# New CPP rulz



## steve41 (Apr 18, 2009)

I need to know the amounts and timing of the new CPP deductions and CPP benefits. Anyone?


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## andrewf (Mar 1, 2010)

There is a press release on the ministry of finance website, I'm not sure whether they have spelled out the exact phase in, but my understanding is that contribution rate will rise 1 ppt and be extended to $82k, with phase in from 2019-2025.


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## steve41 (Apr 18, 2009)

Thanks Andrew.


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## Dogger1953 (Dec 14, 2012)

Steve - It's still just a proposal, but although it's clear that the increase in the contribution rates will be phased-in over 7 years from 2019 thru 2025 as Andrew indicates, it appears that the increase in CPP benefits doesn't start until 2025 and won't be fully implemented until 2065, when a contributor could have 40 years of contributions at the higher contribution rate. 

I'm going to wait until the legislation is passed before I change any of my CPP calculation spreadsheets, but I'll let you know as soon as I see any further level of detail on the current proposal.


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## NorthernRaven (Aug 4, 2010)

Dogger1953 said:


> Steve - It's still just a proposal, but although it's clear that the increase in the contribution rates will be phased-in over 7 years from 2019 thru 2025 as Andrew indicates, it appears that the increase in CPP benefits doesn't start until 2025 and won't be fully implemented until 2065, when a contributor could have 40 years of contributions at the higher contribution rate.


Do you really think they will set it up so that the gradually higher contributions from 2019-24 will produce no tangible benefit? The Finance backgrounder does have Chart 2 giving examples starting at 2025, but might this not just be a simplification? The doc also says "_each year of contributing to the enhanced CPP will allow workers to accrue partial additional benefits_", which would suggest that some sort of credit would have to be provided for contributory years 2019-2023, and thus new payout provisions would have to be available from 2019. Or certainly from 2023 (the first year of the full 5.95% for the <YMPE 33% portion), but that would mean that the partial extra contributions from 2019-2022 are just a cash grab to top up the fund.


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## steve41 (Apr 18, 2009)

Dogger1953 said:


> Steve - It's still just a proposal, but although it's clear that the increase in the contribution rates will be phased-in over 7 years from 2019 thru 2025 as Andrew indicates, it appears that the increase in CPP benefits doesn't start until 2025 and won't be fully implemented until 2065, when a contributor could have 40 years of contributions at the higher contribution rate.
> 
> I'm going to wait until the legislation is passed before I change any of my CPP calculation spreadsheets, but I'll let you know as soon as I see any further level of detail on the current proposal.


Thanks Dog. My users are going to be clamouring for the inclusion, but they will just have to wait I guess,


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## Eclectic12 (Oct 20, 2010)

NorthernRaven said:


> Do you really think they will set it up so that the gradually higher contributions from 2019-24 will produce no tangible benefit? ...


Without the specifics approved ... that's all we have at the moment. 

Time will tell what eventually it will be.




steve41 said:


> ... My users are clamouring for the inclusion, but they will have to wait I guess ...


 ... unless you can get your hands on the final documents in advance of the approval ... *grin*


Cheers


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## NorthernRaven (Aug 4, 2010)

Eclectic12 said:


> Without the specifics approved ... that's all we have at the moment.
> Time will tell what eventually it will be.


My point is that I haven't seen anything that would indicate that "the increase in CPP benefits doesn't start until 2025". The simple assumption is that _some_ sort of benefit would accrue to those contributing higher amounts in 2019-2024, and since some would be retiring within that period, new benefit calculations and amounts would have to start in some way or other from 2019, whatever the details. 

The alternative would be for additional contribution amounts for six contribution years (2019-2024) to be thrown into the funding pot without providing a benefit to the contributors. CPP contributions seem to run around $45 billion annually (presumably 9.9% of salaries < YMPE), and with the phase-in of the new rates for one-third replacement, that seems to be something like an extra $30 billion over those six years, not including the >YMPE contributions for 2024. That's a nice chunk of change, and while it is easy to be cynical about the public service and politicians, I'm not convinced it is reasonable to assume they have devised this as a cash grab.

My guess would be that either each contribution year from 2019 onward would get whatever credit a 33% year is going to have, if the fund can support subsidizing the 2019-2022 phase-in years, or those years will get a pro-rated amount of the 33% credit to make things more precise (but messier), and something similar for the 2024 >YMPE portion, before everything is fully turned on for 2025. Obviously 40 of those 2025+ years makes for a simple demonstration (and perhaps the <2025 details haven't been finalized), but I don't see how things aren't in motion from 2019 onwards, short of the cash grab. But I think of these things as a programmer, not a financial guy, so I may be missing something obvious...


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## Eclectic12 (Oct 20, 2010)

The article I read stated that the new maximums would be phased in over a couple of years, starting in 2025, after the premium increases had been fully phased in. Either the report was wrong in it's description or it seem pretty clear that regardless of one's contributions ... 2025 is the earliest one could collect an additional benefit.

I'll see if I can find the article again as the ones I am finding have more vague statements that seem to line up the same way.


> Under the agreement, which would go into effect in 2019 ... That would increase to $34 a month by 2023.
> 
> Once the *plan is fully implemented, the maximum annual benefits will increase* by about one-third to $17,478.





Of course nothing stops the road to the final agreement tweaking or changing what has currently been proposed.


Cheers


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## steve41 (Apr 18, 2009)

My problem is that I require future (over time) parameters. Oh well.


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## NorthernRaven (Aug 4, 2010)

Eclectic12 said:


> The article I read stated that the new maximums would be phased in over a couple of years, starting in 2025, after the premium increases had been fully phased in. Either the report was wrong in it's description or it seem pretty clear that regardless of one's contributions ... 2025 is the earliest one could collect an additional benefit.
> 
> I'll see if I can find the article again as the ones I am finding have more vague statements that seem to line up the same way.


It's pretty basic - either the interim contributions get you _some_ sort of benefit, or they don't. Since the news reports are probably just muddling up the Finance backgrounds and so on, I wouldn't put much faith in their precision. If they don't know exactly how they are going to handle the interim years, doing charts starting with the 2030 age-65 cohort is understandable, since that is a clean calculation. But that doesn't necessarily mean that people contributing in the 2019-2024 aren't going to get their fair credit.

I'd have to look at that "_maximum annual benefits will increase by about one-third_". Going from 25% replacement to 33.3% on current YMPE would require the max benefit to go up the 33% in itself, wouldn't it? The YMPE+ portion would mean high-income folks would be getting more than that, so the potential max would be more than one third. Of course, it would be impossible to be eligible for the new max for another 40+ years in most cases... 



steve41 said:


> My problem is that I require future (over time) parameters. Oh well.


I wrote a clunky CPP calculator ages ago, and I'm tempted to rewrite from scratch just out of curiosity. Setting aside fine details, it would seem one could tweak the existing calcs in a couple ways to fiddle around with potential projections. The current 25% factor for replacement value is a constant, but in theory it is actually (0.25*40) / 40. One could have each contribution year at 0.25 or 0.33, and come up with the blended number. Years < 2019 would contribute 0.25, years >= 2025 would contribute 0.33. In the simple case 2019-2024 would be 0.33 (or 0.25 for the cash grab scenario), but one could also adjust 2019-2023 by the phase-in factor and get something in-between.

There would also be some sort of change in the salary to YMPE ratio, but my foggy memory is even foggier on that. My brain hurts trying to think if you could do a single newYMPE calc with old years ratios adjusted, or have to do it in two pieces.


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## andrewf (Mar 1, 2010)

I think there must be some redistribution going on from the middle class to lower income participants. Here's my logic to explain how. Of the 9.9% combined contribution, about 6% pays for the value of the benefit received, while 4% goes to fund previous undercontributions.


Now, for the amount up to the current YMPE, adding 2 ppt to contributions should increase benefits by about 1/3. What we know is that replacement rate is going from 25% to 33%, or roughly a 33% increase. So far so good. But the 14% increase in YMPE @ 12% should give a 50% replacement rate of income above YMPE. We are only getting 33% replacement on this income... where is the other 17% going?


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## NorthernRaven (Aug 4, 2010)

andrewf said:


> I think there must be some redistribution going on from the middle class to lower income participants. Here's my logic to explain how. Of the 9.9% combined contribution, about 6% pays for the value of the benefit received, while 4% goes to fund previous undercontributions.
> 
> 
> Now, for the amount up to the current YMPE, adding 2 ppt to contributions should increase benefits by about 1/3. What we know is that replacement rate is going from 25% to 33%, or roughly a 33% increase. So far so good. But the 14% increase in YMPE @ 12% should give a 50% replacement rate of income above YMPE. We are only getting 33% replacement on this income... where is the other 17% going?


I believe the >YMPE amounts are being funded at an 8% total contribution rate, not the new 12%; presumably this and the 25-33% are being funded at something like the incremental actuarial cost, not the higher rate the base plan needs to cover previous low contribution problems. I think I remember reading someone suggestng this should be blended so everyone pays something like 11% on everything, rather than 12% on some and 8% on other, progressively having high-income earners help subsidize the old shortfalls. That would be another can of worms...


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## ian (Jun 18, 2016)

Not certain what the big hurry is. Many years will pass before the changes will have a significant impact. Market changes will have far more impact. The delta in CPP changes in the next 5 years might pay for a Starbucks...or two.


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## Eclectic12 (Oct 20, 2010)

steve41 said:


> My problem is that I require future (over time) parameters. Oh well.


I suppose it won't help to point out to those asking that the provinces haven't signed on the dotted line yet. AFAICT, likely for this reason - not a lot of details are available yet.


Cheers


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## Eclectic12 (Oct 20, 2010)

NorthernRaven said:


> It's pretty basic - either the interim contributions get you _some_ sort of benefit, or they don't.


Agreed ... but until the ink is dry, I don't see why the gov't would want to give more than the highlights. 




NorthernRaven said:


> ... Since the news reports are probably just muddling up the Finance backgrounds and so on, I wouldn't put much faith in their precision ...


The few times I've been able to get the underlying details, most news reports were blanket repeating the release they were handed. When I pointed out the discrepancy with the supposed source study, one reporter ignored my email. The second thanked me but then spent more time highlighting that overworked reporters had no time vet anything, effectively ignoring the discrepancy. 




NorthernRaven said:


> ... If they don't know exactly how they are going to handle the interim years, doing charts starting with the 2030 age-65 cohort is understandable, since that is a clean calculation. But that doesn't necessarily mean that people contributing in the 2019-2024 aren't going to get their fair credit.


Or they have a good idea but have not released it yet.

I also seem to recall an article talking about adjustments as some higher income earners would be paying in for a while but would not be eligible for the higher benefit. The more recent articles make no mention of this so it might have been dropped.




NorthernRaven said:


> The YMPE+ portion would mean high-income folks would be getting more than that, so the potential max would be more than one third.


I read it as the 1/3 being the max benefits increase compared to the old max benefits increase. I don't recall the YMPE + section but don't recall it being to provide more benefits. I suspect it won't be easy to find until after the July 15th signing is completed.


Cheers


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## ian (Jun 18, 2016)

In the US, my understanding is that employees pay into Social Security at a rate of 6.2 percent up to $118K. Employers pay 6.2 percent. If you are self employed the rate is 12.4.

Scary, since the plan is grossly underfunded and cannot be sustained, other than from tax revenue, past 15 years according to an article that I recently read.


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## andrewf (Mar 1, 2010)

It's an interesting contrast to CPP.


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## ian (Jun 18, 2016)

Another anomaly is that some employers can opt out of US Social Security. I believe that if they operate their own DB plans they can opt out.

Our federal superannuation plan and many of our Government plans work in the opposite manner. Their DB plans comprehend and essentially have 'set offs' for CPP payments-CPP remains mandatory for all employees/employers.


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