# Transferring Private Pensions to Gov't Control



## John_Michaels (Dec 14, 2009)

http://www.bloomberg.com/news/2010-...anager-exit-on-pension-grab-pioneer-says.html

Unsure where to put this particular thread but perhaps 'Taxation' is the best.

Questions...

Can somebody clarify/confirm my understanding of what Hungary (and I think Agentina in the past) as done?

I think what Hungary has done is the equivalent of mandating that we transfer our self-directed RRSPs and any investment assets controlled by Canadian Investment companies to CPP? Is my understanding correct?

So..IF Canada did something similar, what could be done to prevent this? Sell everything, get a U.S. address and go to a U.S. broker?


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## the-royal-mail (Dec 11, 2009)

Why would I want to give my money to gov't control? As it is, they have done a poor job of how they manage the UIC fund, using it as a tax coffer and means to score political points by supporting various social causes with it. They've turned UIC premiums into a tax.

I do not wish to give them any more control over any more of my money. They've messed up too much as it is.


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## andrewf (Mar 1, 2010)

I think the right comparable would be the CPP as administered by the CPPIB. They haven't done a bad job at all. But there is no guarantee it will continue to do so. The Caisse de Depot has been less well-run, but that seems to be partly a result of poor governance (read: more political meddling) and a promotion of 'Quebec Inc.' In my opinion, it is not the role of a sovereign wealth fund like the Caisse de Depot or the CPPIB to execute industrial policy. If governments want to try their hand at that, they should do so out of consolidated revenues. But then, I'm pretty down on industrial policy in general.


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## John_Michaels (Dec 14, 2009)

I think you gents misunderstand - my interpretation is Hungary just >>> nationalized<< (stole, confiscated etc..) private pensions (assuming I'm correct) as a way of bolstering their assets. 

For those of you who don't click links, just search for Hungary , private penions

I think the possibility is very remote and this is more of a thought experiment but what could be done to prevent the heavy hand of government helping themselves?


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## HaroldCrump (Jun 10, 2009)

John_Michaels said:


> I think you gents misunderstand - my interpretation is Hungary just >>> nationalized<< (stole, confiscated etc..) private pensions (assuming I'm correct) as a way of bolstering their assets.


Well, it's good and bad.
It's good because now the pensions are guaranteed by the federal govt.
It is possible, given the financial trouble that Hungary was (is) in, that some of those private pension plans would be significantly underfunded and may even go bust.
Now those are protected by the federal govt. and indirectly by the EU.

It is bad because this enables the govt. to spend and inflate itself out of its commitments to pensioners.
Govt. can cut benefits, increase contributions, etc. to wiggle itself around the problem of state pensions.

Unlike the author of the article, my heart does not bleed for the poor private funds and their managers - they may leave if they choose to.

To answer your question, it is extremely unlikely that the Canadian govt. will nationalize all private pension plans and individual RRSPs.
Regarding the US, I think if you are better off staying put in Canada - the US social security system is in a bigger mess.


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## NorthernRaven (Aug 4, 2010)

I'm not sure how serious the OP was, but projecting the actions of a non-euro Eastern European state only 20 years removed from Communist rule (or a South American country during a sovereign default) to Canada seems quite a stretch. Aside from the not-going-to-happen factor, you'd have to predict it in advance, and unwind your RRSP (presumably to a big disadvantage).

A bit of quick Googling (here, here and here) seems to indicate the best comparison was if part or all of your mandatory CPP contributions were instead being directed to registered accounts with private investment firms (perhaps something like the privatised Social Security proposals occasionally floated in the US). The Hungarian government seems to be forcing people to either feed that amount back to the government system, or if staying private forgo the government pension payout. The rates (24% of salary by employers, 10% by employees) seem more like a heavy-duty CPP, so it isn't quite comparable to an RRSP takeover (there is a separate, voluntary layer, although apparently not highly used in Hungary).

Likely a terrible idea, even if it goes through, but applicability to Canada closely approximating zero...


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## OhGreatGuru (May 24, 2009)

John_Michaels said:


> http://www.bloomberg.com/news/2010-...anager-exit-on-pension-grab-pioneer-says.html
> 
> Unsure where to put this particular thread but perhaps 'Taxation' is the best.
> 
> ...


It's difficult to compare without having a more thorough understanding of the Hungarian pension system. But from a couple of research papers I found on the net, the "private pensions" the article is referring to are not like our RRSPs. The Hungarian pension system was reformed around 1998 from a single state-administered plan paid throught the tax base, to a system with 3 pillars.

- a mandatory tax-financed, modest and flat public universal pension (Pillar 1), 
- a mandatory funded, significant and earnings-related private pension (Pillar 2);
- and a funded voluntary pension (Pillar 3).

There has been very little takeup in the 3rd pillar (for economic reasons - few Hungarians have the disposable income to take advantage of it), which would be something like our RRSPs.

Pillar, while called "Private" because the pension funds are privately managed & invested, is a _compulsory_ plan funded by contributions from employees (and I believe employers) . This is common in the EU, and in fact the 1998 reforms were brought in partly to come in line with EU standards.

The first Pillar, the public plan, is going broke because, like many public plans in Europe, it is not funded, other than through current contributions and tax revenues. This is adding to the government's debt crisis.

So if I understand correctly the government is proposing to fold Pillar 2 back into the Pillar 1 plan, providing the capital & current contributions it needs to fund the plan's current expenditures and invest for the future. The plan will thus become something like the CPP since CPP now invests its surpluses in the market.


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## John_Michaels (Dec 14, 2009)

Awesome high quality responses, thank-you very much, you've given me a lot to investigate and think about


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