. Hell, the video even does a good job at almost making me want to fully trust them with my retirement pension. Almost… But I don’t. And, I object to almost all of it! Especially since the blatant fear mongering is designed to keep your pension invested with HOOPP.
If you didn’t know any better, and didn’t bother to actually look into any of these claims, you’d fully believe all the hogwashy points they’re shoveling down your throat. And most HOOPP members do. We’ve addressed some of these claims in the last 3 episodes. However, today we’re going to go even farther! But will we delve too greedily and too deep? Will we awake something in the darkness of Khazad-dum.. I mean… in the bowels of HOOPP?
Anyway, we’re going to deep dive the crap out of this today! Are you scared? Perhaps you should be. The Balrog cometh! Get your diving suit on and your shovels ready, because here we go!
My Own Personal Pension Value:
It’s time to get real. I’m going to show you what my pension currently looks like (with real numbers). We’re going to get right into the thick of things to see what it is really made of to figure out if a HOOPP pension is as good as they claim.
My most recent annual statement for HOOPP is for the end of 2021. If I keep on working and contributing until age 55, HOOPP estimates that I should retire with a pension of ~$51,240/year. This is further broken down into a monthly benefit for the main pension of $3310 and the bridge benefit being worth $910 for a total of $4220/month. Of course, in the fine print, this number is for if I retire the month before I turn 56. Technically I’d still be retiring “at age 55”. But, if instead I retired the day of turning 55, I’d have about one less year of contributory service, so my pension would be less, at ~$48,840. Nothing like some slight misdirection (in the realm of $2500/yr) to make your feel good about important things. Thanks HOOPP!
As of year-end 2021, I have accumulated 8.44 years of contributory service (9.80 years of eligibility service). In another 20 years I’ll hit the end of my my 55th year. HOOPP calculates my current average annualized earnings at $89,495. So if we plug in these numbers to HOOPP’s pension formula based on if I continue to participate in the pension plan, we “should” get approximately that $51,240 number.
HOOPP’s Formula (for age 55 pension with bridge benefit):
2% x Yrs Contributory Service x avg annual earnings,
Thus,
0.02 x 28.5yrs x $89,495 = $51,012.
I’d say that’s a fairly close result. But we’ll continue with the $51,240 for simplicity purposes. So far so good.
Accumulations To Date
Now, what my annual statement also estimates for me, is how much of that ~$51,240 pension I’ve earned thus far to date (with current contributions) that is payable at age 65 (excluding the bridge benefit) AND if I earned no additional service from 2022 onward. Basically, if I quit HOOPP today and never rejoined, I’d get an estimated pension at age 65 of $13,742/year.
Why does HOOPP specifically use age 65 for that estimate in my statement? Probably because it’s a significantly larger amount than if I took the pension at age 55 ($11,080). Remember, HOOPP wants to make things look good. It’s better for marketing and PR!
So the estimate they provide for age 65 with potentially no further contributions, is $13,742/year. My HOOPP annual statement also informs me the amount of contributions that I’ve contributed in total to my pension thus far, which is $56,470 (with interest). Of note, is that this does not reflect the employer match amount, and neither is that amount reported anywhere on my statement. That’s an interesting omission. However, based on HOOPP’s employer pension match of 126%, I can calculate that the employer’s contribution would total ~$71,152. Therefore, as of the end of 2021, I should have a total combined contribution amount of ~$127,622. But as I said, only MY portion (~$56k) is reflected on the statement, not the full ~$127k.
Of course, I had to double check this. I reviewed all my T4’s, and found each years’ contributions from myself and my employer. And of course, I put that data into a chart. Because I love me a good chart! BUT! What I also put in the chart is how much those contributions would amount to if we applied HOOPP’s self proclaimed 10 year average annual investment returns of 11.06% (as of their 2021 annual report).
Wait till you see this!
There’s a number of items I want to break down here that I think are important for us to dissect and discuss.
FIRST, take note, that with MY reported contributions of ~54k over the past 12 years, there’s barely any increase in their value. According to my annual statement, they are now worth $56,320, which means the “included interest” is worth squat; somewhere around 0.5%/yr. Isn’t that odd. Especially considering HOOPP’s 10yr average annual returns of 11.06%. Hmmm…
What, does HOOPP just put all your money is a super low interest savings account? Because that’s what it sure looks like considering how they report it. Heck no! Of course they don’t do that! Because if all HOOPP did with the contributions they receive is chuck them into a savings account, they’d go bankrupt faster than you can say Boo! As we discussed previously, HOOPP has a number of equity and value producing assets like stocks and bonds and real estate with which they invest in using our pension contributions.
They even plainly state that their 10 year average return is 11.06%. Thus, in reality, MY contributions “with interest” are worth A LOT more than what they’re telling me they are.
In fact, as you can see from the above chart, if we applied this 11.06% to my last 12 years of contributions (for reference, HOOPP’s 10 year avg from 2010 to 2019 was 11.19%), then it should actually be worth around $100,000. And when the same idea is applied to the employer’s contributions, their value is worth about $126,000. In total, all the contributions to my pension as of December 2021 should be worth somewhere around $227,000. Yet HOOPP reports it as just $56,000!
Even accounting for some small roundings and pension management costs, that’s still quite a big difference in the monetary value. It’s over a 400% difference! Why would they report the contributions like this though? Perhaps it’s easier to just tell us what we contributed versus them trying to calculate the actual value with all the other cost factors built in. Or maybe it’s so we don’t actually find out how much our pension is REALLY worth, because then we might get really mad.
Once you see it, You can’t unsee it
SECONDLY, if I stopped working at the start of 2022, and NEVER worked for a HOOPP employer again, thus never making any future contributions, then based on what I’ve contributed so far with my previous service, at age 65 I would receive a pension of $13,742/year. Take note that for me this would be ~30 years from now.
Using HOOPP’s pension formula for age 65 would look like this:
(Note: Avg. past 5yr YMPE from 2021 to 2017 is $57,780. And my most recent 5 year avg income is $89,495)
[Avg. Earning Up to YMPE x 1.75%] + [Avg Earnings Above YMPE x 2%] x Years of Service = Annual Pension
Therefore
1.75% x 8.44 x 57780 = $8534
2% x 8.44 x (89495 – 57780) = $5353
8534 + 5353 = $13,887.
Again, this is fairly close, considering any small rounding issues as well as a very small amount of “interest” or small adjustments for future inflation.
The Balrog
Nonetheless, HOOPP says $13,742 would be what I would get for my pension. But remember… HOOPP doesn’t just store all it’s funds in a savings account. They INVEST it! As we just previously calculated what my own and my employer’s contributions would be up to this point (2021)based on HOOPP’s 10yr average return, then at this moment in time, I would have ~$227,000 of total contributions to supply my future $13k pension. But NOW, we have the next 30 years for this $227k amount to compound with interest even further until I can take the pension at age 65!
Predicting the future is not easy, but if we’re being EXTREMELY conservative, then let’s say the next 30 years has an annual average return of 5%. This would increase our $227k, to ~$981,081 . WOW! I think that’s a lot! Don’t you? And that’s a conservative return! If we increase the return to 6%, then we’re now up to ~$1.3 million. 7% would be ~$1.73 million. And using HOOPP’s own 11.06%…well, you can just imagine (hint: it’s well over 5 million!).
At age 65, this $981k is enough to reliably provide a never ending annual income stream of $39k/yr using the 4% rule. To you, to your relatives, forever. Yet HOOPP only promises a paltry sum of ~$13.7k/yr!
But, let’s refocus on our age 65 pension estimate of $13,742/yr. That number would only be worth ~1.4% of the future principal value of my total contributions ($981k at age 65).
Let’s take this thought experiment even further, assuming that we will continue this conservative 5% annual return into my retirement years, and assume the average age of death for males is age 85. Even when factoring in the pension payment withdrawals of $13.7k per year, the principal of $981k still has another 20 years to grow and compound.
Meaning, that at age 85, (using the cFIREsim calculator) the pension principal will have now increased to ~$2.13 million dollars. How much would I have received from HOOPP over those 20 years in pension payments? 20 years x $13,742 = $274,840. That’s it. What happens to the remaining ~$2.13 million dollars??? Well, if my spouse outlives me, she would get 66% of my original pension payments (~$9k/yr) until she dies. Again, unless she’s 20 years younger than I am, it won’t be a lot.
Then, ALL THAT EXTRA MONEY – over 2 million of it! – HOOPP takes it all. It’s theirs. ALL of it… Forever! (And that’s only at the 5% return level!)
Does anyone else but me see a problem with this whole situation?
…
…
If you can’t tell, I’m actually somewhat furious about the whole thing. I think you should be too. But hey, it’s all for so our “pension is secure”, and “providing inflation protection”, and “providing peace of mind in these uncertain times”, and “to continue paying pensions now and in the future”, blah blah blah!
Speaking of things that are uncertain, did we ever find out how much HOOPP’s CEO makes annually? Or their Vice president? Or any of their Upper management? No? I wonder why that is.
See the problem yet?
It’s transparency.
But hey, I’m just a guy doing some math. What do I know.
But I’m not done yet! My high horse still has some more trails to cover!
The HOOPP SCOOP
THIRDLY, Let’s go review where I’m currently headed with a HOOPP pension at age 55, IF I were to continue to work and contribute to HOOPP every year for the next 20 years. HOOPP’s current estimate states I’ll get $51,240/year. Since I’m near the top of my job’s pay scale, my yearly contribution’s shouldn’t change too much from year to year. Every year for the next 20 years my employer and myself will contributed an annually combined ~$16,100. By age 55, I will have contributed ~$201k, and my employer will have matched that for about ~$253k, totaling a combined $454k.
My current accumulated total pension contribution value with the annual 11.06% interest rate is roughly $227k (based on total contributions as of Dec 2021).Therefore, compounding this plus all the future annual contributions at a still conservative 5%/year growth rate, by age 55 the pension contribution value will reach a net worth of ~$1.15 million. So, my estimated pension of ~$51k/year is worth approximately 4.4% of the ~$1.15 million.
Again, referring to the 4% rule as a guide, this means that the $1.15 million principal has a very good chance of lasting forever, and most likely increasing significantly in value even with the pension withdrawals. This also means that HOOPP will scoop up all the remaining funds when I and my spouse dies. So at age 55, I would have ~30 year retirement timeline. $51,240 x 10 yrs = $512,400. Then when the bridge benefit drops off at age 65, over the next 20 years I’ll receive ~$39,720 x 20yrs = $794,400. The total value of a 30 year pension amount is ~$1.3million. This is a much improved scenario from the previous one, BUT, if the original principal at age 55 of ~$1.15 million continues to have an annual return each year at 5% , then by age 85 (aka death) there would still be almost $1.8 million of principal left! That’s $1.8 million HOOPP scoops up for themselves! Holy Batman Balrog!
Of course we’re not going to leave it here. Just like the earlier examples, I’m going to run this scenario again but at return averages of 7%, 9% and HOOPP’s 11.06% during the pension payments period from age 55 to 85.
Ending Principal Amount By Age 85:
7% avg. Annual returns: ~$4.08 million
9% avg. Annual returns: ~$8.29 million
11.06% avg. Annual returns: ~$16.13 million
Yeeaahh… And this was still keeping that contribution phase returns from age 35 to 55 at 5%. Isn’t that disgusting!?!?
If we matched the contribution phase to the same averages as above, then:
7% avg Annual Returns: At age 55: $1.56 million. At age 85: $7.2 million.
9% avg. Annual returns: At age 55: $2.13 million. At age 85: $21.29 million.
11.06% avg Annual returns: At age 55: $2.94 million. At age 85: $57.77 million.
That’s a Balrog for you. I said it was coming.
Epilogue
Wow. With all these massive numbers, it kinda makes you think about things, doesn’t it. While some might argue that returns like ~11% annually aren’t realistic, the longer that you are investing, the more stable the results become. Looking at historical returns, when you reach periods of 30 years or long – and we’re hitting 50 years at this point – 9-10% average annual is in fact extremely realistic. And in the unlikely event that reality turns out to be closer to 5% average over the next half century, well, the results still speak for themselves.
At the very beginning, I asked if you were scared about what we’d uncover. Perhaps you were. But the correct emotion at this point should be anger. Infuriating, self-righteous anger! I mean, it’s your money! And we used real numbers and real calculations! Forget pensions for a moment. If you had a separate professionally managed investment account, and when you were ready to withdraw the funds, the manager of the account told you “Hey, sorry about this, but you can only have a fraction of what your account is actually worth…”… Ummm.. you’d be pissed. No doubt! But that’s exactly what’s happening here.
It’s true when pension funds state that “your pension is valuable”. The catch being, that it’s way more valuable to the pension fund itself, because they’re the ones that end up keeping the majority of it! We should really be getting a lot more from our pension than the pension fund is giving. The lack of clarity, the propaganda, it all just angers me. A lot! Do they have our best interest in mind? I’ll let you be the judge. You definitely know how I feel about it.
PS: Watch out for those Balrogs!
*The following calculators were used for the calculations in this episode:
–cFIREsim
–Compound Interest Calculator | GetSmarterAboutMoney.ca
–Compound Interest Calculator (moneychimp.com)
*A note on inflation: I did not include inflation in these calculations, but also neither did I include cost of living adjustments nor pension increases either. If you wanted to, you could use a long term average annual inflation rate 2%. And in terms of applying it to any of the returns for simplicity purposes, you could easily just subtract it from whatever number you wanted to use. So, the example with 9% returns, you could apply the 2% rate as a reduction and go with the 7% return results. Same for the other numbers I used. At the end of the day, it’s still a boat load of money left in the pension bank no matter how you slice it.
*A note on pension formula updates: There have been multiple increases to the percentage provided to amounts up to the YMPE, depending on when and how many contributory years a member has. It was originally at 1.5%, but increased to 1.75%, then 1.9%, and in some cases 2%. I happened to use 1.75% in this episode, because that’s what it was at the time I was originally writing this. In my case, based on HOOPP’s media release, I would gain a boost of $1310/year in pension payments. That’s an extra ~39k over a 30 year retirement period. But 39k is still pittance compared to what we calculated above. So, at this point, using 1.75%, or 1.5% or 1.9%, remains categorically insignificant.
