CPP and OAS

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.

Re: CPP and OAS

Postby adrian2 » 02 Mar 2011 16:04

brucecohen wrote:Not really. You'd simply get one pension from QPP for credits earned in Quebec and another from CPP for credits earned in the RoC.

Not quite that easy. Try to allocate between QPP and CPP:
a) 15% dropout provision plus child rearing provision,
b) 40 best years out of the contributory period.
Was year 1989 (e.g.) in a) or b)? Does it depend on where you lived on 31-12-1988, or 31-12-1989, or some other test, like whatever suits the applicant? Now go into allocating each month, which is how CPP does its calculations IIRC.
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Re: CPP and OAS

Postby StuBee » 02 Mar 2011 17:24

brucecohen wrote:Not really. You'd simply get one pension from QPP for credits earned in Quebec and another from CPP for credits earned in the RoC. No different from the situation in which an immigrant from the US gets $x from CPP and US$y from US Social Security.


Would this not be completely different from the current way things are done?
Could this change take place without some form of legislation (i.e. is it purely administrative)?
In addition would not this sort of solution simply be "proof" that the QPP is not "up to par" so to speak?
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Re: CPP and OAS

Postby brucecohen » 02 Mar 2011 17:48

adrian2 wrote:
brucecohen wrote:Not really. You'd simply get one pension from QPP for credits earned in Quebec and another from CPP for credits earned in the RoC.

Not quite that easy. Try to allocate between QPP and CPP:
a) 15% dropout provision plus child rearing provision,
b) 40 best years out of the contributory period.
Was year 1989 (e.g.) in a) or b)? Does it depend on where you lived on 31-12-1988, or 31-12-1989, or some other test, like whatever suits the applicant? Now go into allocating each month, which is how CPP does its calculations IIRC.

CPP has a record of employee contributions by month. For the self-employed, I assume they simply divide the year's total by 12. I guess that QPP has similar monthly record. They could then pro-rate as required. Whether 15% dropout or best 40, full pension is based on 85% of contribution history. ISTM if you accrued 10 years under QPP you'd be entitled to 25% pension based on 85% of best earnings. I don't have enough brain cells right now to deal with the child-rearing dropout, but there's likely some kind of pro-ration available.

As I think about it, people in employer-sponsored DB plans accrue 1 year of credit for each year worked. Say you leave after 7.65 years. You've accrued 7.65 years of credit so your pension earned = 7.65 x accrual rate. If accrual rate is 1.5%, you're due an 11.475% pension. But on what base? If it's a final-5 or best-of-5 I doubt that they simply identify those five years and Bob's your uncle. There's probably a generally accepted proration formula that C/QPP could use.

As I think about it more, you need have made only 1 CPP contribution to qualify for a retirement pension. Probably the same for QPP. But the pension would be negligible because it would reflect only that 1 contribution. So CPP and QPP must already have a proration calculation for people who work here for x years and then go elsewhere.

stubee wrote:Would this not be completely different from the current way things are done?

Maybe, maybe not. We don't know the technical details of how CPP and QPP now handle people with credits in both systems. There might already be pro-rating that's not obvious because the retirement benefits are currently the same.

Could this change take place without some form of legislation (i.e. is it purely administrative)?

I'm almost positive it would need legislation.

In addition would not this sort of solution simply be "proof" that the QPP is not "up to par" so to speak?

QPP is not up to par, period. Pension wonks have talked about that for years, but Quebec's politicians and public have not been aware/interested. Or perhaps Quebec politicians wanted to see how the CPP reform worked out because they would have been in a better bargaining position had the reform failed.
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Re: CPP and OAS

Postby adrian2 » 02 Mar 2011 18:18

brucecohen wrote:Whether 15% dropout or best 40, full pension is based on 85% of contribution history. ISTM if you accrued 10 years under QPP you'd be entitled to 25% pension based on 85% of best earnings. I don't have enough brain cells right now to deal with the child-rearing dropout, but there's likely some kind of pro-ration available.

I'm doubting whether your first sentence is correct. The way I'm reading the posts upthread, QPP pension is not based on 85% of contribution history, so it is critical to allocate each month to the appropriate plan (relatively easy) and also decide which months count and which drop out of the calculations for each plan.
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Re: CPP and OAS

Postby brucecohen » 02 Mar 2011 18:25

adrian2 wrote:I'm doubting whether your first sentence is correct. The way I'm reading the posts upthread, QPP pension is not based on 85% of contribution history

I simply took 40 years from the baseline 47 years between 18 and 65.
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Re: CPP and OAS

Postby adrian2 » 02 Mar 2011 18:30

brucecohen wrote:
adrian2 wrote:I'm doubting whether your first sentence is correct. The way I'm reading the posts upthread, QPP pension is not based on 85% of contribution history

I simply took 40 years from the baseline 47 years between 18 and 65.

Yabbut one can start taking CPP/QPP at any age between 60 and 70. At 60, 40/42 is markedly different from 85%.
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Re: CPP and OAS

Postby newguy » 02 Mar 2011 18:41

adrian2 wrote:
brucecohen wrote:
adrian2 wrote:I'm doubting whether your first sentence is correct. The way I'm reading the posts upthread, QPP pension is not based on 85% of contribution history

I simply took 40 years from the baseline 47 years between 18 and 65.

Yabbut one can start taking CPP/QPP at any age between 60 and 70. At 60, 40/42 is markedly different from 85%.

The post upthread is a proposal. They are currently the same except for the recent changes to the CPP (which are barely in effect anyway).

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Re: CPP and OAS

Postby StuBee » 02 Mar 2011 21:00

I have found something that may help in this discussion. The following URL is to a pre-consultation document published in 2008 and meant to be a document which forms the basis for a parliamentary commitee which is held every six years concerning QPP. It is this document that provides some of the QPP change proposals:http://www.rrq.gouv.qc.ca/SiteCollectionDocuments/www.rrq.gouv.qc/Anglais/publications/regime_rentes/consultation_publique/consultation_2008_en.pdf

In particular I quote page 20:
Different plans but still similar

There are no written rules that specify the exact meaning of “similar plans”. There seems,
however, to exist a tacit consensus around the key parameters that should not differ between the
QPP and the CPP:

− covered risks: retirement, disability and death;
− covered participants: workers whose earnings are higher than the general exemption;
− insurable earnings: earnings up to the maximum pensionable earnings;
− income replacement rate: 25% for the retirement pension;
− normal retirement age: 65.

− Similarity allows for differences in benefits

Since 1966, the two plans have often made changes in parallel fashion, so that a change made to
one was soon adopted by the other. On some occasions, however, changes have been made to
one of the plans without being adopted later by the other plan. That is the case, for example, forseveral provisions related to disability and survivors’ benefits, which are not the same in both
plans.

Despite these differences, the principle of similarity has never been challenged. The QPP and the
CPP have always respected their agreements to ensure the transferability of benefits for dual
contributors.

− Rate parity is not essential to the operation of the two plans

Contribution rate parity is not essential to the recognition by either plan of contributory earnings
made in the other plan. An increase in the QPP contribution rate would not jeopardize the
principle of similarity. The plans’ administrative agreements could be adapted accordingly to
maintain benefit protection.

The QPP and CPP contribution rates have always been the same since the beginning of both
plans. That rate parity serves to protect the competitiveness of businesses rather than to maintain
QPP-CPP similarity. Furthermore, the entire fiscal burden of businesses and not merely
employers’ QPP contributions would have to be considered to assess the real effect on
competitiveness of an increase in the QPP contribution rate.


Evidently there are some things that are not to be unilaterally changed but the contribution rate is not one of them...

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Re: CPP and OAS

Postby StuBee » 03 Mar 2011 08:32

Concerning QPP, I have found an article that confirms that, up until now, we are only dealing with proposed changes. Between now and the summer, a bill is to be presented at the Assemblée Nationale (Quebec parliament). Apparently, many of the original propositions have been set aside. (For those who can read french, here is the link):http://www.lesaffaires.com/mes-finances/retraite/retraite-avant-65-ans--une-hausse-des-penalites-a-la-regie-des-rentes-ne-viendrait-pas-seule/524601
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Re: CPP and OAS

Postby adrian2 » 31 Mar 2011 11:57

Liberals push Big CPP as retirement saviour over Tories’ Pooled RPPs.

Jonathan Chevreau wrote:Tories, financial industry favor PRPPs

However, in December, Finance Minister Jim Flaherty instead unveiled proposals for Pooled Registered Pension Plans or PRPPs, aimed at letting small and medium size businesses share resources and cut costs through traditional employer pensions. The goal is to help out the estimated 3.5 million middle-income private sector workers who have no employer pension.

The PRPP has already had initial negotiations with the provinces, so is already moving down that path, Markham says. “The Feds did agree the provinces are free to force employers to offer a PRPP. I wonder if the Liberals would go down that path as well?”

Ignatieff acknowledges three quarters of private-sector workers are not in employer pensions (RPPs) but dismisses PRPPs as being fraught with “risk, complexity and hidden management fees.” They offer “little more than RRSPs already offer” but naturally appeal to the banks and insurance companies that will manage them, he said.

But the Liberal analysis is off base when it declares many RRSPs have annual charges of 2% or more. That may be true for those who hold mutual funds in their RRSPs, but it’s patently untrue for self-directed RRSPs holding individual stocks or exchange-traded funds.

Ignatieff also accuses Stephen Harper of “abandoning” the CPP and delivering no serious pension reform the last five years, conveniently forgetting 2009’s revolutionary Tax Free Savings Accounts, pension splitting and now the PRPPs.

Labour likes Big CPP, especially in addition to their lush pensions

One reason Labour likes an expanded CPP is it promises a guaranteed or “defined” benefit that will be there regardless how financial markets behave. Ignatieff reminded voters that (under Lester Pearson), the Liberals created the CPP in 1965. A backgrounder says any such expansion requires approval of two thirds of the provinces but most support a gradual expansion of the plan.

Quebec may be a problem since it runs its own QPP separate from the CPP. Ian Markham says in its recent budget, Quebec said contributions would have to be hiked just to maintain existing benefits. In addition, just two weeks ago, Quebec proposed its own version of a PRPP.

Gradual CPP expansion OK only if done right

A gradual expansion of the CPP is a good idea but only if it is done right, says Fred Vettese, chief actuary with Toronto-based Morneau Shepell. “That means responsible employers who already provide pension coverage should be able to pare back that coverage dollar for dollar to reflect the increase in CPP.”

But that’s not what labour groups have in mind, Vettese says. “They want to see a bigger CPP pension cheque in addition to the employer pension they already get, and in some cases the resulting pension will be excessive.”

Consultant Greg Hurst, of Vancouver-based Greg Hurst & Associates Ltd., agrees: “Higher CPP benefits would unnecessarily benefit those who already have good pensions. It will also cost taxpayers more money to support higher CPP contributions of public sector employers, that already offer very generous pension plans.”

[...]

Both are possible but three-way balance needed

Actuary Malcolm Hamilton, worldwide partner with Mercer’s, has said he favours a “modest” expansion of CPP but that the gradual nature of it will be of little use to those already near retirement. There’s room for both an expanded CPP and PRPPs, he told me in December.

Most financial planners believe retirement should be like a three-wheeled tricycle, with income coming from a government wheel, employers and private savings. Government already provides Old Age Security, GIS and the CPP (albeit with premiums from employers and workers), while individuals have RRSPs, TFSAs and taxable investments.

It’s the employer wheel that seems wobbly and it seems to me that by focusing on employers, the Conservatives’ PRPPs provides more balance than a Big CPP. But it’s no surprise proponents of Big Government also want a Big CPP.
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Re: CPP and OAS

Postby Bylo Selhi » 31 Mar 2011 12:42

Chevreau's spouting the usual FP/CPC bullshit. I'm surprised that you didn't apply your usual critical analysis to this article. For instance, just to cherry pick a few snippets...

Ignatieff acknowledges three quarters of private-sector workers are not in employer pensions (RPPs) but dismisses PRPPs as being fraught with “risk, complexity and hidden management fees.” They offer “little more than RRSPs already offer” but naturally appeal to the banks and insurance companies that will manage them, he said.
With what part of that do you disagree?

But the Liberal analysis is off base when it declares many RRSPs have annual charges of 2% or more. That may be true for those who hold mutual funds in their RRSPs, but it’s patently untrue for self-directed RRSPs holding individual stocks or exchange-traded funds.
I'd go further and replace "many" with "most." Perhaps not with those who read Chevreau's columns but certainly with the population at large. And of those who have no pension plans or RRSPs today, if they were to start to buy into PRPPs, are they more likely to use expensive managed/advised mutual funds or immediately plunge into DIYing stocks and ETFs?

Ignatieff also accuses Stephen Harper of “abandoning” the CPP and delivering no serious pension reform the last five years, conveniently forgetting 2009’s revolutionary Tax Free Savings Accounts, pension splitting and now the PRPPs.
One of Finance Minister Paul Martin's main legacies was CPP reform that saved the plan from ruin and made it the envy of our G-8 partners. How often do we need to "reform", as opposed to expand, the CPP now that it's on a solid footing? And as for TFSAs they were introduced as a general savings vehicle not specifically as a retirement savings plan.

A gradual expansion of the CPP is a good idea but only if it is done right, says Fred Vettese, chief actuary with Toronto-based Morneau Shepell. “That means responsible employers who already provide pension coverage should be able to pare back that coverage dollar for dollar to reflect the increase in CPP.”
Why? Ultimately 100% of the cost of CPP comes from employees, whether out of their paycheck or as a salary substitute by means of employee match. Every self-employed person who has to pay both sides knows this.

Most financial planners believe retirement should be like a three-wheeled tricycle, with income coming from a government wheel, employers and private savings.
As Chevreau certainly knows (he's written numerous books and columns on the subject) "most" financial planners are conflicted on this issue because, under an expanded CPP, they wouldn't earn any of the commissions and fees they would get under the other two "wheels."
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Re: CPP and OAS

Postby adrian2 » 31 Mar 2011 12:52

Bylo Selhi wrote:Chevreau's spouting the usual FP/CPC bullshit. I'm surprised that you didn't apply your usual critical analysis to this article. For instance, just to cherry pick a few snippets...

Ignatieff acknowledges three quarters of private-sector workers are not in employer pensions (RPPs) but dismisses PRPPs as being fraught with “risk, complexity and hidden management fees.” They offer “little more than RRSPs already offer” but naturally appeal to the banks and insurance companies that will manage them, he said.
With what part of that do you disagree?

I did not pick a position, so I don't disagree with what you're writing -- I've tried to include both sides of the story in the portion I've quoted.

Putting the ball back into your court, with which part of the following do you disagree:

A gradual expansion of the CPP is a good idea but only if it is done right, says Fred Vettese, chief actuary with Toronto-based Morneau Shepell. “That means responsible employers who already provide pension coverage should be able to pare back that coverage dollar for dollar to reflect the increase in CPP.”

But that’s not what labour groups have in mind, Vettese says. “They want to see a bigger CPP pension cheque in addition to the employer pension they already get, and in some cases the resulting pension will be excessive.”

Consultant Greg Hurst, of Vancouver-based Greg Hurst & Associates Ltd., agrees: “Higher CPP benefits would unnecessarily benefit those who already have good pensions. It will also cost taxpayers more money to support higher CPP contributions of public sector employers, that already offer very generous pension plans.”
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Re: CPP and OAS

Postby Shakespeare » 31 Mar 2011 12:57

"Expanded CPP" won't happen because Alberta won't agree. It's from the same vest pocket as Harper's "income splitting in five years". :roll:
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Re: CPP and OAS

Postby marty123 » 31 Mar 2011 13:00

Bylo Selhi wrote:
A gradual expansion of the CPP is a good idea but only if it is done right, says Fred Vettese, chief actuary with Toronto-based Morneau Shepell. “That means responsible employers who already provide pension coverage should be able to pare back that coverage dollar for dollar to reflect the increase in CPP.”
Why? Ultimately 100% of the cost of CPP comes from employees, whether out of their paycheck or as a salary substitute by means of employee match. Every self-employed person who has to pay both sides knows this.

You make a lot of very good points Bylo, but this one can't be lumped-in with the good stuff. There is no way that unions will accept the increased CPP employer contribution as a substitute for salary or as a substitute for a salary increase. Employees negotiating individually in good faith (or being forced to accept the approved corporate increase) may see this extra employer CPP contribution become part of their compensation, but there is no way a unionized employee would accept a reduced salary or reduced raises because of an increased payroll tax. Bottom line: non-unionized employers may adjust compensation over 3-10 years, and unionized ones are S.O.L.

In any case, it's just posturing. Ignatieff can promise what he wants, but:
- His realistic hopes are not to form a government, but to force the Conservatives to remain a minority. Offering unrealistic promises is ok, because he wouldn't have to deliver
- If luck gives him the power to govern, the provinces will veto him.

So, Prof Iggy is making an academic argument to keep the class interested.
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Re: CPP and OAS

Postby Bylo Selhi » 31 Mar 2011 13:05

A gradual expansion of the CPP is a good idea but only if it is done right, says Fred Vettese, chief actuary with Toronto-based Morneau Shepell. “That means responsible employers who already provide pension coverage should be able to pare back that coverage dollar for dollar to reflect the increase in CPP.”
I'm not sure I understand what he's proposing but if I do, it seems like a reasonable objective.

But that’s not what labour groups have in mind, Vettese says. “They want to see a bigger CPP pension cheque in addition to the employer pension they already get, and in some cases the resulting pension will be excessive.”
I have no idea what labour groups have in mind so I have no way to gauge whether there's any substance to this claim. Maybe it applies in a few specific cases, e.g. auto workers, but not for the vast majority of people who lack employer-sponsored pensions and who otherwise stand to retire with pension income that's somewhat less than "excessive." But even if there's some substance to Vettese's claim that shouldn't mean that the whole idea is dismissed out of hand.

Consultant Greg Hurst, of Vancouver-based Greg Hurst & Associates Ltd., agrees: “Higher CPP benefits would unnecessarily benefit those who already have good pensions. It will also cost taxpayers more money to support higher CPP contributions of public sector employers, that already offer very generous pension plans.”
See previous comments. An expanded CPP doesn't have to be universal. It could be offered only to those without an employer-sponsored pension. Or the maximum amount that can be contributed could be adjusted based on the benefits provided by the private pension, just as RRSP room is adjusted using PAC.
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Re: CPP and OAS

Postby newguy » 31 Mar 2011 13:08

Bylo Selhi wrote:
A gradual expansion of the CPP is a good idea but only if it is done right, says Fred Vettese, chief actuary with Toronto-based Morneau Shepell. “That means responsible employers who already provide pension coverage should be able to pare back that coverage dollar for dollar to reflect the increase in CPP.”
I'm not sure I understand what he's proposing but if I do, it seems like a reasonable objective.

Since CPP is integrated with pensions I don't think anyone needs notice a difference. It's really just switching managers from private to public (or public to public). The only caveat is it may switch from DC to DB, but I think any expanded CPP should be DC.

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Re: CPP and OAS

Postby Bylo Selhi » 31 Mar 2011 13:14

marty123 wrote:In any case, it's just posturing. Ignatieff can promise what he wants, but:
- His realistic hopes are not to form a government, but to force the Conservatives to remain a minority. Offering unrealistic promises is ok, because he wouldn't have to deliver
- If luck gives him the power to govern, the provinces will veto him.

So, Prof Iggy is making an academic argument to keep the class interested.

You make a lot of very good points marty123, but this one can't be lumped-in with the good stuff ;)
- Steve's position is that if he wins a minority, Iggy and Jack (with Gilles lurking in the shadows) will take over government from him. If that's true then presumably Iggy's telling us what he intends to do even if he doesn't "win" the election ;)
- It seems kind of premature, if not laughably silly, to rule out a Liberal minority this early in the election campaign. And even if you do then we might as well all ignore what any of the candidates have to say about anything since it's all meaningless now that we "know" the outcome of the election.

As for provincial veto, it's hardly inevitable. If it is then how did Martin manage to make drastic reforms to CPP? And in any case, perhaps a supplementary pension plan that mirrors the CPP doesn't need provincial approval in the first place.
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Re: CPP and OAS

Postby marty123 » 31 Mar 2011 13:53

Bylo Selhi wrote:- Steve's position is that if he wins a minority, Iggy and Jack (with Gilles lurking in the shadows) will take over government from him. If that's true then presumably Iggy's telling us what he intends to do even if he doesn't "win" the election ;)

That's Steve's position. What does it have to do with me :wink:
- It seems kind of premature, if not laughably silly, to rule out a Liberal minority this early in the election campaign. And even if you do then we might as well all ignore what any of the candidates have to say about anything since it's all meaningless now that we "know" the outcome of the election.

I don't know the formal Bloc policy, but Quebec needs to focus its attention on fixing the RPP reserves, so Duceppe may not vote with Iggy on this one. I didn't rule it out that the Liberals could get a minority (or even a majority), I said if that if luck allowed him to get this minority (or even a majority), then the provinces would veto him.
As for provincial veto, it's hardly inevitable. If it is then how did Martin manage to make drastic reforms to CPP?

The reforms were necessary and Martin had a viable plan. Since then, tweaking and tinkering is not necessary to preserve the CPP. This Liberal/NDP plan is not necessary, the plan is potentially harmful to the economy, and it takes away from provincial jurisdictions. Even if the Liberal/NDP plan could be sufficiently improved, there is no way it will be acceptable to AB and QC. Throw in another 1 or 2 provinces that will just disagree for the sake of disagreeing. As I said, Prof Iggy is making academic arguments to keep the class interested. Might as well promise to cap credit card interest rates at P+5%.
And in any case, perhaps a supplementary pension plan that mirrors the CPP doesn't need provincial approval in the first place.

I'd wonder what's involved. To mirror the CPP, it would need to be operated by the CPPIB. It might still require approval from the provinces.
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Re: CPP and OAS

Postby brucecohen » 11 Apr 2011 10:40

Here are details of the Quebec govt's plan to increase the QPP contribution rate. This will be the first time that the QPP and CPP rates are different.

Looks like QPP's combined employer-employee rate will rise 15 basis points each year until 2017 when it'll be 10.8%. (The CPP rate is now 9.9% with no increases proposed.)
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Re: CPP and OAS

Postby adrian2 » 10 Jun 2011 13:17

Don’t double down on a “Big CPP,” CD Howe warns

Jonathan Chevreau wrote:The recent Conservative majority mandate has quieted rival proposals for an expanded or “Big” Canada Pension Plan. Both the NDP and its Big Labor constituency and the vanquished Liberals had pushed for a “Big CPP.”

Now comes a paper from the C.D. Howe Institute that suggests a Big CPP would create more problems than its proponents let on. In Don’t Double Down on the CPP: Expansion Advocates Understate the Plan’s Risks, William Robson says advocates of an expanded CPP as a solution to retirement income worries too often promote it as a plan with guaranteed benefits that are fully funded.

William B.P. Robson wrote:The CPP is a gamble, not a guarantee: expanding the plan would raise the stakes on a bet most Canadians do not know they have made.

The CPP may look like a defined-benefit plan, but it is not, adds Robson, who is president and CEO of C. D. Howe. The CPP’s retirement benefits are targets contingent on its financial condition. Those targets can be and have been changed by governments.

The CPP is not fully funded in the normal meaning of the term — i.e. the ability to pay its obligations with assets on hand at a point in time, says Robson. The CPP’s ability to pay currently promised benefits at the current 9.9% contribution rate now depends on investment returns well above those now available on Canadian sovereign-quality debt.

The CPP used to be a pay-as-you-go plan funded from current contributions and later (in 1998) became a partially funded plan. If it were a true Defined Benefit pension plan like most corporate pensions, its contribution rate would have to be 11.3% or more, Robson argues.

The Quebec Pension Plan has been forced to trim benefits and raise contributions because of adverse demographic trends and economics, coupled with low investment returns.

Expanding the CPP would expose other Canadians to a larger risk of similar disappointments, Robson warns.

[...]

P.S. After posting the original version of this blog, I heard from Bill Tufts, of Fair Pensions for All. In this link, he discusses possible changes with Bernard Dussault, chief actuary of the CPP.

Tufts argues there are too many variables that have to be aligned positively in order for the CPP or QPP to remain viable — even at today’s relatively modest levels of contributions and benefits. They include fertility and mortality rates, labour participation rates, inflation, immigration, unemployment and job creation and rising health care costs.
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Re: CPP and OAS

Postby tidal » 10 Jun 2011 13:54

adrian2 wrote:Don’t double down on a “Big CPP,” CD Howe warns
Jonathan Chevreau wrote:...
William B.P. Robson wrote:The CPP is a gamble, not a guarantee: expanding the plan would raise the stakes on a bet most Canadians do not know they have made.
Essentially all of our public pension plans, corporate pension plans, endowments for universities/hospitals/charities/foundations/etc., the business model for our insurance companies and many other capital market institutions and practices are based on a one-way bet that most Canadians (and, for that matter, world citizens) do not know they have made. One of the implications is that we collectively treat $1million of equities today as if it is worth more than $1million of bonds or cash. Today. It's not. But we treat it like it is based on a collective belief that it will/must be. But that violates some very, very basic tenets of finance, including some very basic arbitrage.

Scary stuff.
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Re: CPP and OAS

Postby AltaRed » 10 Jun 2011 17:03

The other problem with an enhanced CPP is NDPers and Grits expected the employer world to increase its contributions. A rather silly thought in my opinion since companies are already looking to reduce their contributions to enhanced benefit plans. The 'employee' may not be so ready to put in 100% of the contributions on the step up.
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Re: CPP and OAS

Postby adrian2 » 07 Jul 2011 10:18

An update: CPP benefits should be doubled: Study

Jonathan Chevreau wrote:Even though a "Big CPP " was championed by losing parties in the recent election, the idea of almost doubling benefits paid out by the Canada Pension Plan refuses to die.

If a new and mandatory national defined benefit [DB] pension plan proposed by retired Finance Department mandarin Keith Horner gets traction, CPP and QPP benefits would jump from 25% to 40% of earnings up to $48,300 and from zero to 25% on a bigger salary base of $96,600.

In a 40-page paper published Tuesday by the Institute for Research on Public Policy, Mr. Horner makes the case for something just short of the Big CPP championed by the NDP, the Canadian Labour Congress and the Liberals in the election won by the Conservatives.

They felt building on the CPP was the best way to make up for the gradual loss of old-fashioned DB pensions being phased out by private-sector employers. The need is certainly there: Canadians haven't saved enough to make up the difference. Mr. Horner says 28% of modest-income earners ($25,000 to $60,000 per year) and 29% of middleincome earners ($60,000 to $100,000 per year) aren't saving enough to replace 90% of their working incomes.

Finance Minister Jim Flaherty hasn't ruled out a "modest" enhancement to the CPP, but the Conservatives instead pushed employer-sponsored Pooled Registered Pension Plans (PRPPs), which get only scant attention in Mr. Horner's report.

Mr. Horner bills his National DB Plan as a modest enhancement of CPP, but "modesty, like beauty, is in the eye of the beholder," quips Mercer partner Malcolm Hamilton. "To double the earnings limit and then to further increase the benefit on earnings up to the YMPE by 60% is, in my view, a fairly ambitious expansion of the CPP."

A critical part, IMO:

Mr. Vettese says reform proposals often assume extra years gained by longevity breakthroughs go to retirement, but "we need to spend at least some of our extra longevity working." Also, he warns, employers may pare back their pensions so the total payout from all sources remains the same. At the same time, labour will want to keep any gains from expanding CPP but oppose offsetting reductions in employer pensions.

And one more piece:

While declining pension coverage puts more onus on individual saving through RRSPs or group RRSPs, the report's appendix contains a surprising attack on tax-free savings accounts. Mr. Horner frets TFSAs will allow middle income seniors to pay little income tax while collecting the Guaranteed Income Supplement, eventually crippling Ottawa's finances.

Mr. Hamilton is less enthused about this aspect. Mr. Horner "views a mandatory DB plan forcing the working poor to save money that will ultimately reduce their GIS benefits as a good thing," Mr. Hamilton said. "The government would profit handsomely by forcing the working poor to contribute to an expanded CPP and then denying them (through the GIS clawback) a reasonable return on their contributions."

Mr. Hamilton would rather see CPP expansion restricted to those earning over $20,000. "Those who earn less don't need to, and cannot afford to, save more for retirement."

Consultant Keith Ambachtsheer agrees if additional contributions go through TFSAs, rising GIS costs would hurt Canada's fiscal stability 30 years from now. That's why Mr. Horner favours the mandatory DB option, Mr. Ambachtsheer explains: "It produces taxable income down the road, thus reducing GIS eligibility."
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Re: CPP and OAS

Postby George$ » 07 Jul 2011 19:24

adrian2 wrote:An update: CPP benefits should be doubled: Study

For the source IRPP study see A New Pension Plan for Canadians - Assessing the Options - Keith Horner pdf file (44 pages)
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Re: CPP and OAS

Postby dns902 » 06 Nov 2011 12:37

This is not really on thread but I think it's on topic: CPP and OAS. I'd like a little help in calculating CPP amounts if taken at age 70 under the new rules. (Whether that's a good idea is not relevant to this post). In particular I'm confused by the drop out provisions after age 65. There are no child rearing issues etc.

(1) Stopping work at 65. No earned income after 65. CPP at 70

Here the basic drop out period I think is 17% of conrtributory period (1966 to age 70) plus the period 65 to 70. The CPP pension fraction is (years of contributions)/(contributory period - drop out period) to a maximum of one. This is then multplied by 1.42 for deferred payment of CCP. I think this is correct. It assumes for years of contributions they are at YMPE level.

(2) Continuing to work to 70. CPP at 70. Income 65-70 at YMPE.

This is where I'm confused. Apparently the years 65-70 can be substituted for low earning years pre 65 but i'm not sure how that plays into the pension fraction calculation. Does it mean 5 is added to the actual number of years of contributions, in which case those 5 later years are effectively counted twice, while the drop out period is now just 17% of contributory period 1966 to age 70? I just do not know how the numerator and denominator work in the pension fraction and believe me I've searched the internet. There is again the increase of 42% due to deferral.

(3) Working till 70, CPP at 65. Making post retirement contributions 65-70 at YMPE.

At 70, I think the CPP is what is is cacluated to be at 65, plus 5/40 of full CPP. (Ignoring inflation).

I'd appreciate comments from anyone who actually understands this. Thanks.
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