Finance ministers reach deal to expand Canada Pension Plan

[peter12]

Don't boomers and seniors have massive assets in their homes?

[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.

[CliffFletcher]

Originally Posted by I-Hate-Hulse

While I know the financially literate will argue they can do better - government is always about the lowest common denominator - and the above ain`t enough.

Originally Posted by Slava

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.

It turns out a great many people don't have the foresight and discipline to set aside hundreds of thousands of dollars to support their retirement decades in the future. This is hardly surprising. Our grandparents had a tough time managing it, and they only had to support themselves for 5-10 years after retiring. Working-age Canadians today can expect to be retired for 20-30 years.

So we can shrug and let those people deal with the consequences of their lack of discipline, with all the costs that will impose on our health and court systems. Or we can take the approach we take with the health care system, and recognize that some people are going to eat badly and not take exercise, but we should still treat their diabetes and heart disease.

The main problem I have with shifting more retirement money towards CPP is that CPP can't be transferred to a surviving spouse the way an RRSP can.

[Resolute 14]

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).

Unless we live to like 90 or 95, the benefit we receive will never match what we put into the system. The CPP hike here is going to pretty much take money right out of my personal retirement investments - which would benefit myself or my family fully whether I die at 40, 70 or 90.

I understand some increase. Like any other tax, it will just go up. But an increase this large is literally only stealing my own retirement funds to pay for the idiots who can't manage their own finances.

[VladtheImpaler]

So... if I am reaading this right, I need to fire everyone by 2019, have them incorporate and become independent contractors? That way they can worry about their own CPP contributions. Right?

[puckedoff]

Originally Posted by CliffFletcher

The main problem I have with shifting more retirement money towards CPP is that CPP can't be transferred to a surviving spouse the way an RRSP can.

This is my issue too, can someone knowledgeable (I'm looking at you Slava) comment on this? Is there some kind of clawback for if I die at 50?

Seems like there must be some clawback, because if had saved this $2K/year in my RRSP then the assets would still be available to my wife/kids in the case that the liquor takes me early.

[Fuzz]

Originally Posted by puckedoff

This is my issue too, can someone knowledgeable (I'm looking at you Slava) comment on this? Is there some kind of clawback for if I die at 50?

Seems like there must be some clawback, because if had saved this $2K/year in my RRSP then the assets would still be available to my wife/kids in the case that the liquor takes me early.

http://www.esdc.gc.ca/en/cpp/survivor_pension.page

You can also draw on it if you are critically ill.

[username]

Originally Posted by puckedoff

This is my issue too, can someone knowledgeable (I'm looking at you Slava) comment on this? Is there some kind of clawback for if I die at 50?

No there isn't. If you were to die at 65, your surviving spouse (or whoever) under the current system would only recieve 2500 as a max.

http://www.esdc.gc.ca/en/cpp/death_benefit.page

So if you've spent your whole life paying into cpp then all your estate would be eligible for is 2500.

Imagine what that number would be if you had been investing in RRSP's the whole time. That whole amount would be transferrable to your estate.

[Fuzz]

So does this apply to everyone (including retirees now drawing on it) or will you only get the increased benefits for the years you contribute? If it is the former, this appears to be another way the boomers get benefits on the backs of the rest of us.

Tangentially related, but I assume the carbon tax payouts are going to go to retirees in a disproportionate amount becuase they have low incomes now and will qualify for the full rebate. Basically they made the mess, and we pay to clean it up.

[Fuzz]

Originally Posted by username

No there isn't. If you were to die at 65, your surviving spouse (or whoever) under the current system would only recieve 2500 as a max.

http://www.esdc.gc.ca/en/cpp/death_benefit.page

So if you've spent your whole life paying into cpp then all your estate would be eligible for is 2500.

Imagine what that number would be if you had been investing in RRSP's the whole time. That whole amount would be transferrable to your estate.

I think you get the death benefit($2500), and their monthly pension amount, so a max of 655.50 per month.

[the_only_turek_fan]

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.

Why can't it be a voluntary program? You put into the CPP expansion, and you get benefits?

[Fuzz]

Because no one would volunteer.

[ken0042]

Originally Posted by puckedoff

This is my issue too, can someone knowledgeable (I'm looking at you Slava) comment on this? Is there some kind of clawback for if I die at 50?

Seems like there must be some clawback, because if had saved this $2K/year in my RRSP then the assets would still be available to my wife/kids in the case that the liquor takes me early.

The whole point of this is that for every person who dies at 50 and doesn't see a penny, there will be 10 people who live to be 80. And 5 of those people will live to be 85. So the amount we pay in has already factored in that in a group of 25 people:
1 will die before 65
3 will die by 70
5 will die by 75
10 will die by 80
5 will die by 85
1 will live past 85

So 25 people will have an average 13.6 years that they draw benefits from CPP. So to be able to have payouts for everybody who dies before the age of 85, you'd have to double your contributions yet again.

It would be like saying "I haven't made a claim on my car insurance in 10 years, I should be able to get a free paint job from them."

[Zarley]

An unfortunate solution to a manufactured crisis.

[puckedoff]

Originally Posted by ken0042

The whole point of this is that for every person who dies at 50 and doesn't see a penny, there will be 10 people who live to be 80. And 5 of those people will live to be 85. So the amount we pay in has already factored in that in a group of 25 people:
1 will die before 65
3 will die by 70
5 will die by 75
10 will die by 80
5 will die by 85
1 will live past 85

So 25 people will have an average 13.6 years that they draw benefits from CPP. So to be able to have payouts for everybody who dies before the age of 85, you'd have to double your contributions yet again.

It would be like saying "I haven't made a claim on my car insurance in 10 years, I should be able to get a free paint job from them."

I see the logic, but I can elect to buy car (or life) insurance, whereas this CPP I can not opt out of.

[GGG]

Why not just have a mandatory 5% contribution to a locked in RRSP type vehicle that is owned by the individual and some kind of required company matching. (The answer is that they couldn't use the money to pay the next 20 years of retirees) At least you own the asset then.

This program essentially gives money to 50+ people right now at the expense of those less than 50. Terrible policy. I agree with the need for a mandatory retirement program that forces more money to be saved then currently done by the CPP but this framework is not the answer.

Up OAS for current retirees on a means tested basis. Unwind CPP, have mandatory, locked in personal contributions with a government (CPP Like) option being available.

[mrkajz44]

The reason this needs to be done is because people are living longer.

CPP was set up in 1966, were the average life expectancy in Canada was 72. The most recent life expectancy data I can find is 2012, and it is 81. So since the plan started, they are now paying people monthly benefits for an average of 9 more years. The monthly average from March 2016 was $550/month, for a grand total of $59,400/person. This will only get worse with time as people continue to live longer.

Reality is the plan needs to be updated from time to time to adjust to changes in worker earnings, life expectancy, asset returns, etc. This should be expected. And it's not a true "tax" as most people are calling it - it's forced retirement savings. Yes, you could die early and not get anything, but if you live longer than average you'll likely get out more than you deserve based on your contributions. You win some, you lose some.

[Thunderball]

Originally Posted by mrkajz44

The reason this needs to be done is because people are living longer.

CPP was set up in 1966, were the average life expectancy in Canada was 72. The most recent life expectancy data I can find is 2012, and it is 81. So since the plan started, they are now paying people monthly benefits for an average of 9 more years. The monthly average from March 2016 was $550/month, for a grand total of $59,400/person. This will only get worse with time as people continue to live longer.

Reality is the plan needs to be updated from time to time to adjust to changes in worker earnings, life expectancy, asset returns, etc. This should be expected. And it's not a true "tax" as most people are calling it - it's forced retirement savings. Yes, you could die early and not get anything, but if you live longer than average you'll likely get out more than you deserve based on your contributions. You win some, you lose some.

You're right, but rather than make the right decision and increase entitlement age to 67 or 70 to reflect demographic realities, they are choosing to smash and grab from the younger generations who gleefully voted these people in.

I would also call it a forced tax because I lose my capital and get only income when I hit entitlement age. If the CPP was individual pods in a larger investment pool, you'd be right, but its not.

[GGG]

Originally Posted by mrkajz44

The reason this needs to be done is because people are living longer.

CPP was set up in 1966, were the average life expectancy in Canada was 72. The most recent life expectancy data I can find is 2012, and it is 81. So since the plan started, they are now paying people monthly benefits for an average of 9 more years. The monthly average from March 2016 was $550/month, for a grand total of $59,400/person. This will only get worse with time as people continue to live longer.

Reality is the plan needs to be updated from time to time to adjust to changes in worker earnings, life expectancy, asset returns, etc. This should be expected. And it's not a true "tax" as most people are calling it - it's forced retirement savings. Yes, you could die early and not get anything, but if you live longer than average you'll likely get out more than you deserve based on your contributions. You win some, you lose some.

This part happens every year since the 1990 increases under Chretien/Martin. The changes here are an expansion to program to cover more income. And it is a tax because people who have not paid in the increased benefit for the full time period will see the increased pay out. If they had a 35 yr phase in of the increased benefit amount then it wouldn't be a tax.

Really if they wanted to expand the benefit without having people contribute for their entire working lives they should have a lump sum payment from general revenues to the CPP program followed by the increase in premiums for everyone. This way the tax portion and the savings portion are transparent.

[Flash Walken]

Originally Posted by GGG

Why not just have a mandatory 5% contribution to a locked in RRSP type vehicle that is owned by the individual and some kind of required company matching. (The answer is that they couldn't use the money to pay the next 20 years of retirees) At least you own the asset then.

This program essentially gives money to 50+ people right now at the expense of those less than 50. Terrible policy. I agree with the need for a mandatory retirement program that forces more money to be saved then currently done by the CPP but this framework is not the answer.

Up OAS for current retirees on a means tested basis. Unwind CPP, have mandatory, locked in personal contributions with a government (CPP Like) option being available.

Everybody invest in your company's 401k, it will surely never devalue. You can trust the private banking sector to protect your retirement.

Thirty years ago, as laissez-faire fanaticism took hold of America, misguided policymakers decided that do-it-yourself retirement plans, otherwise known as 401(k)s, would magically secure our financial future in the face of gyrating markets, economic crises, unpredictable life events, stagnant wages and rampant job insecurity. It was an extraordinary shift in thinking about public policy: Instead of having predictable streams of income from traditional pensions, ordinary people with little financial expertise would suddenly transform themselves into financial gurus, putting money aside and managing complicated investments in tax-deferred accounts.

There were red flags along the way for our 401(k)s. They were originally supposed to supplement pensions but clever corporate cost-cutters decided that voluntary individual accounts would replace them. Big difference! Meanwhile, throughout the 1990s, the national savings rate fell. Real wages dropped. As Helaine Olen details in her book Pound Foolish, Americans started borrowing against retirement plans to pay the mortgage or send the kids to college. The media was basically out to lunch and politicians went on claiming the nonsense that individual retirement accounts would encourage savings and turn us all into professional money managers. The stock market would bring us double-digit returns. Whoopie!

Reality check: In 2007, the financial crisis destroyed America’s retirement fantasy. Jobs evaporated or were downsized. The stock market took a nosedive. Millions of Americans who had worked hard, straining to sock away a portion of their salary for 401(k)s, watched helplessly as a black cloud formed over their golden years. In October 2008, the Congressional Budget Office revealed that Americans had lost $2 trillion in just 15 months — money that will likely never be recovered. Not long after, President Obama betrayed the public by turning away from the jobs crisis to create a deficit commission whose leaders had the stunning lack of foresight to advise cutting Social Security at a time when the retirement train wreck was quickly picking up steam.

Today, the balance in our retirement accounts falls wildly short of what we need to keep us from destitution in old age, much less to secure a comfortable existence. According to the Vanguard Group, in 2012, the average account balance in our 401(k)s was $86,212 — and that number is skewed by high earners at the top. The amount experts say we need? About $1 million or more, depending on how much you make now.

http://billmoyers.com/2013/09/25/how...to-big-losers/

So much hand waving to fix something that isn't broken.