# Pension Reform - voluntary enrolment in government run plan



## cannon_fodder (Apr 3, 2009)

I've heard only snippets of information about pension reform discussions and one idea is very intriguing.

The government already runs the CPP. Why not allow Canadians the option to take advantage of this management by contributing additional money, perhaps instead of to their own RRSP's.

Some of the thinking behind this is the recent economic crisis and the impact to retirement savings. Because many people just blindly invest (or blindly accept advice from those who range from industry professionals to well meaning friends to strangers on the internet ) they have seen their savings decimated at a time that they couldn't afford to fail.

I can only imagine the uproar that mutual fund companies, brokerage houses and banks would unleash if the government decided to offer Canadians an opportunity to divert at least some of their funds away from these profit-focused companies.

Certainly there will be many people who will not embrace the idea that the government could do something better than they could do on their own. The fact that they already control the CPP (and OAS) is enough. Plus, what's that phrase about putting all of your eggs in one basket?

Apparently, BC and AB were considering implementing provincially-based pension plans but they would definitely be interested in a nationally run plan with similar goals.


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## HaroldCrump (Jun 10, 2009)

I personally welcome this idea.
It takes away the time spent investing - time which can now be devoted to other things like family, hobbies, health, etc.
Since CPP is a DBP plan, it takes away the risk that one might outlive one's savings.
It also levels the playing field between those with gold-plated, DBP plans (public sector employees, govt. employees, etc.) and those who don't (the RRSPers).
Assuming additional contributions to CPP are made optional, it will be like any other public sector DBP plan.
I might be amongst the first to sign up.
In fact, why would anyone _not_ sign up for this?


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## hboy43 (May 10, 2009)

Hi:

On the principle that less government is better, I'd be inclined to not want this scenario. Then as you said, one would be giving all (or most) one's eggs to a single entity. Bad enough on it's own, but it is then an entity that is systematically predisposed to dishonesty and stupidity.

I think the issue that needs addressing is the whole notion of retiring at 65 when the conditional probability is to live to 85 (mor eor less )given you made it to 65. I mean, come on, 65 came from some German general was it, more than a century ago when the life expectancy was 64 or something. Does it really make sense that one only needs to work and be productive for the 1/3 of life between age 22 or so and retirement? This works fine for the wealthy, but for everyone?

Someone needs to suggest that retirement, CPP, etc, comes at L-X where L is the average life expectancy and X is the number of years one gets in retirement on average. L of 85 and X of 20 (or 25!), the current scenario, doesn't seem to make sense. Probably about X=10 is a number that is sustainable. This isn't an electable position though, so I expect we will choose the muddle through until collapse scenario.

hboy43


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## HaroldCrump (Jun 10, 2009)

X needs to be at least 20 - 25, ideally more.
The concept that one needs to spend the entirety of one's peak life time in wage slavery is wrong.
Some people enjoy their jobs and don't consider it as a "job", however, most people don't.
The social financial system (pensions, social security, etc.) need to be structured in a way that enable people to "retire" from wage slavery and live long enough to enjoy a little of their life, if they so choose.
In other words, have an existence that is slightly better than that of an ant.


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## Four Pillars (Apr 5, 2009)

I'm fine with the idea of expanding CPP especially if it is voluntary.

I'm not sure that investing in CPP is any different than just doing a conservative couch potato strategy and then converting to annuities (or not) as you get into retirement age. If you were a retiree and got nailed in the market turmoil then you were probably over invested in equities. Or maybe your portfolio is fine and you just can't handle volatility?

I have to admit that I'm a bit perplexed by all the hoopla over Canada's "inadequate" government pension system. OAS, CPP and GIS are enough to keep everyone out of the poor house which I think is a pretty good accomplishment. 

A lot of the examples I've seen in the paper often talk about middle class people who apparently can't save a nickel and they will be in trouble when they retire. Shouldn't the answer be that they have to save more? And if they can't save and have to cut their standard of living in retirement - why is that a problem?


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## MoneyGal (Apr 24, 2009)

The PAYGO pension system was introduced by Otto von Bismarck in 1889. 

At the time, pensionable age was set at 70, while life expectancy in Prussia was age 45. If the gap between pensionable age and life expectancy established by von Bismarck was maintained today, CPP would begin at age 95.


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## Ben (Apr 3, 2009)

Four Pillars said:


> I have to admit that I'm a bit perplexed by all the hoopla over Canada's "inadequate" government pension system. OAS, CPP and GIS are enough to keep everyone out of the poor house which I think is a pretty good accomplishment.
> 
> A lot of the examples I've seen in the paper often talk about middle class people who apparently can't save a nickel and they will be in trouble when they retire. Shouldn't the answer be that they have to save more? And if they can't save and have to cut their standard of living in retirement - why is that a problem?


I was thinking the same thing. The trio of retirement income streams, especially for a married couple, is really not bad at all.

And I don't have a lot of sympathy for people who've partied their life away only to realize they should've socked some away for when the party ended. This being the mid-to-upper income folk who will see the reduction in lifestyle.


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## Saniokca (Sep 5, 2009)

Ben said:


> I was thinking the same thing. The trio of retirement income streams, especially for a married couple, is really not bad at all.
> 
> And I don't have a lot of sympathy for people who've partied their life away only to realize they should've socked some away for when the party ended. This being the mid-to-upper income folk who will see the reduction in lifestyle.


I'll add myself too.

Assuming you get the max CPP&OAS you have 1,450/month. If you have a spouse it's almost 3k. How is this not enough? You can live VERY well on that income.


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## John_Michaels (Dec 14, 2009)

I'll get in line behind Ben's and FourPillars comments. Yes, after living like an ant (to modify HaroldCrumps observation), I have limited sympathy for those who live the life of a grasshopper with a middle-class income. (Hubert should have kept quiet http://news.yahoo.com/s/ap/us_hungry_seniors)

I'm a little perplexed on the reasons behind the pension reform. What we have today appears to be a good working system. Not generous but adequate. This thrust doesn't seem to be the normal increase-the-benefits approach that we can agree or disagree with. It's adding another piece to the pension puzzle. 

I don't buy that it's driven by the Nortel's and other companies going out of business and leaving little in the way of pension. Why should those without a pension pay for those that do (or did)? Perhaps this is driven by the Insurance or Trust companies hoping for a larger piece of the pie? 

As for voluntary? We're all for it of course, it can only benefit us even more. For others in Canada, this approach is not making sense. RRSP, RESPs, TFSAs, many won't or are unable to save if their life depended on it...heck, take an extreme example, reading Neil Reynold's (G&M) article "Cigarette taxes: The poverty punishment", it does and they still don't. I know many in that unfortunate boat.

As for X-20 to 25 years, I believe CPPs assumptions are 30 years. I start working @ 25 and end working @ 55...sounds not bad. "The Pension Puzzle" is a good read and I've signed it out multiple times.


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## HaroldCrump (Jun 10, 2009)

Four Pillars said:


> I'm not sure that investing in CPP is any different than just doing a conservative couch potato strategy and then converting to annuities (or not) as you get into retirement age.


Perhaps, however, timing plays an important role.
When/if you chose to take out an annuity, the prevailing interest rate environment makes a difference on whether you get a good deal or not.
You may have worked hard for 30 years to save your nest egg, but if your timing of retirement sucked, well, it sucks.
OTOH, if you had a DBPP throughout your working life, you were covered from all of that volatility.


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## OhGreatGuru (May 24, 2009)

I have no particular objection to a voluntary supplemental CPP. It would be completely transportable, convenient, and safe. So some people would find it attractive and useful.

The problem I have from a social policy point of view, is that if it is voluntary it won't solve the problem our politicians are complaining about. They are supposedly worked up because of reports that too many modest - to - middle income earners are not saving enough for retirement. Well guess what, we already have a voluntary retirement savings plan for all these people - it's called an RRSP. If people are not voluntarily putting money into RRSPs, what's going to make them put it into a voluntary CPP supplement?

I can see the main beneficiaries being companies and employees with pension plans. They will integrate their plans with this voluntary CPP, reducing both the employees' and company's risk of an underfunded plan. While this may be a worthwhile objective, it isn't the target audience the first ministers claimed to be trying to deal with. (In fact it will make it easier for companies to get out of pension plans entirely. Some might agree to contribute to a supplemental CPP instead.)


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## HaroldCrump (Jun 10, 2009)

OhGreatGuru said:


> The problem I have from a social policy point of view, is that if it is voluntary it won't solve the problem our politicians are complaining about. They are supposedly worked up because of reports that too many modest - to - middle income earners are not saving enough for retirement. Well guess what, we already have a voluntary retirement savings plan for all these people - it's called an RRSP. If people are not voluntarily putting money into RRSPs, what's going to make them put it into a voluntary CPP supplement?


You can bring the water to the horse, but you can't make him drink it, etc. etc.

I agree with your PoV.

But for those who diligently save into RRSPs, I think this extended version of CPP is a very good benefit.
It saves investment decisions and time, ensures you won't outlive your savings, guarantees a fixed, predictable income for your retirement years.
Unless someone is an ultra elite investor (less than 0.5% of the population, I would assume), this offers a better retirement option than DIY RRSP.
Just tell me where and when and I'll be amongst the first to sign up for this plan, if it ever makes it through the govt. machinery.


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## Berubeland (Sep 6, 2009)

I am so against this idea. 

The government has a bad habit of taking money assigned to one use and deciding to use if for another then a few years later complaining that benefits must be reduced because there is not enough money. 

A good example of this is Employment Insurance which is entirely funded (and more) by companies and employees. When the economy is good there is a "surplus" and money is used for other purposes. Then GASP the economy turns sour and the money is not there so benefits must be reduced because the money is no longer there but has been used. The ethical thing to do with a surplus is actually REDUCE the premiums paid by companies and employees but this never happens.

Also say you pay a whack of money into this extra government pension what happens if you die at 60? RRSP and TFSA goes to your beneficiary.


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## HaroldCrump (Jun 10, 2009)

Berubeland said:


> The government has a bad habit of taking money assigned to one use and deciding to use if for another then a few years later complaining that benefits must be reduced because there is not enough money.


Good point, but this will be voluntary, I believe.
It's a risk that you take. 


> Also say you pay a whack of money into this extra government pension what happens if you die at 60? RRSP and TFSA goes to your beneficiary.


That's true for any public sector pension - HOOPP, OTPP, OMERS, etc.
Pensions are tontine schemes at the core, anyway.


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## ghostryder (Apr 5, 2009)

Berubeland said:


> I am so against this idea.
> 
> The government has a bad habit of taking money assigned to one use and deciding to use if for another then a few years later complaining that benefits must be reduced because there is not enough money.
> 
> A good example of this is Employment Insurance which is entirely funded (and more) by companies and employees. When the economy is good there is a "surplus" and money is used for other purposes.



But CPP is segregated from general revenue. It cannot be used for anything else. IIRC just a couple of years ago even the mere suggestion that CPP funds be included in the gov'ts accounting of budget surplus/deficit was strongly opposed not just from opposition MP's but from the provinces who also have a say with respect to CPP.


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## HaroldCrump (Jun 10, 2009)

ghostryder said:


> But CPP is segregated from general revenue. It cannot be used for anything else. IIRC just a couple of years ago even the mere suggestion that CPP funds be included in the gov'ts accounting of budget surplus/deficit was strongly opposed not just from opposition MP's but from the provinces who also have a say with respect to CPP.


Correct, and CPP should _never, never, please, please_ be included as part of general tax revenues and expenses.
That'll open it up for abuse by govt. for their tax-and-spend schemes.
Each new Govt. in Ottawa will find newer and newer ways to dip into this bucket and steal pension money to pay for something else - some other bailout, maybe.
And then, when the money is needed, they'll blame previous governments and simply reduce benefits or increase the age of eligibility for benefits.


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## Four Pillars (Apr 5, 2009)

HaroldCrump said:


> Perhaps, however, timing plays an important role.
> When/if you chose to take out an annuity, the prevailing interest rate environment makes a difference on whether you get a good deal or not.
> You may have worked hard for 30 years to save your nest egg, but if your timing of retirement sucked, well, it sucks.
> OTOH, if you had a DBPP throughout your working life, you were covered from all of that volatility.


I agree with you Harold that timing is a big factor.

DBPP aren't perfect however - not all of them are indexed to inflation and occasionally they get reduced (ie Nortel).

I think for someone who is planning to retire mainly off their RRSP then some flexibility has to be in order. I don't think that person can set a retirement date in stone.

If the markets are down just before the planned retirement date then that date should be delayed. Likewise if the markets are doing extremely well a couple of years before that retirement date then maybe they can retire a bit earlier.


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