Pensions - part 2

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Unionist
Pensions - part 2
Unionist

[url=Op-ed">http://www.theglobeandmail.com/news/opinions/who-will-pay-to-end-the-loo... piece by Jon Kesselman[/url] - largely reflects my thinking as well:

Quote:

The CPP currently covers all employees and self-employed persons on their earnings up to $46,300 a year, with retirement pensions paid at 25 per cent of the worker's average insured earnings. The maximum annual benefits are $10,900, and the average benefits are just $6,000, far below full-time earnings. To finance the scheme, workers and employers each pay premiums that are 4.95 per cent of insured earnings.

Big-CPP fighters have their sights set on at least doubling the benefit rate to 50 per cent, others would fight for 70 per cent, and some aim to raise covered earnings to $70,000 or higher. Their schemes would raise the maximum benefits from threefold to sevenfold. Even for moderate earnings, the benefit would be at least doubled. As in all wars, the expansion of CPP would be costly, carrying with it a large hike in premium rates.

Opponents of Big-CPP insist that the current system of workplace pensions and tax-assisted savings can be remedied. Their arsenal includes a managed voluntary “multi-employer” pension plan, an improvement of the financial security of workplace pensions and an enhancement of the income-tax treatment of individual savings. [...]

Like most conflicts, the battle between Big-CPP proponents and supporters of enhanced voluntary savings and workplace pensions may not yield a clear-cut victory for either side. But some expansion of the Canada Pension Plan or an alternative mandatory scheme for employers and workers who save inadequately will be an essential element in any lasting peace.

ottawaobserver

Some expansion of the CPP is mandatory, I agree.  But we also need to do something about the income security of the folks who have lost their current pensions, which is why I also favour a hike in the (income-tested) GIS.  We fund that out of a very targetted taxback of the bonuses paid to the thieves, er executives, at Nortel and other similar outfits.

I haven't been paying close attention to the details of the story, but what is that $1 billion insurance thingy that John Roth is seeking?  Is it civil liability insurance or something?  He, Frank Dunn and Zafirovski (sp?) are at the top of my list of evil greedy people who should be held accountable for destroying decades of hard work and thousands of lives.

Unionist

ottawaobserver wrote:

I haven't been paying close attention to the details of the story, but what is that $1 billion insurance thingy that John Roth is seeking?  Is it civil liability insurance or something?

It must be some U.S. type action. I don't understand high finance:

Quote:
Former Nortel CEO John Roth filed a U.S. creditor claim on Dec. 1 seeking $1 billion from Nortel if he loses a series of class-action lawsuits filed by former employees. Roth, who took millions with him when he left the company in 2001, wants Nortel to cover up to $1 billion of his costs if he loses a series of class action lawsuits filed by former employees.

John Roth, who was in charge when the company's stock soared in 1999 and 2000, filed a U.S. creditor claim in a U.S. bankruptcy court on Dec. 1 seeking a $1 billion U.S. indemnification from Nortel of his personal assets with respect to those lawsuits. When he left the company he took $130 million with him.

Essentially, Roth is seeking insurance to cover him in case U.S. courts decide he must pay an award to the plaintiffs.

[url=Source.[/url]">http://retire-secure.blogspot.com/]Source.[/url]

 

DrConway

Re CPP defined contribution.

I remember hearing back in the 1970s it was strictly a defined benefit.

Sunday Hat

Kesslemen's "people have to be protected from their own stupidity" argument will make this pretty easy for the insurance companies to blow this one out of the water:

 

"The "forced savings" aspect of a mandatory universal public pension scheme can address these gaps... By mandating universal coverage, a public scheme also protects the treasury and the taxpaying public against another kind of risk: people with the ability to save for their retirement who fail to do so and thus draw upon income-tested public benefits in old age."

 

Apply that argument to medicare.... yikes.

 

I think doubling the CPP is a good idea but it still won't provide an adequate retirement income - and this condescending language doesn't make the case very well.

Sunday Hat

Kesslemen's "people have to be protected from their own stupidity" argument will make this pretty easy for the insurance companies to blow this one out of the water:

 

"The "forced savings" aspect of a mandatory universal public pension scheme can address these gaps... By mandating universal coverage, a public scheme also protects the treasury and the taxpaying public against another kind of risk: people with the ability to save for their retirement who fail to do so and thus draw upon income-tested public benefits in old age."

 

Apply that argument to medicare.... yikes.

 

I think doubling the CPP is a good idea but it still won't provide an adequate retirement income - and this condescending language doesn't make the case very well.

Sunday Hat

Kesslemen's "people have to be protected from their own stupidity" argument will make this pretty easy for the insurance companies to blow this one out of the water:

 

"The "forced savings" aspect of a mandatory universal public pension scheme can address these gaps... By mandating universal coverage, a public scheme also protects the treasury and the taxpaying public against another kind of risk: people with the ability to save for their retirement who fail to do so and thus draw upon income-tested public benefits in old age."

 

Apply that argument to medicare.... yikes.

 

I think doubling the CPP is a good idea but it still won't provide an adequate retirement income - and this condescending language doesn't make the case very well.

Unionist

DrConway wrote:

Re CPP defined contribution.

I remember hearing back in the 1970s it was strictly a defined benefit.

It's both. Benefits are defined by a formula, and both employee and employer contributions are defined as a percentage of pay, up to the maximum yearly pensionable earnings ($46,300 this year, going up to $47,200 in 2010).

The opposite of "defined benefit" is not really "defined contribution". A better term, which used to be in vogue, is "money purchase" - i.e., no specific guaranteed benefit formula based on years of service and final average earnings (as in DB plan), but rather, whatever your accrued funds will buy (like an RRSP, which is "money purchase").

 

abnormal

DrConway wrote:

Re CPP defined contribution.

I remember hearing back in the 1970s it was strictly a defined benefit.

It is.  The fact that it's now partially prefunded doesn't change it's nature.

On an unrelated topic - I screwed up on the number of retirees per worker and inverted the fraction.  The first set of numbers I came up with are American but I would expect Canadian numbers would be similar.

Quote:
In 1940, there were 42 workers per retiree. In 1950, the ratio was 16-to-1. Today, there are 3.3 workers per retiree, and within 40 years, it's projected that there will be just two workers per retiree.

 

DrConway

Then if it's defined benefit why does the government make all this noise about how many years you've worked and how this affects how much money you get from the CPP?

Or is that just bafflegab that obscures the fact that everybody who's a Canadian citizen over a certain age collects the same base amount from the CPP?

In that case, ok, it's still defined benefit.

As for the pot of money or whatever, if we ignore whatever's in the stock market (and I am surprised that the fund managers seem to actually be exerting some effort... guess they feel guilty enough to do SOMEthing to show for the management expense ratio they clip the feds for) then I see no mystery. Present obligations not met by the pool of funds are met by present revenues going into the fund, essentially operating on the cash basis of accounting.

Therefore doubling payouts does, as a rough rule of thumb, mean doubling payroll taxes.

George Victor

Abnormal: 

"On an unrelated topic - I screwed up on the number of retirees per worker and inverted the fraction.  The first set of numbers I came up with are American but I would expect Canadian numbers would be similar."

Quote:
In 1940, there were 42 workers per retiree. In 1950, the ratio was 16-to-1. Today, there are 3.3 workers per retiree, and within 40 years, it's projected that there will be just two workers per retiree.

 

Whew, Now I can look my daughter in the eye again. 

But I guess all of this talk about "what's in it for the worker drawing CPP" still leaves me wondering about consideration for those unemployed who make it to 65?  Have you seen the levels of income for OAS and GIS lately?