CPP and OAS

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
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Norbert Schlenker
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Re: CPP and OAS

Post by Norbert Schlenker »

Nah, they all just assume that normal retirement age is 65 and that people will start collecting all their pensions then. When people (like Shakes) take pensions early, it throws off appearances because OAS still comes at 65 (for now). If he'd waited to take CPP at age 65, the original idea of integrating the DB pension with CPP would appear intact.
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Re: CPP and OAS

Post by Insomniac »

So it looks like they are reluctant to tell you the exact amount you can expect (CPP or OAS) prior to the first deposit. I guess they really don't know the exact amount until the computer calculates it and the transfer is done. If they estimated it and they are out by even just a few pennies, they would get calls.
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Re: CPP and OAS

Post by Shakespeare »

I would have been silly to take CPP at 65 because I'd used up the dropout and would have been averaging zeroes into the calculation.
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Re: CPP and OAS

Post by brucecohen »

Benchwarmer wrote: I wonder about that - for practical purposes, DB plans look more integrated with OAS than CPP.
Federally regulated DB plans are the only ones allowed to integrate with OAS. The provinces have prohibited that for service after their major pension reforms took effect. Depending on the province that varies from 1980 to 1996. Integrating for some years and not others is complex and my guess is that few, if any, DB plans bother.

I don't know, but suspect that federally regulated plans -- especially those in the private sector -- don't integrate with OAS either.
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Re: CPP and OAS

Post by ghariton »

brucecohen wrote:I don't know, but suspect that federally regulated plans -- especially those in the private sector -- don't integrate with OAS either.
Federal public service pensions are integrated with CPP but not with OAS. Under full integration -- if you have worked your entire time with the federal government and take CPP at 65 -- the reduction in your federal pension just equals the CPP you receive.

Shortly after starting OAS, I received a statement from Service Canada, specifying the gross monthly payment, income tax deducted, and net payment. I beiieve these are issued whenever the amounts change, i.e. at least once a year.

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AltaRed
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Re: CPP and OAS

Post by AltaRed »

Same as my federally regulated corporate pension. It drops at 65 by the amount I would received in CPP at age 65.
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Re: CPP and OAS

Post by adrian2 »

AltaRed wrote:Same as my federally regulated corporate pension. It drops at 65 by the amount I would received in CPP at age 65.
I've recently become one of the lucky few members in a DB private pension plan (by the looks of it, federally regulated). The eventual pension amount is based by on the numbers of years being a member, times (a certain percentage of the salary up to YMPE + (the same % + 0.5%) times the final average salary over YMPE). This is entirely fair and consistent with the factor of 9, and it does not matter how much CPP you'll get (in my case, much less than the maximum). For the period one works there, the employer+employee CPP contributions cover the pension up to YMPE, (0.5% is actuarially equivalent withe a pension of a quarter of your salary, which is what CPP ends up as); they should not have to contribute and cover again that part with a pension.
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Re: CPP and OAS

Post by AltaRed »

Yes, I agree with you and IMO that is how it should work.
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Re: CPP and OAS

Post by brucecohen »

The latest CPP actuarial report is out and there's good news. The Chief Actuary projects that contributions will continue to exceed benefits paid until 2022. That's two years longer than the previous reports. Also, I think -- but am not certain -- that in 2050 the CA projects the plan will need to draw less of the fund's income than before. Here's a summary from Benefits and Pension Monitor:
With the Canada Pension Plan’s legislated contribution rate of 9.9 per cent, contributions are projected to be more than sufficient to cover the expenditures over the period 2013 to 2022, says the ‘Twenty-Sixth Actuarial Report on the Canada Pension Plan.’ However, thereafter, a proportion of investment income is required to make up the difference between contributions and expenditures. In 2050, 27 per cent of investment income is required to pay for expenditures. Total assets are expected to increase significantly over the next decade and then will continue increasing at a slower pace. Total assets are expected to grow from $175 billion at the end of 2012 to $300 billion by the end of 2020. The ratio of assets to the following year’s expenditures is projected to grow from 4.7 in 2013 to 5.4 by 2025 and 5.9 by 2075. The number of contributors is expected to grow from 13.5 million in 2013 to 14.5 million by 2020 and contributions are expected to increase from $42 billion in 2013 to $56 billion in 2020. The number of retirement beneficiaries is expected to increase from 4.6 million in 2013 to 10.2 million in 2050.


I think the projected 2050 draw was 32 or 33% but am too lazy to look that up.
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Re: CPP and OAS

Post by optionable68 »

Apologies if this message is not posted on the right thread, however is there a online tool which will help compare the reduction in CPP for someone who:

a) elects to retire anywhere between 50-60
b) elects to begin CPP at age 60
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Re: CPP and OAS

Post by $seeker »

Search cardhu and CPP calculation question to get additional info then apply new rules.
Not sure if cardhu updated calculations after the increase in early withdrawal penalty
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Re: CPP and OAS

Post by adrian2 »

Ottawa to consider voluntary Canada Pension Plan expansion, Joe Oliver says
The federal Conservatives announcement Tuesday, proposing a plan that would allow Canadians to opt in to an expanded Canadian Pension Plan (CPP), might just be the best compromise there is.

It would enhance a plan that Canadians trust. And unlike Ontario’s own proposal for a mandatory provincial pension plan, the voluntary CPP enhancement would be national and portable from province to province.

The trick will be convincing the very workers it would presumably be designed to help — those failing to save enough for retirement — to even sign up.

Finance Minister Joe Oliver telling the House of Commons that his government will study whether to allow Canadians a voluntary option to contribute more to supplement their retirement savings, comes in the wake of criticism that CPP and Old Age Security won’t be enough to keep up standards of living for middle-class families once their earning years are done.

But the Tories have said they won’t force larger CPP deductions on employees and employers, as the federal Liberals have vowed to do, and as Ontario’s Liberal government has said it will do with its own pension scheme.

“To build on our current world-class system, we intend to consult with experts and stakeholders during the summer on options for allowing voluntary contributions to the Canadian Pension Plan,” said Oliver.
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Re: CPP and OAS

Post by brucecohen »

I'm underwhelmed by Joe Oliver's CPP trial balloon. Consider:

1. Several years ago provinces pressed Ottawa to expand CPP. Ottawa refused. Alberta and BC then took the lead in designing what they called the ABC Plan. It was to be a defined contribution plan with the money managed by a CPPIB-like crown corporation and the MER capped at 50 bp. IIRC, enrollment was automatic. I don't remember if members could opt out or if employers had to kick in money too. IIRC, several provinces expressed interest in joining the ABC Plan while Ontario and one of the Maritimes began talking about a provincially sponsored DB version of CPP.

2. Ottawa headed off the ABC Plan by creating the Pooled Registered Pension Plan (PRPP) which was designed to keep Bay Street and the life insurers doing the money management. It was a pretty silly plan that stood little chance of meeting the desired objectives since everything was voluntary. As I predicted at the time, there has been very little take-up, though the provinces have been slow to incorporate it in their pension legislation. Today there's virtually no talk about the PRPP outside the pension industry.

3. So the Harper govt's previous reliance on the PRPP hasn't worked. What to do? Announce consultations on voluntary CPP contributions. Consultations. This and every other permutation of CPP have been discussed for years, but the govt feels more consultations are needed. With whom? We don't know. Over what? We don't know. For implementation when? No idea. We do know that amending the CPP Act requires consent of at least 7 provinces representing 2/3 of the population.

4. There is pressure to expand CPP because 1) the 1997 reform has been working well; 2) DB coverage is steadily eroding; 3) Experience in the US -- where DC is much older -- is now showing its weaknesses in funding retirement. I don't see how voluntary CPP contributions would really offer tangible benefit:
-- Would they buy DB or DC pension? If DB, at what cost? CPP is mainly a PAYGO plan that's 75% funded by contributions from active workers and their employers. How would/could the voluntary pension be funded at an affordable rate, especially since those most interested would be older and the higher your age, the more costly it is to buy service.
-- There is already no shortage of ways for Canadians to save for retirement. But except for CPP and employer-sponsored plans they're voluntary and many/most Canadians place higher priority on other spending until their 40s or 50s when it's pretty much too late. If the vast majority are already not fully using RRSPs and TFSAs, why would Oliver assume they'd make voluntary CPP contributions?

5. As with Ontario's proposed DB plan, this would offer little/no benefit to the boomers now concerned about their retirement funding. It's too late for them. It would benefit today's young people -- to the extent that they have the cash to take advantage of it.

Bottom line: Oliver's announcement was really just a hollow political statement. It'll be interesting to read analysis sure to be published soon by pension experts, but at least for now I have trouble seeing any more traction in this than the PRPP.
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Re: CPP and OAS

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brucecohen wrote:I'm underwhelmed by Joe Oliver's CPP trial balloon...

Bottom line: Oliver's announcement was really just a hollow political statement. It'll be interesting to read analysis sure to be published soon by pension experts, but at least for now I have trouble seeing any more traction in this than the PRPP.
Thank you for the cogent analysis. There's been some discussion about this proposal (or whatever it really is) in the Conservative Party Judgement or lack thereof • II thread starting here.

As for "analysis sure to be published soon by pension experts": Making sense of Joe Oliver’s new CPP consultations ("What’s behind the finance minister’s notion that Canadians might make ‘voluntary’ contributions to the CPP? Pension expert Keith Ambachtsheer explains")
What would you do if they let you design whatever reforms you see fit?
I would do what I’m advocating that Ontario do. They took the initiative last year by saying, “We can’t get anything done nationally so we’re going to create the Ontario Retirement Pension Plan.” The best way to make a supplementary plan like that work is to make it as simple as possible, and start it off as an incremental retirement savings plan that runs at low cost. It’s generating that return and not paying too much in terms of expenses that ultimately generates the pensions.

What do you think of a system like the one they have in Britain, which automatically deducts a supplementary pension contribution, but allows an individual to opt out?
It’s brilliant. It’s absolutely the way to go. You’re really arbitraging nicely across two concepts. One is the whole inertia thing. But, two, if you really don’t want to do this, it lets you opt out. This has been operational on scale for three years now in the U.K. It’s now going and they do have this enrolment requirement with an opt-out option. What’s the opt-out rate? Eight per cent.

Is that how the Ontario plan will work?
I’m trying to persuade them, but I’m not the only voice.
See also: Tories previously rejected voluntary CPP expansion party now proposes
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Re: CPP and OAS

Post by brucecohen »

brucecohen wrote:This and every other permutation of CPP have been discussed for years
The Globe reports that the Harper govt commissioned a technical study of voluntary CPP contributions in 2009-10 -- IIRC the period when Alberta and BC were floating the ABC Plan. The study and the govt soundly rejected the voluntary contributions idea.
After the study, then-finance minister Jim Flaherty said it was clear that “some sort of voluntary new CPP method” wouldn’t work.

“This was rejected unanimously by our partners in the federation when we met and discussed the issue because it would not work and because the CPP would be unable to administer it,” he told the House of Commons in September 2010.

Ted Menzies, who was then the Conservative minister responsible for the pensions file, went further.

“The verdict was unanimous. This was not a good idea,” Mr. Menzies told the House in November 2010. “The consensus of governments and public-interest groups from across the political spectrum has been that this would be costly, ineffective and, ultimately, a misguided solution.”

Pension expert Keith Ambachtsheer, director of the University of Toronto’s Rotman International Centre for Pension Management, said whether or not such a plan is a good idea depends on the details.

“That’s politics,” he said. “How can it be such a terrible idea five or six years ago and now it’s sort of a good idea?”

<snip>
University of Calgary tax expert Jack Mintz, who led the retirement research project for Finance Canada and produced a summary report in December 2009, agreed that details such as whether specific benefits are guaranteed or not make a huge difference on whether such an idea has policy merit. Dr. Mintz said it would likely be more costly for the CPP Investment Board to track individual accounts and there would be issues in terms of how contributions and withdrawals are treated for tax purposes.

“The question is what are we talking about?” he said. “I think [the consultations] might be partly to get this off the table for the next election.”
I didn't hold my breath for the PRPP and I sure ain't holding my breath for this one.
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Re: CPP and OAS

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Just two pages back, Bylo wrote:Now suppose CPP gets modified so that employees can make additional voluntary contributions.
Now that the Tories are proposing exactly that, my friend has done a 180°.
:shock:
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Re: CPP and OAS

Post by ghariton »

I'm not sure what thread to post on any more, but I think the financial aspects of the CPP externsion merit some discussion.

As shown in the quotes cited by Bruce Cohen, several pension and tax experts -- Keith Ambachtsheer and Jack Mintz -- have said that it is difficult to judge the merits of a proposal such as this one absent the details. And of course, as Kim Campbell once said, election time is no time to discuss policy.

Nevertheless, I think that a few points could be made.

(1) Specific pension proposals should be examined in the wider context of other sources of pension income -- CPP, OAS, RRSPs, TFSAs and private pension plans. Some of these are compulsory, others voluntary. What mix of compulsory and voluntary should we aim for, and why?

(2) Some existing components -- RRSPs, TFSAs, self-employed CPPs -- are wholly funded by the pensioner, others are wholly or partially funded by employers. What mix is desirable? In particular, for employer funding, what is the final incidence, i.e. how much is passed on to employees in the form of lower wages? Is there an impact on level of employment? On capital formation and productivity?

(3) Some components -- CPP, RRSP, private employer pension plans -- are linked to employment. while others -- OAS, GIS, TFSA -- are not. What are the merits of linking to employment? How do we accommodate those in our society who are not employed, whether through disability, unemployment, long study periods or otherwise?

(4) Some components are "progressive", meaning that the lower the income the bigger the benefit -- OAS, GIS -- while others are "regressive", meaning that the higher the income the bigger the benefit -- RRSPs, employer pensions and, to a lesser extent, TFSAs. What is the right balance?

(5) Should other government programs be factored in? The biggest one seems to be "free" health care, amounting to a huge subsidy.

(6) Looking at the pension system as a whole, is it affordable by our society, given the demographic and growth trends? Does the system as a whole produce cross-subsidies, e.g. from the young to the old? How fair is this? Is there an impact on long run economic growth?

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Re: CPP and OAS

Post by Bylo Selhi »

adrian2 wrote:...Now that the Tories are proposing exactly that, my friend has done a 180°.
:shock:
adrian2 wrote:
Just two years ago, Bylo wrote:Now suppose CPP gets modified so that employees can make additional voluntary contributions.
Now that the Tories are proposing exactly that, an about face is in order.
:shock:
Let me repeat in case you decide to stick to a single thread: Since you think gloating about a two year old conversation is so becoming, re-read your laundry list of objections in response :P

Hint: it's the post directly below the one you linked.

All in good fun, of course. Since we don't know what Steve and Joe are actually proposing besides waving a big fat but nebulous carrot in front of the electorate we really have no idea whether to cheer, jeer, shrug or laugh. Carry on.
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Re: CPP and OAS

Post by like_to_retire »

adrian2 wrote:Now that the Tories are proposing exactly that, my friend has done a 180°.
No really that unusual to change positions, as evidenced from the three parties themselves.

"If you’re just joining us, the Conservatives are now, as of this Tuesday, formally in favour of a voluntary expansion of the Canada Pension Plan, having earlier been opposed. The Liberals are now in favour of a mandatory expansion of the CPP and against a voluntary expansion, having earlier been in favour of the latter and against the former. The NDP at least are consistent: they favour a mandatory expansion of everything."

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Re: CPP and OAS

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Bylo Selhi wrote:
adrian2 wrote:...Now that the Tories are proposing exactly that, my friend has done a 180°.
:shock:
adrian2 wrote:
Just two years ago, Bylo wrote:Now suppose CPP gets modified so that employees can make additional voluntary contributions.
Now that the Tories are proposing exactly that, an about face is in order.
:shock:
Let me repeat in case you decide to stick to a single thread: Since you think gloating about a two year old conversation is so becoming, re-read your laundry list of objections in response :P

Hint: it's the post directly below the one you linked.
Sure: I disagreed then, and I disagree now, regardless of the fact whether the Tories agree or not.

OTOH, your position seems to be based on opposing whatever Tory policy is, without due course to its merits or lack thereof.
Bylo Selhi wrote:All in good fun, of course. Since we don't know what Steve and Joe are actually proposing besides waving a big fat but nebulous carrot in front of the electorate we really have no idea whether to cheer, jeer, shrug or laugh. Carry on.
I agree the devil is in the unknown details, as he hides in the Ontario Pension Plan fine print as well .
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Re: CPP and OAS

Post by Bylo Selhi »

adrian2 wrote:Sure: I disagreed then, and I disagree now, regardless of the fact whether the Tories agree or not.
"When my information changes, I alter my conclusions. What do you do, sir?" ...John Maynard Keynes

My information has changed over the past couple of years and so has my conclusion. One example, as Keith Ambachtsheer pointed out in a couple of articles I linked to yesterday, the experience in the UK over the past few years has shown that making contributions "mandatory", at least by default, is an extremely effective way to address the first of your objections ("Many people, especially the ones that will need it most, will not make voluntary contributions.") So yes, I now believe more strongly that "mandatory" contributions, at least by default, perhaps with an opt-out provision for those who think they know better, is a better way to go.
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Re: CPP and OAS

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Bylo Selhi wrote:"When my information changes, I alter my conclusions. What do you do, sir?" ...John Maynard Keynes

My information has changed over the past couple of years and so has my conclusion. One example, as Keith Ambachtsheer pointed out in a couple of articles I linked to yesterday, the experience in the UK over the past few years has shown that making contributions "mandatory", at least by default, is an extremely effective way to address the first of your objections ("Many people, especially the ones that will need it most, will not make voluntary contributions.") So yes, I now believe more strongly that "mandatory" contributions, at least by default, perhaps with an opt-out provision for those who think they know better, is a better way to go.
Agreed.

OTOH, will neither object, nor endorse, something where we don't have the relevant details, regardless whether it's been put forward by the NDP, Grits or Tories. Other people would react differently, of course.
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Re: CPP and OAS

Post by adrian2 »

Meanwhile, in what passes as analysis by the Red Star: Harper’s pension ‘fix’ falls short: Editorial
But the CPP currently covers earnings up to only $53,600, providing $12,780 in annual pension. That’s modest enough today. What will it be worth in 20, 30 or 40 years’ time?
Most of the forum members know that during a person's contributory period, CPP is indexed to the average industrial wage, which usually goes up faster than inflation. After retirement, the CPP pension is indexed to inflation. Apparently, the Star's editorial team is not aware of these basic facts.
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Re: CPP and OAS

Post by izzy »

I still think that any perceived problem for higher income earners could be solved by allowing indefinite deferral of CPP (and OAS?)with actuarial, age dependent, increases in the eventual benefit amount for each year deferred rather than an arbitrary percentage.
In the extreme ,deferring to age 90 could result in a very high pension(at least enough for nursing home care) for a probably very short number of years.The savings from those who overestimated their life expectancy would go to subsidise the needs`of those who had underestimated theirs. Thus one's RRIF would only have to last until age 90 which would simplify retirement planning enormously both for government and retired persons.
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Re: CPP and OAS

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izzy wrote:I still think that any perceived problem for higher income earners could be solved by allowing indefinite deferral of CPP (and OAS?)with actuarial, age dependent, increases in the eventual benefit amount for each year deferred rather than an arbitrary percentage.
In the extreme ,deferring to age 90 could result in a very high pension(at least enough for nursing home care) for a probably very short number of years.The savings from those who overestimated their life expectancy would go to subsidise the needs`of those who had underestimated theirs. Thus one's RRIF would only have to last until age 90 which would simplify retirement planning enormously both for government and retired persons.
I like this idea. As long as the reduction/increase percentage is handled properly , this could turn out to be a win-win situation for everyone.
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