Finance ministers reach deal to expand Canada Pension Plan

[Resolute 14]

I would be interested to know why "remaining solvent after the baby boomers retire" is an important milestone given most of the people on this forum are Generation Y or Millennial. Still need to account for Generation X before one could view it as safe for my generation, never mind the kids who are just starting to contribute today.

[rubecube]

Originally Posted by Resolute 14

I would be interested to know why "remaining solvent after the baby boomers retire" is an important milestone given most of the people on this forum are Generation Y or Millennial. Still need to account for Generation X before one could view it as safe for my generation, never mind the kids who are just starting to contribute today.

The Gen Yers and Millenials will probably be fine if they get over the Gen X hump. We're pumping out way more kids than our parents were.

http://www.statcan.gc.ca/pub/84f0210.../ct005-eng.htm

[Makarov]

Originally Posted by Resolute 14

I would be interested to know why "remaining solvent after the baby boomers retire" is an important milestone given most of the people on this forum are Generation Y or Millennial. Still need to account for Generation X before one could view it as safe for my generation, never mind the kids who are just starting to contribute today.

As I understand it, the actuary annually confirms that the pension fund is solvent for at least 75 years.

That's me covered.

[Resolute 14]

Fair enough then, thanks. That argument makes more sense to me.

[Locke]

Originally Posted by Makarov

As I understand it, the actuary annually confirms that the pension fund is solvent for at least 75 years.

That's me covered.

I dont want to doubt you, but where is this coming from?

If this were true that would be a pension fund that is damned near criminally over-funded which, as far as pension funds go, would be like me being side-swiped by Falcor thus making me run over a Unicorn while I was struck by lightning on my way to cash in my winning lottery ticket.

If it has enough cash, or anticipated cashflow, in it to be funded for 75 years then that seems like an egregious misuse of capital and also, if this is the case then why are contribution amounts being increased if, by this information, there is more than enough for an entire generation?

[CliffFletcher]

Originally Posted by Resolute 14

I would be interested to know why "remaining solvent after the baby boomers retire" is an important milestone given most of the people on this forum are Generation Y or Millennial. Still need to account for Generation X before one could view it as safe for my generation, never mind the kids who are just starting to contribute today.

Gen Y and Millennials are going to be the recipients of the greatest generational inheritance in history. Boomers are loaded and they had small families.

[Flash Walken]

Originally Posted by CliffFletcher

Gen Y and Millennials are going to be the recipients of the greatest generational inheritance in history. Boomers are loaded and they had small families.

uh,

Surveys suggest nearly half of Baby Boomers are expecting some sort of inheritance, and that many have a grossly inflated idea of how much they’re about to receive. (On average, Canadians overestimate how much they’ll inherit by about 50 per cent.)

Undeniably, there is money at hand: According to the BMO Wealth Institute, as much as $1 trillion in family wealth is in the process of being passed down from the so-called “Greatest Generation,” raised during the Depression and the Second World War, over the next couple of decades. Even when adjusted for inflation, that’s an unprecedented migration of assets, with seniors’ Boomer-aged children as presumptive beneficiaries.

But for many Boomers, the money can’t come soon enough. Half of homeowners in their 50s still have mortgage debt. One in two Canadians say they expect to retire before they’ve paid off their homes.

WAITERS-CHARTFigures compiled by credit monitor Equifax, meanwhile, suggest the average person aged 56-65 is carrying $27,000 in consumer debt, such as credit cards and car loans. They’re going to need cash to maintain their standard of living, say experts, and their desperation is starting to show. Court files are replete with challenges to wills involving claimants nearing retirement age, while the sheer nastiness of family battles is on the rise. “There is a degree of entitlement there,” says Megan Connolly, a Toronto wills and estates specialist. “It’s this attitude that mom’s or dad’s savings are communal family property, that what’s my mom’s is mine.”

There’s no guarantee, alas, that the inter-generational asset transfer will benefit those feeling the most pressure. Wealth is more concentrated within the top economic classes of Canada than it has been since the Depression, notes Robin Boadway, a retired Queen’s University economist who has studied wealth and inheritance, and inheritance will help to ensure it stays that way. “If you have high wealth inequality,” he says, “then automatically, you’re going to have those inequalities transferred to the next generation.”
All of which suggests that our anticipation for the trillion-dollar wealth transfer may be blinding us to unforeseen costs, from economic tensions between generations to ruptures within families. Will all this money solve as many problems as it creates?

Les Kotzer has stories, many stories, and one of his favourites involves a posh-looking couple in their late 50s who arrived at his law office north of Toronto. The woman’s fur coat and the man’s bespoke clothing led Kotzer to think he’d be dealing in big numbers. But he soon learned otherwise. “She was working as a substitute teacher, and they were renting a house,” he recalls. “I asked her husband what he did, and the woman says, ‘Harry’s not going to tell you this, but he’s a waiter.’ ” Kotzer asked what restaurant the man worked at. (“I’m thinking the tips must be amazing!”) Once again, the woman answered: “Oh, Harry’s not that kind of waiter. He’s waiting for his inheritance.”

http://www.macleans.ca/society/life/...eritance-wars/

Many in their 50s and 60s today also have more debt than ever before and little by way of savings, which means many boomers can also be defined as a large group moving into their retirement years facing financial stress and a reduced standard of living. The result will be highly divergent retirement experiences.

“Boomers are quite heterogeneous,” says University of Ottawa professor Michael Wolfson, who specializes in retirement policy. “Some baby boomers are going to do fine and the other baby boomers are going to do awfully.”

According to data from Statistics Canada’s 2012 Survey of Financial Security, 70 per cent of people aged 55 and 64 are still carrying debt, an increase from 61 per cent in 1999. Their average debt level climbed to $107,900 from $60,600 in 1999, even after adjustment to constant 2012 dollars. One-third still have mortgages, 38 per cent are carrying credit card debt and 29 per cent have vehicle loans.

Debt levels for people over 65 have climbed even more quickly, with 43 per cent indebted in 2012 compared to just 27 per cent in 1999, while average debt for seniors almost doubled to $61,700 from $31,800. A recent Ontario study by bankruptcy trustee firm Hoyes Michalos & Associates showed people over 60 are the fastest growing age category for insolvencies.

Laurie Campbell, CEO of Toronto-based credit counselling service Credit Canada Debt Solutions, says a key reason many boomers have more debt than their parents’ generation is that more are supporting their adult children and even grandchildren for longer. But 26 per cent of her firm’s clients over age 60 are still paying off mortgages – with an average outstanding balance of $199,000. She feels the boomer generation has a more casual attitude toward debt. “The generation before the boomers were all about saving until you can afford to buy it, and then you buy it,” she says. “Boomers have this ‘I’m going to live forever, I’m still hip and cool even though I’m 55’ attitude. … It’s almost like baby boomers think they are perpetually young.”

Hand-in-hand with debt problems, many in the boomer generation are also not saving well for retirement.

A 10-year survey of 12,000 Canadians by polling firm Ipsos Reid asked people how much money they believe they need to save for retirement, and how close they are to their goals. While people may not always have an accurate picture of their savings needs, the results are nonetheless startling.

Among people aged 55 to 64, for example, 49 per cent reported in 2015 they have less than 10 per cent of their target amount saved, and 75 per cent have saved less than half of their target.

Only 36 per cent said they “strongly agree” that they are confident they will have enough money to retire comfortably, while 45 per cent “strongly agree” that being able to retire “is a constant concern for me.”

Ipsos Reid vice-president Michael Hsu says that widespread worry demonstrates that many boomers are aware their financial situation is not good enough, but they can’t afford to save more.

“Some people have to make the difficult choice – I have mortgage debt, I have to put food on the table, I have to pay bills,” he says. “After that, some people may not be able to save for retirement, not because they don’t want to but because they can’t.”

The largest wealth transfer was between the Boomers and their parents. It is becoming increasingly concerning that much of this wealth transfer has largely evaporated into debt.

[CliffFletcher]

Boomers to inherit $750 billion over the next decade: CIBC

Canadian Imperial Bank of Commerce estimates that $750-billion will be inherited by members of the Boomer generation over the next decade.

CIBC says there are currently about 2.5 million Canadians over the age of 75 with a total net worth of $900-billion or more, and the beneficiaries will be mainly Canadians currently aged between 50 and 75 years.

It says that it’s difficult to estimate how much of the money will be passed on to the Boomer generation in the future, so it has focused on what Canadians have actually received through inheritance.

It says the average inheritance received by the 50-75 age cohort over the past decade was $180,000.

CIBC forecasts the average inheritance will be higher than that, due to the increased value of assets – particularly homes.

[Bend it like Bourgeois]

Originally Posted by Slava

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.

Yeah I don't have an issue with the social policy goals of CPP. The execution is not great IMO but they could do worse. I was mostly making fun of your enthusiasm for a product that is expensive as hell and has crap returns.

[Locke]

Originally Posted by Bend it like Bourgeois

Yeah I don't have an issue with the social policy goals of CPP. The execution is not great IMO but they could do worse. I was mostly making fun of your enthusiasm for a product that is expensive as hell and has crap returns.

Yes, but his point is that it is 100% guaranteed. It is expensive as hell and its return is rotten garbage, but no matter what happens if you make those premiums you're getting your payoff unless you die, which is not their fault.

I think thats his ultimate point. No matter how the funds do, no matter what else happens no external factor can alter the payoff because its guaranteed by the Government, hence 'defined benefit.'

And thats a big issue for most people, the Government has no incentive to make more money, and if they make less they dont care about that either because ultimately its 'someone else's problem' eventually.

[CliffFletcher]

So on the CBC last night they were discussing how anyone making more than 80K will see their premiums increase, but won't see any increase in their pay-out. Is this true?

[GGG]

Originally Posted by CliffFletcher

So on the CBC last night they were discussing how anyone making more than 80K will see their premiums increase, but won't see any increase in their pay-out. Is this true?

Not based on any information released so far.

However if you are almost retired and they do the payout in a way not to subsidze boomers if you pay an increased premium for 2 years you'd only get like 1/20th of the payment increase. If anything this is good news.

[Lubicon]

FFS, how is anyone supposed to get ahead anymore and manage to dave enough to actually look after themselves?

Carbon tax
Provincial income tax increase
Income splitting cancelled
CPP premium increase
Child benefit changes - to be determined
Pretty significant wage cut last year
Suspension of company sponsored savings plan

take home pay has been gutted, I have to save 100% for my own retirement now, and there is not much left at the end of the month to do that once the various governments have taken their hands out of my pocket.

[Resolute 14]

It shouldn't be a surprise, really. We currently have governments at both the provincial and federal levels that are convinced they are better equipped to spend your money than you are.

Which is perhaps true, given I am far better equipped to save my money than they are.

[rubecube]

Originally Posted by Resolute 14

It shouldn't be a surprise, really. We currently have governments at both the provincial and federal levels that are convinced they are better equipped to spend your money than you are.

Which is perhaps true, given I am far better equipped to save my money than they are.

To be fair, it's probably true for most Canadians.

[stampsx2]

Originally Posted by Slava

Well there is some misinformation about CPP and how it works, and while I'm not 100% in favour, there are some benefits to this plan. Firstly, its not a tax. Basically you contribute to CPP and in turn receive the benefit when you attain a certain age and apply for it. The funds don't go into general revenue at all, and are invested by the board (not government at all).

One of the major benefits of a plan like CPP as compared to an RRSP though is that it removes longevity risk from the equation. So with an RRSP you are at risk of outliving your money, whereas with CPP that isn't a possibility.

The other benefit that is harder to measure, but definitely exists is that we have a retirement problem in Canada, and really in a lot of the western world. Many people just don't save enough for retirement and seem blissfully ignorant of that fact ("it will all work out somehow"). There is an increased cost for society here because those people will need assistance when they can no longer work, so by increasing their contributions during their working years there is an overall benefit to helping ensure that these people require less assistance.

Yes that's what we need, a society that rewards people for making poor decisions throughout their lives and living it up. You didn't save for your retirement, tough.

Cpp's real problem is that if you die before 65 you get nothing of what you invested and neither does your spouse or your kids. With an rrsp you keep your money you invested.

I hate the social system. I didn't vote these idiots in, why am I being punished.

We're at about 45% of our income going to taxes. This is just moronic.

[Slava]

Originally Posted by stampsx2

Yes that's what we need, a society that rewards people for making poor decisions throughout their lives and living it up. You didn't save for your retirement, tough.

Cpp's real problem is that if you die before 65 you get nothing of what you invested and neither does your spouse or your kids. With an rrsp you keep your money you invested.

I hate the social system. I didn't vote these idiots in, why am I being punished.

We're at about 45% of our income going to taxes. This is just moronic.

I get that, and as I've already mentioned here that is a significant drawback to the plan. That still doesn't make this a tax though. You're not being punished either, you're being forced to save.

[MisterJoji]

This feels like a handout to those who improperly prepared for retirement. I'm all for helping out the low income seniors but I'd almost prefer they kept CPP where it's at and if by the time I retire there's nothing left, that's fine by me. And trust me I'm not rich, I grew up with only one parent and we were on welfare for a bit. But I went to post secondary, started investing immediately after starting my career and should be moderately comfortable when I retire with just my work pension and own investments. This is just more of the gov't taking out out my pocket and giving to those who haven't earned it.

[Dan02]

Originally Posted by MisterJoji

This is just more of the gov't taking out out my pocket and giving to those who haven't earned it.

You only get out of the CPP what you put into it, unless of course as others mentioned you die young.

[Lubicon]

Originally Posted by Dan02

You only get out of the CPP what you put into it, unless of course as others mentioned you die young.

Or they claw back some of the benefits due to your retirement income level, then you don't get out of it what you put in. Or is that a different government program that does that?