Finance ministers reach deal to expand Canada Pension Plan

[Slava]

Originally Posted by CliffFletcher

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.

This is true and there are issues with CPP in general and frankly the way the tax system treats people who are widowed/widowers in general, but that is another topic. I don't think that CPP is perfect, but to have a better benefit is an overall benefit to society I think. Even if people have saved zero and plan on working until they die, the reality is that this isn't all that feasible. There comes a point when their health is likely to fail them whether they have to work or not.

Originally Posted by Resolute 14

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.

This is hard to calculate because we don't know the end date in advance, but I would say that isn't all that accurate. Lets say that you begin drawing at age 60 (which varies but I would consider in most cases) and you only receive the average which is about $550/month. (Note...if you make your contributions and are eligible you could receive about $1092/month in 2016, so I'm not shooting for the stars here). Like you say, you could live to 90-95, but let's dial that back and use 83 which is a fair average life expectancy for people retiring today. You would receive an average then of about $151,800 over that time.

The maximum for 2016 for CPP contributions though is $2544, and lets say that you contribute that for 40 years. That is about $101,760. This is certainly nothing to write home about in terms of a rate of return (a little under 2% per year by my quick math), but on average you get your money back. If you do contribute the maximum for 40 years you will get about double this and the numbers look better as well.

[Flamenspiel]

I suppose Trudeau is taking the under 30 vote for granted. The Liberals have this demographic sown up for a long time to come, now he can grab the over 50s by moving the OAS back to 65 and increasing the CPP.

Very clever wedging of the electorate.....this is pure politics.

[nik-]

Originally Posted by Flash Walken

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



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

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

You do realize that CPP invests too right?

[GGG]

So right now we and our employers contribute about 5k in premiums per year and the maximum benefit for maxed contributions is 13k per year. I'm going to ignore both inflation in premiums and inflation in benefits as they should inflate at the same rate. So with a 40 yr career you contribute 200k, if you get benefits for 20 years you get 163k in benefits. So CPP because of under funding prior to the 90s offers you a negative rate of return.

This change in plan will make that rate of return worse. So CPP isn't broken if you accept that it is a wealth transfer to boomers just like most things.

[para transit fellow]

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.

As an employer, I'm wondering how much work that would be?

i.e. to deduct the funds at source (you did say mandatory) and send it to various RRSP accounts

plus the resultant auditing and cross check that we did this all corrected at year end audit

it is easier for me to do the mandatory CPP deductions

[GGG]

Originally Posted by Slava

This is true and there are issues with CPP in general and frankly the way the tax system treats people who are widowed/widowers in general, but that is another topic. I don't think that CPP is perfect, but to have a better benefit is an overall benefit to society I think. Even if people have saved zero and plan on working until they die, the reality is that this isn't all that feasible. There comes a point when their health is likely to fail them whether they have to work or not.



This is hard to calculate because we don't know the end date in advance, but I would say that isn't all that accurate. Lets say that you begin drawing at age 60 (which varies but I would consider in most cases) and you only receive the average which is about $550/month. (Note...if you make your contributions and are eligible you could receive about $1092/month in 2016, so I'm not shooting for the stars here). Like you say, you could live to 90-95, but let's dial that back and use 83 which is a fair average life expectancy for people retiring today. You would receive an average then of about $151,800 over that time.

The maximum for 2016 for CPP contributions though is $2544, and lets say that you contribute that for 40 years. That is about $101,760. This is certainly nothing to write home about in terms of a rate of return (a little under 2% per year by my quick math), but on average you get your money back. If you do contribute the maximum for 40 years you will get about double this and the numbers look better as well.

The maximum contribution is double that because of the Employer portion. Its a negative rate of return.

[Slava]

Originally Posted by GGG

So right now we and our employers contribute about 5k in premiums per year and the maximum benefit for maxed contributions is 13k per year. I'm going to ignore both inflation in premiums and inflation in benefits as they should inflate at the same rate. So with a 40 yr career you contribute 200k, if you get benefits for 20 years you get 163k in benefits. So CPP because of under funding prior to the 90s offers you a negative rate of return.

This change in plan will make that rate of return worse. So CPP isn't broken if you accept that it is a wealth transfer to boomers just like most things.

Well that is somewhat accurate, except that you're using the maximum contribution for plan and then using the average length of time for collecting it, which isn't really fair. If you used someone beginning their collections at age 60 and going to age 83 then you have total collections of just over $301,000 in todays dollars, which while its not incredible isn't a loss either.

[GGG]

Originally Posted by para transit fellow

As an employer, I'm wondering how much work that would be?

i.e. to deduct the funds at source (you did say mandatory) and send it to various RRSP accounts

plus the resultant auditing and cross check that we did this all corrected at year end audit

it is easier for me to do the mandatory CPP deductions

My work has a matching program that gets sent to my RRSP. It wouldn't be any more work than that. Also the paperwork is already submitted to the government anyways for tax purposes. Though I don't know if a system like I propose would introduce other accounting issues but the mechanics of such a program would already exist.

[GGG]

Originally Posted by Slava

Well that is somewhat accurate, except that you're using the maximum contribution for plan and then using the average length of time for collecting it, which isn't really fair. If you used someone beginning their collections at age 60 and going to age 83 then you have total collections of just over $301,000 in todays dollars, which while its not incredible isn't a loss either.

Why are you adjusting for inflation on the PV of the value of the payment when you aren't adjusting for inflation on the contribution?

I don't think you can do the numbers in such a way that show more than a 0% rate of return.

[Slava]

Originally Posted by GGG

The maximum contribution is double that because of the Employer portion. Its a negative rate of return.

Right and if you want to include the employers contribution it does become a negative, and that's fair. But I figured that most people are concerned about what they pay and receive. The reality is that there are far reaching benefits to the plan that we can't easily measure, but we're not really including any of that either.

[CaptainCrunch]

Its funny as the governments keep taking larger and larger percentages of peoples paychecks that people aren't going to be able to save as well for retirement thus more people are going to be reliant on this pension.

Frankly the CPP Should have been gassed years ago, and tax benefits given for self investing.

[Slava]

Originally Posted by GGG

Why are you adjusting for inflation on the PV of the value of the payment when you aren't adjusting for inflation on the contribution?

I don't think you can do the numbers in such a way that show more than a 0% rate of return.

I am not adjusting either number actually. Those are the figures for 2016.

[GGG]

Originally Posted by Slava

I am not adjusting either number actually. Those are the figures for 2016.

Sorry doing head math and screwing it up. Was using 10k instead of 13k as max benefit.

Punched it into excel. You average a 1.3% rate of return. Using 40 yr contribution of 5k and 13,100 payment for 23 yrs post retirement using a constant return on all 63yrs.

[Slava]

Originally Posted by GGG

Sorry doing head math and screwing it up. Was using 10k instead of 13k as max benefit.

Punched it into excel. You average a 1.3% rate of return. Using 40 yr contribution of 5k and 13,100 payment for 23 yrs post retirement using a constant return on all 63yrs.

Yeah and like I said its nothing to get excited over and you can do better, but its something.

[Regorium]

Originally Posted by Slava

Right and if you want to include the employers contribution it does become a negative, and that's fair. But I figured that most people are concerned about what they pay and receive. The reality is that there are far reaching benefits to the plan that we can't easily measure, but we're not really including any of that either.

The employer's contribution is important because it adds to the cost of business, future raises/benefits and so forth.

They could also just give me that 4.95% in some sort of additional company match, and it'd be far preferable than getting a negative payout defined benefit pension 40 years later.

Basically, the boomers are starting to retire, and they will get 33% more payout even though they didn't pay the increased cost throughout their lives. Standard old white guys (and old white women now too, it is 2016 after all) making rules to benefit themselves.

When Quebec is the province that looks at the proposal and says that it's too expensive, perhaps there's something there.

[para transit fellow]

Originally Posted by GGG

My work has a matching program that gets sent to my RRSP. It wouldn't be any more work than that. Also the paperwork is already submitted to the government anyways for tax purposes. Though I don't know if a system like I propose would introduce other accounting issues but the mechanics of such a program would already exist.

Somehow, I don't think the business segment employing people at minimum wage are going to want to deal with mandatory RRSP investment

[CliffFletcher]

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.

Yep. The life expectancy for a male born in Canada today is 86, and for a female it's 89.

[Flash Walken]

Originally Posted by nik-

You do realize that CPP invests too right?

Actually I thought the canadian government was just sticking toonies into socks under the bed.

[CliffFletcher]

Originally Posted by Regorium

Basically, the boomers are starting to retire, and they will get 33% more payout even though they didn't pay the increased cost throughout their lives. Standard old white guys (and old white women now too, it is 2016 after all) making rules to benefit themselves.

I think it's more a case of standard politicians making rules to benefit people who vote. You wont see younger voters stand up for themselves until they recognize how badly they're getting pumped by Boomers, and they get out and vote in as high numbers as the Boomers do.

[nik-]

Originally Posted by Flash Walken

Actually I thought the canadian government was just sticking toonies into socks under the bed.

Well, the way you implied that only RRSP's were subject to market dips, I thought maybe you did.