Finance ministers reach deal to expand Canada Pension Plan

[Flames in 07]

Originally Posted by Cecil Terwilliger

haha seriously?

Canada is built on a foundation of those being better off subsidizing those who aren't.

More like tax the rich to barely help fund the poor.

It is sad to see the old poor = lazy idea rear its ugly head.

Seriously. Retirement is so much more important than what most people spend their money on. If people can afford what I see most people buy, they can afford to fund a retirement. For everyone who can't possibly self fund I bet I can show you a hundred that will spend a friday at a flames game crushing $8 beers all night.

That's my short answer.

My long answer is that sometimes things that are not nice, are true. Just the way it is. But when faced with awkward things like dealing with things that are true, but not nice, Canada will alway side with nice. People need comfy retirements so lets just fund them any way we can, don't ask questions about if they could fund it themselves, just fork over the money. Cause hey, 1%. Not only the average person but most people are irresponsible with money to a degree, but its ok but there is always the top percent to fund all these problems.

The bigger problem is this, few, and a shrinking amount of Canadians ask or care who is funding all this stuff. Canada has the wealth that it has because it gravy trained over overpriced resources, for a generation. Other than selling what its lucky to have under it, it really doesn't bring much to the table. Banks are rich, but only because they don't really have to compete, regulations are such that you are forced to accept who you deal with, at their uncompeditive prices. Same with cable, cellular and many other industry that seem to be doing well. You won't find too many people with global experience who are wow'd by Canada's creative, value creating work force. A part of the country tends to work hard sure, but not many people know how to create something from nothing. Just bring, Oil, Gas, Gold, Grain etc to market. the next generation likely doesn't have that luxury, but nobody cares. In fact they create a more unsustainable structure by piling on more costs, taxes and vote in governments at all levels that offer to give them something for nothing.

Here's another thing that is true but not nice. That top 1% that everyone likes to ostracize, or top 5% or whatever you pick is not generating 1% or 5% of the value to the country. And its not 2% either, its very hard to truly value but its massive, single people can make decisions that create or erode hundreds of millions of value that almost nobody will ever see or understand even if they did see it. Canada has a history of chasing those people or at least their money, to other parts of the world and I'm watching that trend increase. I have met many Canadians who work abroad in Europe and the US, and to a person none of them want to go back, and nobody thinks that decision is close. I don't know everyone I realize, its maybe a sample of about 20 but what a lot of people think is that everyone is nice, but you can't get ahead. Everyone wants to take cuts out of you to fund their bad decisions in life. Everyone feels like they earned their money but in Canada more and more, people feel entitled take what is not theirs. Trudeau's platform was to take from the top few percent, and not because it will solve any problems, that party even admitted that it won't fund what they have planned but its a popular thing to do. so people with money bought him his votes.

What you know in the past of Canada's economy is likely a terrible proxy for the future, and what the future holds is likely no massive free ride on resources and a growing population who expects those rich fat cats to fund everything. People won't have the luxury of saying its nice to fund things and stuff with money they isn't there in the first place. Once enough people think that way, Spain happens, Greece happens, and Canada is on a path that will lead to that. I don't know exactly when it will happen but you show me a country like Canada trying to be nice and fund all this stuff, essentially creating reward for not doing well, meanwhile other countries become more educated, competitive and build their own army of Ivy league schools, Canada will get run over and THAT is why i think all these social programs Canada is adding suck.

[CliffFletcher]

What countries in Europe are these people moving to that let affluent people keep more of their money and spend less on public entitlements than Canada?

[Locke]

Originally Posted by CliffFletcher

What countries in Europe are these people moving to that let affluent people keep more of their money and spend less on public entitlements than Canada?

Lichtenstein, Monaco and a floating Island in the Mediterranean that I'm not supposed to tell you about. At least those are the ones I applied to.

Always rejected for: 'not having enough money' or some such nonsense.

[MoneyGuy]

Originally Posted by GGG

You are aware that Chrétien / Martin fixed this in the nineties? The plan is solvent right now.

Apparently not.

It's not a tax.

[DownhillGoat]

Originally Posted by Azure

Not sure what result would actually make anyone happy.

Not paying double the current rate into CPP would be a good start.

[GGG]

Originally Posted by kunkstyle

Not paying double the current rate into CPP would be a good start.

They aren't doubling premiums

Under the new deal, the upper earnings limit would rise to $82,700 by 2025. The current CPP deal is meant to replace 25 per cent of earnings up to the ceiling, while the new plan would aim to replace one third of income up to the new, higher ceiling.

The increase after you take out the affects of inflation is far less. Right now the cap is 54,000. In 2025 without changes using 2.5% inflation would be 65,700 or so. So the actual cap increase is only about 25%. The rate also increases by about 20% making the total premium increase accounting for inflation about 50%.

On the payout side you currently would get 25% of your 65,700 in the future you will get 33% of your 82700. Which is a 52% increase in payout. (the difference between the 50% increase in premium and 52% increase in payout is due to rounding and inflation assumptions)

A few things to note about CPP since its clear people don't understand how it actually works.

Its a defined benefit pension plan that is every secure and solvent until well after the boomers retire.

Its returns are relatively poor at 1.7%

It does not subsidize anyone based on income. What you pay in calculates what you pay out.

It does pay out more to those who live longer than those who don't.

The argument against increasing CPP premiums should be I can manage the extra 50% premium amount better than the government and get a better return.

Possibly some negative impacts of increased payroll costs to business but overall compensation should remain unchanged in a competitive labour market

And the survivor benefits / lack of assets to pass on to children for those who don't live an average lifespan is a potential negative.

That's about it. The rest of the crap in this thread is based on a fundamental misunderstanding on how CPP works, anti government bias and some weird anti union article that is completely irrelevant.

The caveat on this is that they don't increase benefits for those who haven't paid increased premiums.

[Slava]

Originally Posted by GGG

They aren't doubling premiums



The increase after you take out the affects of inflation is far less. Right now the cap is 54,000. In 2025 without changes using 2.5% inflation would be 65,700 or so. So the actual cap increase is only about 25%. The rate also increases by about 20% making the total premium increase accounting for inflation about 50%.

On the payout side you currently would get 25% of your 65,700 in the future you will get 33% of your 82700. Which is a 52% increase in payout. (the difference between the 50% increase in premium and 52% increase in payout is due to rounding and inflation assumptions)

A few things to note about CPP since its clear people don't understand how it actually works.

Its a defined benefit pension plan that is every secure and solvent until well after the boomers retire.

Its returns are relatively poor at 1.7%

It does not subsidize anyone based on income. What you pay in calculates what you pay out.

It does pay out more to those who live longer than those who don't.

The argument against increasing CPP premiums should be I can manage the extra 50% premium amount better than the government and get a better return.

Possibly some negative impacts of increased payroll costs to business but overall compensation should remain unchanged in a competitive labour market

And the survivor benefits / lack of assets to pass on to children for those who don't live an average lifespan is a potential negative.

That's about it. The rest of the crap in this thread is based on a fundamental misunderstanding on how CPP works, anti government bias and some weird anti union article that is completely irrelevant.

The caveat on this is that they don't increase benefits for those who haven't paid increased premiums.

That's a good summary, but to add to this line that I've bolded it can't be just about the rate of return. The question is can you do better on my own and in a guaranteed manner. Because of the structure of RRSPs and DC plans I'm of the firm belief that somewhere in your mid-90's or closer to 100 those accounts all equal zero. Can you get a better return for yourself than the 1.7% you refer to? Of course. Can you guarantee that a cheque will be rolling in at age 96 for $1092 (in todays dollars)...maybe, and there are some strategies, but its a higher hurdle to be sure.

[bizaro86]

Nm

[bizaro86]

Originally Posted by Slava

That's a good summary, but to add to this line that I've bolded it can't be just about the rate of return. The question is can you do better on my own and in a guaranteed manner. Because of the structure of RRSPs and DC plans I'm of the firm belief that somewhere in your mid-90's or closer to 100 those accounts all equal zero. Can you get a better return for yourself than the 1.7% you refer to? Of course. Can you guarantee that a cheque will be rolling in at age 96 for $1092 (in todays dollars)...maybe, and there are some strategies, but its a higher hurdle to be sure.

You probably need to add the cost of life insurance to the comparison. Someone saving thousands of dollars per year forfeits all but a nominal amount of they die early. A comparable individual investment would almost certainly not have that "feature" and would be worth hundreds of thousands extra to someone who died in their 50s

[OMG!WTF!]

Is the 1.7% return net after expenses? CPP is very expensive to run and getting more so. This increase in premiums all by itself, when fully phased in, will cost 250 million extra per year just in rebates to lower wage earners. It doesn't sound like that quarter billion is coming from the fund but rather from general revenue.

[bizaro86]

Originally Posted by OMG!WTF!

Is the 1.7% return net after expenses? CPP is very expensive to run and getting more so. This increase in premiums all by itself, when fully phased in, will cost 250 million extra per year just in rebates to lower wage earners. It doesn't sound like that quarter billion is coming from the fund but rather from general revenue.

Cpp investments are doing great. The low to negative return is what an individual working now effectively earns on their contributions, since a bunch of our contributions are paying for older folks who dramatically undercontributed.

[DownhillGoat]

Originally Posted by GGG

They aren't doubling premiums

Assuming one is above the cap, the current premium is ~2550, and the new premiums will be ~4950. Taking out inflation is great and all, but in 9 years it's still double what's potentially coming off a paycheque now.

[Slava]

Originally Posted by bizaro86

You probably need to add the cost of life insurance to the comparison. Someone saving thousands of dollars per year forfeits all but a nominal amount of they die early. A comparable individual investment would almost certainly not have that "feature" and would be worth hundreds of thousands extra to someone who died in their 50s

Yeah its the largest drawback of CPP I think, and to do a full comparison you would need to factor that in. But the life insurance is hard to properly consider as well because that is a tax-free benefit.

[Bend it like Bourgeois]

Originally Posted by Slava

That's a good summary, but to add to this line that I've bolded it can't be just about the rate of return. The question is can you do better on my own and in a guaranteed manner. Because of the structure of RRSPs and DC plans I'm of the firm belief that somewhere in your mid-90's or closer to 100 those accounts all equal zero. Can you get a better return for yourself than the 1.7% you refer to? Of course. Can you guarantee that a cheque will be rolling in at age 96 for $1092 (in todays dollars)...maybe, and there are some strategies, but its a higher hurdle to be sure.

Just to poke at you, c'mon man, if you don't belive you can do better than 1.7% over 40 years in a portfolio what are you in the business for?

If someone walked in your office at age 20 and wanted to buy an annuity that started at age 65 and paid $1500 mth in today's dollars. No frills, can't be leveraged or cashed out. If they die before aged 65 anything they've contributed to it would be lost. Assume you could offer such a product and the cost was 10% of their lifetime earnings.

Would you sell it to them?

[mrkajz44]

Originally Posted by Bend it like Bourgeois

Just to poke at you, c'mon man, if you don't belive you can do better than 1.7% over 40 years in a portfolio what are you in the business for?

He's not saying he cannot get better than 1.7% over 40 years in a portfolio. He was saying that even with his return (whatever that may be), there is no guarantee that the portfolio will be sufficient for the rest of your life. Maybe a large medical issue comes up that was costly, but you manage to make it through. Now you are, say, 80 and have no more money left. Doesn't matter that you made 8% over your 40 years, it's all gone now.

CPP will continue to pay out for your lifetime - that's the guaranteed part.

[GGG]

Originally Posted by kunkstyle

Assuming one is above the cap, the current premium is ~2550, and the new premiums will be ~4950. Taking out inflation is great and all, but in 9 years it's still double what's potentially coming off a paycheque now.

You can choose to make a fair comparison or you can choose to manipulate the numbers to complain about the new system. If the new system is not implemented you don't get $2500 in your pocket as you are implying by saying the premiums are doubling. If you weren't complaining about the 2.5% annual increases before you shouldnt include them in your complaint now. Using inflation adjusted numbers for everything makes sense.

[nik-]

It would be $2500 less deductions over a year if you're at the new cap. Explain how that isn't $2500 in your pocket?

[Slava]

Originally Posted by Bend it like Bourgeois

Just to poke at you, c'mon man, if you don't belive you can do better than 1.7% over 40 years in a portfolio what are you in the business for?

If someone walked in your office at age 20 and wanted to buy an annuity that started at age 65 and paid $1500 mth in today's dollars. No frills, can't be leveraged or cashed out. If they die before aged 65 anything they've contributed to it would be lost. Assume you could offer such a product and the cost was 10% of their lifetime earnings.

Would you sell it to them?

I would sell them that in a heartbeat because I know that I could set that up with a guaranteed income and make profit for myself as well. The reality is that a lot of people are against this though and frankly they don't have the knowledge it would take to set-up that actual guaranteed stream of income and they probably wouldn't even know where to start. So its not really a fair comparison.

To me this doesn't come down to a pure business decision or anything like that though. I just know that a lot of people aren't properly prepared for retirement and look purely at the 1.7% here and say "the government should give me the money and I can do better." They're right, but they actually have to do it...which is one issue. Then they have to have the expertise to do it, which is a whole other.

[Locke]

Originally Posted by Bend it like Bourgeois

Just to poke at you, c'mon man, if you don't belive you can do better than 1.7% over 40 years in a portfolio what are you in the business for?

If someone walked in your office at age 20 and wanted to buy an annuity that started at age 65 and paid $1500 mth in today's dollars. No frills, can't be leveraged or cashed out. If they die before aged 65 anything they've contributed to it would be lost. Assume you could offer such a product and the cost was 10% of their lifetime earnings.

Would you sell it to them?

I understand what hes saying though, if Slava's investment strategy centered entirely around putting it all on Black at the Bellagio (which it may or may not!) then one of two things can happen: You can get a HUGE return, or you could lose it all. Obviously some investment strategies are less risky, but huge downturns in the market (which never happens) could induce large lump-sum losses which would bring the overall average growth of the fund down over time.

However in that scenario Slava just pulls his pockets inside out, shrugs his shoulders and tells you; 'Tough Luck.'

Whereas if the Government loses that money they still have to pay you what they promised to.

Whatever happens to that money, your annuity is guaranteed.

[GGG]

Originally Posted by nik-

It would be $2500 less deductions over a year if you're at the new cap. Explain how that isn't $2500 in your pocket?

Because without this plan the amount of contribution will increase annually until 2025. So you have to compare the 2025 value to the values being thrown around here. The Cap in 2025 with 2.5% inflation will be at 65000. So it isn't $2500 in less deductions. Its more like $1500 and only a 50% increase on what you would be paying if the program was unchanged.