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Pensions - part 2

Unionist
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Joined: Dec 11 2005

Continued from here.


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Unionist
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Joined: Dec 11 2005

Op-ed piece by Jon Kesselman - 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
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Joined: Feb 24 2008

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
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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.

Source.

 


DrConway
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Joined: May 6 2001

Re CPP defined contribution.

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


Sunday Hat
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Joined: Nov 10 2008

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
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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
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Joined: Nov 10 2008

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
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Joined: Dec 11 2005

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
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Joined: Aug 18 2001

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
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Joined: May 6 2001
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
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Joined: Oct 28 2007

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?


abnormal
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Joined: Aug 18 2001

DrConway wrote:
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?

From Wiki:

Quote:
a defined benefit pension plan is a type of pension plan in which an employer promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending on investment returns.

It does not mean that everyone receives the same amount, only that the amount is predetermined based on a formula.  A typical private pension plan would pay a fixed percentage of the employee's final salary (or the average of the last five years of salary or some such).  [FYI, if you're reading articles in the UK press this type of pension is typically called a final salary plan on that side of the pond.]

That differentiates it from a defined contribution plan (which are effectively tax advantaged savings plans some of which revert to an annuity upon retirement and some of which simply provide a lump sum at that point in time). There are other variants (for example cash balance plans fit somewhere in between).

Quote:
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.

Actually, no. The existing fund has been built up over a number of years - doubling payments would mean that when benefits start to be paid out of the fund it will be depleted much more rapidly than would otherwise have been the case - that's why I say that contributions would have to be more than doubled.


DrConway
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There can BE no fund. Not when the CPP as conceived was set up as a generational transfer mechanism. The very idea that government-run pension systems can have pools of funds when thwy're run on the equivalent of the cash basis of accounting is a little ridiculous. Why else do you think everybody in Congress knows the Social Security Trust Fund is a complete load of hooey? Because all they do is grab the surplus not used to fund present obligations, stick an IOU into the trust fund, and go off and spend the money. There IS no doomsday scenario when obligations exceed revenues: Congress will simply have to spend general revenues into the Social Security budget. The same principle applies here to CPP (the part not in the stock market). And I had a little bet with myself you would try to throw out more accounting bafflegab to obscure this, and you did.

abnormal
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Joined: Aug 18 2001

DrC - I suggest you learn something about pensions and accounting before you start accusing people of throwing out bafflegab.

 


DrConway
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Do you agree that this is the mechanism by which the CPP transfers funds to people, outside of the funds invested in the stock market?

http://tinypic.com/view.php?pic=2yvryw6&s=6

 

If you agree that this is the mechanism, then where is the need to "build up" an excess? There is no need, because the year to year payments to senior citizens are met by the year to year revenues from payroll taxes.

This is also why I get very annoyed by the doomsdayers who claim that in year X there will be OMG NO MONIES AGH THE SKY R FALLING IN.

There is no such thing! All it means is that yearly revenues from the source (working people) will fall short of yearly revenues to the destination (senior citizens).

I again invite you to explain to me how a pool of funds magically appeared the day the CPP was started, instead of the plain fact that it effectively operated on the cash basis as a generational transfer.


George Victor
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Joined: Oct 28 2007

Dr. C: "There is no such thing! All it means is that yearly revenues from the source (working people) will fall short of yearly revenues to the destination (senior citizens)."

 

And the future for "non'working" people is assured by.....?


Unionist
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Joined: Dec 11 2005

Before we worry about pensions for "non-working" people, how about unemployment insurance? How about wages, for that matter?

 


G. Muffin
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Joined: Sep 28 2008

Unionist wrote:
Before we worry about pensions for "non-working" people, how about unemployment insurance? How about wages, for that matter?

I'm underemployed (4.6 hours a day at $9 plus tip, average 2 to 4 shifts per week) and am dipping into the pension fund at the age of 43.  I get $805 a month.  As soon as I get back on my feet (hah!) I'll contribute more than I take away.  That's what everybody tries to do.


George Victor
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Joined: Oct 28 2007

Unionist wrote:

Before we worry about pensions for "non-working" people, how about unemployment insurance? How about wages, for that matter?

 

Well, it's a reply to my question, but obviously not from one who has to worry about the old dears out there making do on $512 plus a couple of hundred in GIS and sharing food with their cat (women more than men, they live longer and in the past, did not work for wages).

Wondered why it took so  much urging to move it off the CPP part of the pension quandry.


peterjcassidy
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Joined: Apr 27 2001

CPP has worked well, most people who are supposed to get CPP benefits get them,  while income exceeds outgo.  To double the benefits payable and expand coverage would need a substantial increase in premium .and a phased in approach.  First raise the premiums and then, when the cash is there and you know it is doable, raise the benefits. I think this is doable and should be done.  Jack, Wayne and the federal NDP team have done a great job on this issue.

.


George Victor
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Joined: Oct 28 2007

et tu Peter? 


G. Muffin
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Joined: Sep 28 2008

Do we need to have CPP at all?  It's a bloated and inefficient bureaucracy.  I had one hell of a time convincing them that I was disabled.

Why not push for more RRSPs instead?  


oldgoat
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Joined: Jul 27 2001

CCP disability benifits, to which I assume you're referring are an admistrative nightmare trying to co-ordinate benifits with their provencial counterparts which for all their own problems are a lot better.  In Ontario if you qualify for ODSP you're really better off not getting CPP.

 

BTW, Hi! Wink


G. Muffin
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Joined: Sep 28 2008

oldgoat wrote:

CCP disability benifits, to which I assume you're referring are an admistrative nightmsre trying to co-ordinate benifits with their provencial counterparts which for all their own problems are a lot better.  In Ontario if you qualify for ODSP your really better off not getting CPP.

 

BTW, Hi! Wink

All I know is that CPP gives me $805.  I am entitled to provincial benefits up to an amount ($95) which brings the total to $900. Everybody is entitled to $900.  The feds don't claw back until I earn $4,600 in a year (not going to make it this year!).  The province (BC) allows me to earn up to $500 per month without clawing back.  I only received 2 or 3 months worth of BC money before my work disqualified me.  The advantage to the provincial plan is that you get free basic dental care, free psychiatric medication, a gimp bus pass for $45 annually, so I'm still registered with them even though I don't get any money.  

Mine is a special case (aren't we all?) in that I have a job that does not threaten my mental health.  I work at a cubicle farm and people address each other by their employee numbers.  If I don't want to come in, I don't bother.  If #A353 is empty and my employer needs the work done, they have a call in list.  I also do not have to abide by a schedule.  I get there, I work 4 1/2 hours or so, I go home. Regular pay plus bonus works out to $14.08 per hour.  I'm old enough that that seems like a decent salary for a dumbo job.

I see I've strayed off topic so I'll end it here.

Merry Christmas, Oldgoat!  Thanks for your support.


1weasel
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G. Pie wrote:
Why not push for more RRSPs instead?  

Management fees that cut into earnings are one reason.  More important is that few people take full advantage of RRSPs since it is a discretionary purchase.  There is always something to spend money on, good or bad, than voluntarily save for retirement.


canuquetoo
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Joined: Apr 26 2009

Expanding CPP and deducting larger premiums for an involuntary retirement savings plan makes much sense. RRSPs are a vehicle for unscrupulous 'financial planners' to peddle mutual funds and other financial products that pay commissions and fees to said planner from the high MERs (management expense ratio) charged by Funds on an annual basis.

MERs of ~2% annually can be avoided by simply choosing one's own blue chip Canadian stocks, having the stock purchase registered in one's own name, rather than the broker and then joining the company's DRIP.

 A Dividend Reinvestment Plan allows the shareholder to have all dividends automatically invested in more shares, purchased from the corporation's treasury at up to a 5% discount, allows fractional shares, allows additional share purchases at a discount directly from treasury AND, charges NO fees or commissions.

Why pay some shyster 2% per annum to manage a mutual fund made up of the same stocks one can purchase themselves on the open market? DRIPS avoid brokerage fees, financial 'planner' commissions and all the other assorted impositions of the banksters.

Save YOUR Money - tell the 'planners' to take a hike.

For those individuals who won't take the time to inform themselves on personal financial planning and take responsibility for their own future, an expanded CPP or even open plans like municipal pension plans that individuals ( and their employer contributions) can join make sense.

 

 


G. Muffin
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Joined: Sep 28 2008

peterjcassidy wrote:
CPP has worked well, most people who are supposed to get CPP benefits get them,  

Horse shit.  The people who need help the most do not have the resources to fill in the application. CPP Disability means a 16 page application form.  I've been a legal secretary for over a decade and was utterly flummoxed by it.  I filled out part of it, my sister filled out another part, and the social worker filled out the rest.  If I had been happily living under a bridge like I wanted to, it would have been impossible.  They denied me for years until they saw the light and gave me a lump sum back payment.  Which I blew.  Because I was manic.  And the Representation Agreement Act cruelly denies me the rights that I deserve:  the services of a proxy when I have diminished capacity.

Oh, dear, I seem to be nattering on about the Mental Illness Act again.  Good night.


abnormal
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Joined: Aug 18 2001

G. Pie wrote:

Do we need to have CPP at all?  It's a bloated and inefficient bureaucracy.  

You can make that statement about a lot of programs - bureaucracies have a tendency to become self-sustaining and, unless checked, try to grow without limit.  The truly bad thing about that (other than the fact that they become nightmares to deal with) is the fact that they soak up a lot of money that could be used to fund the CPP itself or, failing that, other programs.

Quote:
Why not push for more RRSPs instead?  

CPP and RRSP's function quite differently.  Stripped to its bare essentials an RRSP is nothing but a tax advantaged savings plan - if you don't have surplus income to save you don't have an RRSP.  And even if you do have money to save the tax benefits are purely a function of your marginal tax rate.  If you're in a high tax bracket the benefits can be significant, but you have to have income in order to benefit.  Having said that, anything that would increase the level of personal savings is a good thing so expanding the limits on RRSP's isn't bad in itself.  It just doesn't help the same people that an increase in CPP benefits would.

 


George Victor
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Joined: Oct 28 2007

Until they turn 65.

Then what are the options for a "good life" - or even a half-decent one if there are no savings anywhere? Saving was not possible?

Really hard to get an answer to that one. Back in the early 80s folks would have been all over it, pointing to the absence of womens' rights in the current pensions dilemma.  That does not seem to stir interest any more, for some reason.

 


Magog45
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Joined: Nov 20 2008

I favour keeping things mostly as they are with some small changes around the edges, perhaps a law requiring companies to keep private plans fully funded as per their agreed apon responsibilities and perhaps the implimentation of a 401k type of system where the employer matchs the employee contribution up to a defined maximum. Also when a company goes bankrupt pension and severance should be first rather than last to be paid, and the owners shouldn't be able to hide behind a bunch of numbered companies, they have to take responsibility.


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