# RRSP room + public service pension contribution = 34% of income?



## yyzvoyageur

I was reading this article in the National Post which seems to indicate that members of public service pensions are able to put away 34% of their income tax-free into RRSPs and their pension.

The article say:



> The pre-budget recommendations from C.D. Howe president and CEO William Robson is to raise RRSP limits from the current 18% of earned income to 34% and bump the maximum dollar amount proportionally, from $22,000 to $42,000. The 34% is the amount of pay employees in the federal Public Service Plan enjoy.


Can anyone figure out where this 34% figure came from? I'm a member of the Public Service Pension Plan and the amount I can put into my RRSP each year combined with the amount put away in my pension does not come close to 34%.

Our pension plan is currently split with about 30 to 35% of contributions being made by employees, but that is being gradually increased to 40%. Once we're at that point in a couple of years I'll be contributing $4647 per year based on my current income and my employer will be contributing $6971 per year. My pension adjustment will be about $8727, leaving RRSP contribution room of about $3254. Adding up those RRSP and pension contributions and dividing by the total of my salary plus my employer's pension contribution equals 20.22%.

The 34% figure seems to have been pulled out of thin air to support the propositions of groups like CARP. Then again, maybe I'm missing something here, but I know my calculations are rock solid.

Comments?


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## OhGreatGuru

My guess would be the 34% is the amount you would have to contribute to an RRSP to get a roughly equal pension, taking into consideration what the federal government is contributing to the PSSP. However I would take anything coming out of the CD Howe Inst. (or published in the National Post) with a great heaping of salt. Their recent attacks on public pensions are disguised lobbying to raise RRSP contribution limits for the wealthy. Canadians have billions of dollars of unused contribution room now, so it isn't the 18% limit that is preventing them from saving for retirement, it's lack of disposible income, perhaps coupled with a lack of financial planning foresight..

Increasing the RRSP limit will principally benefit the wealthy. But it would be difficult for the C.D. Howe Institute to produce any convincing arguments as to why the rich should be granted a larger tax shelter than they have at present. Consequently they must disguise their true purpose by making invidious comparisons to public service pensions.


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## Larry6417

yyzvoyageur said:


> I was reading this article in the National Post which seems to indicate that members of public service pensions are able to put away 34% of their income tax-free into RRSPs and their pension.
> 
> The article say:
> 
> 
> 
> Can anyone figure out where this 34% figure came from? I'm a member of the Public Service Pension Plan and the amount I can put into my RRSP each year combined with the amount put away in my pension does not come close to 34%.
> 
> Our pension plan is currently split with about 30 to 35% of contributions being made by employees, but that is being gradually increased to 40%. Once we're at that point in a couple of years I'll be contributing $4647 per year based on my current income and my employer will be contributing $6971 per year. My pension adjustment will be about $8727, leaving RRSP contribution room of about $3254. Adding up those RRSP and pension contributions and dividing by the total of my salary plus my employer's pension contribution equals 20.22%.
> 
> The 34% figure seems to have been pulled out of thin air to support the propositions of groups like CARP. Then again, maybe I'm missing something here, but I know my calculations are rock solid.
> 
> Comments?


The article quotes a CD Howe report that criticizes tax unfairness. Private individuals would have to save approximately 34% of their income to equal the payout of gov't defined benefit plans. There are other examples of tax inequality. For example, recipients of DB plans can income split with a spouse starting at age 55 while recipients of RRIF funds must wait until 65. Also, DB plans can inject more cash if they fall short of their actuarial-set goals. People who lose mony in RRSPs cannot. The 34% isn't what employees with a DB plan can save in an RRSP. It's what private individuals would need to save to accumulate an amount eqivalent to a gov't defined benefit pension plan.


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## Larry6417

OhGreatGuru said:


> Increasing the RRSP limit will principally benefit the wealthy. But it would be difficult for the C.D. Howe Institute to produce any convincing arguments as to why the rich should be granted a larger tax shelter than they have at present. Consequently they must disguise their true purpose by making invidious comparisons to public service pensions.


What's invidious about the comparison? Public pension plans are exceptionally generous compared to pensions plans available to private individuals - perhaps too generous. After all, those public plans are paid for by the tax-payer, most of whom do not have defined-benefit plans. 

I agree that raising RRSP limits alone will not solve the problem, but simple fairness dictate that we do so. Yes, it would benefit the wealthy, but the wealthy already pay higher taxes because of our progressive tax system. Denying them the opportunity to save as much as civil servants smacks of the politics of envy, not rational decision making. 

I believe that Canadians need a top-up to the CPP, the so-called UPP (universal pension plan). The report also mentioned the tax rules that discriminate against RRSPs. Did you read the report? I actually found it well-balanced and thoughtful, not biased. If you declared the report biased without reading it, then I would question your objectivity.


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## OhGreatGuru

The DC Howe Institute's main thesis is that the RRSP limits need to be increased because the current limits are preventing private sector workers from saving sufficiently for retirement, particularly in comparison to workers such as federal public servants who belong to a DB pension plan.

According to a publication I found on the net in about 45 seconds:
• The median 2008 RRSP contribution was $2,700 vs. the $20,000 contribution limit
• As of 2008, cumulative Unused RRSP Contribution Limits in Canada exceeded
$600 billion.

So, raising RRSP limits is not going to help "average Canadians" save more for retirement because that isn't what's preventing them now. And the wealthy are not prevented from saving for retirement now, they are simply limited in how much they can save in a tax-sheltered account.

Unlike ~65% of Canadians, public servants actually have a pension plan; it is compulsory; they pay ~8.5% of their salary to it & CPP combined; the employer contributes to it substantially; and they don't have the choice of saying "Gee, do I buy the HDTV or contribute to my RRSP this year? So it not appropriate to claim their pension benefits are "unfair" in comparison to those of people who don't have mandatory retirement savings plans and whose employers don't contribute to a retirement plan as part of their compensation package.

PS. The current 18%/$22,000 annual limit equates to an annual income of $122K. I think the CD Howe Institute (or any other interested party) could make a reasonable case that, with inflationary increases in professional salaries, the $22,000 annual limit, and the lifetime limit, should be increased. It would be harder to make a public-policy case for putting more than 18% of one's annual income into a tax-deferred account. But this has nothing to do with public service compensation.


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## yyzvoyageur

Larry6417 said:


> After all, those public plans are paid for by the tax-payer, most of whom do not have defined-benefit plans.


Partly correct, but only because the taxpayer is the employer. I pay thousands of dollars each year into my pension and the remainder that gets contributed by my employer directly is nothing more than deferred compensation. I've posted about this before and continue to believe that I would be better off without a pension and without CPP. If I didn't have to contribute to either plan and my salary was increased to account for the contributions my employer no longer had to make, I'd be happy with that. But because other people would rather spend their money on the latest gadget and cars they can't afford rather than saving for retirement, I don't get that option.


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## Larry6417

yyzvoyageur said:


> Partly correct, but only because the taxpayer is the employer. I pay thousands of dollars each year into my pension and the remainder that gets contributed by my employer directly is nothing more than deferred compensation.


Nonsense. If you truly believe that then why don't you quit your job and go into private industry? Taxpayers pay through the nose for defined benefit pension plans for the civil service. As the CD Howe report mentions, you would have to save 34% of your income to match the benefits from DB plans. The maximum you can save under present rules is 18%. And it still wouldn't be as good as a DB plan. A DB plan comes with longevity insurance; you draw it as long as you live. If you tried to buy an annuity with an RRSP you would need far more to match the longevity insurance of a DB plan than you would need to save within a DB plan.

I'll give examples. If you contribute to a RRSP or DC (defined contribution) plan, and the market tanks then you cannot make up your losses through extra contributions. In a DB plan, the employer i.e the taxpayers must contribute more. The income tax act discriminates against RRSPs and favours DB plans.


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## Larry6417

OhGreatGuru said:


> According to a publication I found on the net in about 45 seconds:
> • The median 2008 RRSP contribution was $2,700 vs. the $20,000 contribution limit
> • As of 2008, cumulative Unused RRSP Contribution Limits in Canada exceeded
> $600 billion.
> 
> So, raising RRSP limits is not going to help "average Canadians" save more for retirement because that isn't what's preventing them now.  And the wealthy are not prevented from saving for retirement now, they are simply limited in how much they can save in a tax-sheltered account.


I'm glad you found the information so quickly. Of course, it helps to look for the right information. You're trying to debunk an argument that I never made. I never claimed that raising the RRSP contribution limit to $42,000 would help "average" Canadians. In fact, I said that it would benefit only wealthy Canadians. I also said it was the fair thing to do. What I did say was that a top-up to the CPP would help average Canadians, and I fully support that.

Have you read the report yet? If you haven't - and it certainly sound as if you haven't - then you shouldn't make assumptions about it. What the report does say is that the tax system discriminates against RRSP/DC plans and favours DB plans. It does not say that higher RRSP contribution rates are a cure-all, and neither do I.

For example, losses in a RRSP don't give one extra contribution room. Losses in a DB plan mandate extra contributions (from the employer). Employer contributions to RRSPs are subject to EI and CPP premiums while DB contributions are not. Group RRSPs must pay administrative fees from the RRSP while DB plans allow the deduction of expenses. Pension credits apply to DB plans at any age while income from an RRSP/RRIF can receive the credit only when recipient is 65 or older. Income from a DB can be split between spouses at age 55 while those using a RRIF must wait to 65 to do so. Also, RRIF rules force holders to take out large amounts. which limits their ability to defer tax.


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## yyzvoyageur

Larry6417 said:


> Nonsense. If you truly believe that then why don't you quit your job and go into private industry?


Because I enjoy my job. I didn't take the job for the pension. My previous employment in the private sector was far from fulfilling.


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## OptsyEagle

yyzvoyageur said:


> I've posted about this before and continue to believe that I would be better off without a pension and without CPP. If I didn't have to contribute to either plan and my salary was increased to account for the contributions my employer no longer had to make, I'd be happy with that. .


That is because you would be "overpaid" at that time. That is the complaint tax payers have with this plan. It is too rich and only available because the people that enforce the decisions, receive the benefits personally, as well.


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## MoneyGal

Milevsky would argue that public sector workers in DB pension plans are effectively participating in the staggered purchase of fixed income strips, with an embedded option to annuitize at retirement (by NOT taking a lump sum), plus mortality call options. Interesting way to think about it. 

(See pages 7-8 of the linked article for the reference)


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## ghostryder

Larry6417 said:


> I'll give examples. If you contribute to a RRSP or DC (defined contribution) plan, and the market tanks then you cannot make up your losses through extra contributions. In a DB plan, the employer i.e the taxpayers must contribute more. The income tax act discriminates against RRSPs and favours DB plans.



Private sector people also don't have "surpluses" in their RRSP's stolen to pay off the national debt.


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## Cal

The article doesn't take into account the impact of the TFSA $5000 on ones retirement income.

However I would love to have some extra RRSP contribution room, even if the gov't eliminated the ability to contribute for past years.


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## cardhu

OGG said:


> • The median 2008 RRSP contribution was $2,700 vs. the $20,000 contribution limit


The median income is far less than $111,000, I’m afraid … therefore, that is a meaningless comparison … though certainly misleading, perhaps even invidious??? 

I agree, though, that raising RRSP contribution limits would only help the tiny minority who actually use their full allowances now ... since I'm among that tiny minority, I would welcome any such increase ... doubt I'll see it, though.


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## bgc_fan

cardhu said:


> The median income is far less than $111,000, I’m afraid … therefore, that is a meaningless comparison … though certainly misleading, perhaps even invidious???
> 
> I agree, though, that raising RRSP contribution limits would only help the tiny minority who actually use their full allowances now ... since I'm among that tiny minority, I would welcome any such increase ... doubt I'll see it, though.


While the maxing out number of $20,000 implies a high income, it's the other numbers that are more interesting. An average contribution of $2,700 implies an average income of $15,000 if you are maxing out. The median income is more around the $40K level. The other number of $600 billion in unused contribution simply points out the fact that a large majority are not taking the opportunity to max out their RRSP contribution. For these people, changing RRSP limits will do little.

Oddly enough, the average contribution is about all I can contribute due to my pension adjustment.


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## cardhu

My point was meant to illustrate the irony ... someone who accuses the CDHowe of misleading arguments, then lobs out an equally misleading argument in response. 

The $600 billion is also a somewhat misleading figure ... how much of that belongs to ...
•	people who are already retired?* ... 
•	people who are otherwise out of the workforce and have no income against which to deduct? ... 
•	people with low income who may be better off with other methods?
•	DB pension members who don't contribute because they already have a pension?
•	people who won’t use RRSP because of misguided suspicions, but nevertheless are still saving money.

In many of these cases, the fact that the contribution room goes unused does not necessarily mean people will be destitute, even though they may not be making the best decisions. 


* Anyone know what happens to a person's accumulated, carried-forward contribution room when they reach age 71? ... is it taken off the books?


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## Larry6417

*Who says the pensioners own the surplus?*



ghostryder said:


> Private sector people also don't have "surpluses" in their RRSP's stolen to pay off the national debt.


If a defined-benefit pension plan has an actuarial surplus, to whom does the surplus belong? My understanding is that the answer is complex and depends on the structure of the DBP. In some cases the sponsor/ employer can legally withdraw a surplus. In fact, the sponsor can, in case of a surplus, simply decline to contribute to bring the surplus down. If the money doesn't belong to the pensioners in the first place, then the money can't be "stolen" from them. Practically speaking, most DBPs are in deficit, so "stealing" surpluses is less frequent simply because there's little to take. Can you cite an example in Canada in which a surplus was "stolen" i.e. taken ilegally from a public DBP? 

The point of my post wasn't to imply that DBPs are perfect - far from it. DBPs have serious drawbacks including insolvency of the sponsor. What I was stating is that Canadians who invest in RRSPs have less opportunity to save than the Canadians who invest in DBPs.


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## ghostryder

Larry6417 said:


> If a defined-benefit pension plan has an actuarial surplus, to whom does the surplus belong? My understanding is that the answer is complex and depends on the structure of the DBP. In some cases the sponsor/ employer can legally withdraw a surplus. In fact, the sponsor can, in case of a surplus, simply decline to contribute to bring the surplus down. If the money doesn't belong to the pensioners in the first place, then the money can't be "stolen" from them. Practically speaking, most DBPs are in deficit, so "stealing" surpluses is less frequent simply because there's little to take. Can you cite an example in Canada in which a surplus was "stolen" i.e. taken ilegally from a public DBP?



Whether it was done legally or not, the pension legislation should be changed so that supluses stay in the pension. Whether that pension is for public or private sector employees.

It seems "unseemly" to strip out a surplus to pay off national debt, then complain that the employer is paying more than 50% share of contributions. The surplus could had stayed in, and the employer (the gov't) could have taken a "contribution holiday" and reduced their level of contributions.

It also seems a bit dishonest for certain "think tanks" to say nothing when that surplus was taken out, and then turn around and whine that the pension is "underfunded".




Larry6417 said:


> The point of my post wasn't to imply that DBPs are perfect - far from it. DBPs have serious drawbacks including insolvency of the sponsor. What I was stating is that Canadians who invest in RRSPs have less opportunity to save than the Canadians who invest in DBPs.


But how true is that assertion? If someone in the private sector makes more in salary/wages during their working life than their public counterpart, while the public sector person gets a better pension, who is better off?

If the private person simply took some (or all) of that higher compensation and saved/invested it, wouldn't they also have a similar retirement?

Isn't this why RRSP's were created in the first place? to provide a means for people without pensions to save/invest for retirement in a tax-deferred manner? People (public or private) who have DB or DC plans don't get to contribute as much (if any) to an RRSP.

Most DB pensions are "co-ordinated" with CPP so when the pensioner starts collecting CPP, their pension is clawed back by that amount. Someone with an RRSP/RRIF does not face that.

Someone with a RRSP has more volatility than DB, so that means they have to face the increased risk of loss, but also benefit on the upside. DB people get what they get. No upside, no downside.


Why are public sector employees called "greedy" for asking for 4% increases when private sector wages are rising at 9%? Then of course they are called "spoiled" and should accept pay freezes or cuts when economic times are not as good.

I have worked in both pubic and private sector so I have seen things from both sides. I don't think one is better than the other. They each have their upsides and disadvantages.


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## Larry6417

ghostryder said:


> Whether it was done legally or not, the pension legislation should be changed so that supluses stay in the pension. Whether that pension is for public or private sector employees.



That's your opinion, which seems to have shifted. Initially you had claimed that DBPs were subject to having surpluses "stolen" to pay off the national debt. Have you retracted that statement? If a DBP guarantees a certain level of benefits, why should those pensioners also be allowed to take more than they are entitled to? One could argue that those using DBPs sacrifice something for certainty of benefits; that's the choice they've made. Don't get me wrong, although you seem determined to do so. DBP surpluses are often subject to court battles and negotiations. I believe people are entitled to what they contributed and what they were promised, unless the benefits are re-negotiated. I just think the system is unfair to the sponsor. The sponsor is forced to make extra contributions if the DBP performs poorly, but has difficulty withdrawing the surplus when the DBP does well. That, along with future liability, is why DBPs are becoming rare in the private sector.


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## Larry6417

ghostryder said:


> But how true is that assertion? If someone in the private sector makes more in salary/wages during their working life than their public counterpart, while the public sector person gets a better pension, who is better off?


That's an..._unusual_ argument. If I won the lottery, then I wouldn't have to worry either. I guess if I could score 50 goals per season in the NHL, then I wouldn't have to worry either. The report that this thread is based on (from the CD Howe) looked at savings opportunities for public vs private individuals with similar incomes. Obviously, someone making $200,000 per year can save more than someone making $40,000 per year. The real question is: how much money can someone making $40,000 in the public save vs someone making $40,000 in private industry.


ghostryder said:


> If the private person simply took some (or all) of that higher compensation and saved/invested it, wouldn't they also have a similar retirement?


No, that's the whole point of the report



ghostryder said:


> Isn't this why RRSP's were created in the first place? to provide a means for people without pensions to save/invest for retirement in a tax-deferred manner? People (public or private) who have DB or DC plans don't get to contribute as much (if any) to an RRSP.


Again the advantages and favourable tax treatment of DBPs outweigh the lower RRSP room






ghostryder said:


> Why are public sector employees called "greedy" for asking for 4% increases when private sector wages are rising at 9%? Then of course they are called "spoiled" and should accept pay freezes or cuts when economic times are not as good.


At no time have I called public servants "greedy." Also, what's your source when you claim that private sector wages are rising by 9%? Even during the boom times in Alberta that didn't happen except for a few select sectors.



ghostryder said:


> I have worked in both pubic and private sector so I have seen things from both sides. I don't think one is better than the other. They each have their upsides and disadvantages.


You need to look harder. The public sector is definitely better off when it comes to pensions.


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## HaroldCrump

ghostryder said:


> Why are public sector employees called "greedy" for asking for 4% increases when private sector wages are rising at 9%?


Private sector wages rising at 9%?
What a joke.
Unless you are referring to the bonuses of bank executives...
During recessions such as this, private sector is the first to be hit.
Layoffs, frozen pays, no bonuses, forced time off, the list goes on and on.
How many public sector employees have been laid off during this recession?
And now think of how many folks in the private sector have experienced the above adverse effects.


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## yyzvoyageur

Larry6417 said:


> Can you cite an example in Canada in which a surplus was "stolen" i.e. taken ilegally from a public DBP?


Here you go.

Legal or not, the government took a $30.2 billion surplus from the public service pension plan, and then started raising employee contribution rates (and they're still going up every year).


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## ghostryder

HaroldCrump said:


> Private sector wages rising at 9%?
> What a joke.



Well 3 years ago, when the municipal employees where I live signed a contract for 4% (most of which went into their underfunded pension plan) and the letters to the editor villifying the "greedy" workers were rolling into the newspaper only a couple of pages later was a big article on labour shortages, and that private sector wages were rising at an average of 8-9%.

I used to work for the city so I sill know quite a few people, when that last contract was signed, the city was having difficulty filling positions because the private sector was paying similar wages (with better benefits). Today, the city is losing staff because who wants to be a plumber (or other skilled position) for $26/hr when they can go private and make $35+/hr? I know a supervisor in roadways. They had a hard time filling entry level "asphalt rakers" for $15/hr because the private companies were starting at $19. The city has a hard time filling positions driving busses, because someone with a bit of experience and the proper licence can make more driving a dump truck.

If you were really hard up for work, which would you choose? A P/T casual job with no guarantee of hours working as a janitor for the city for <$14/hr (no benefits or pension), or a F/T job flipping burgers at McD for $11.50/hr (w/benefits, profit sharing etc)?




HaroldCrump said:


> During recessions such as this, private sector is the first to be hit.
> Layoffs, frozen pays, no bonuses, forced time off, the list goes on and on.
> How many public sector employees have been laid off during this recession?
> And now think of how many folks in the private sector have experienced the above adverse effects.


But you are only showing one side of the coin. When economic times are good, public employees don't get bonuses, profit sharing, stock options, etc etc etc. When economic times are good, public employees don't share in the upside, while in downturns they don't share the "pain" as much.

Just like people who invest solely in GIC's get a guaranteed result, while someone who is 100% in equities takes on risk for the potential for higher reward. Pick your poison.


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## ghostryder

Larry6417 said:


> The real question is: how much money can someone making $40,000 in the public save vs someone making $40,000 in private industry.


That is not a fair comparison, you missed the whole point. Public sector employees often make less in salary than their private sector equivelants.

Who is better off at retirement? A public sector accountant making $65,000/yr with a DB pension, or his twin brother in the private sector making $100,000/yr salary, plus bonus, profit sharing, stock options, discount on employee purchase of shares, dollar for dollar RRSP matching?

Public brother chooses stability and lower working pay in exchange for a guaranteed retirement. Private brother chooses higher wages, the risk of volatility in pay (possible pay cut in poor economic times, but upside in good times) and a "non-guaranteed" retirement.



Larry6417 said:


> You need to look harder. The public sector is definitely better off when it comes to pensions.


IF you look narrowly and only at pensions, without looking at total compensation.


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## Berubeland

yyzvoyageur said:


> Here you go.
> 
> Legal or not, the government took a $30.2 billion surplus from the public service pension plan, and then started raising employee contribution rates (and they're still going up every year).


The government also steals money from unemployment insurance which develops surpluses from time to time but is entirely funded by employers and workers. I don't think this should be allowed, they can either increase benefits or lower premiums or just leave it there until the next recession.


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## Larry6417

ghostryder said:


> IF you look narrowly and only at pensions, without looking at total compensation.


Sort of what I said.


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## Larry6417

ghostryder said:


> That is not a fair comparison, you missed the whole point. Public sector employees often make less in salary than their private sector equivelants.
> 
> Who is better off at retirement? A public sector accountant making $65,000/yr with a DB pension, or his twin brother in the private sector making $100,000/yr salary, plus bonus, profit sharing, stock options, discount on employee purchase of shares, dollar for dollar RRSP matching?


Actually, you're missing the point. Is it fair for someone making $40,000/year in the public sector to be able to save more for retirement than someone making $40,000/year in the private sector? That's the most important question.

Also, it's a myth that public sector employees usually make less than their private counterparts, though I'm sure that such is true in high-demand occupations. Look at www.cfib-fcei.ca/cfib-documents/WW_MB.pdf

Also see http://www.cfib-fcei.ca/cfib-documents/rr3077.pdf


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## Larry6417

*Legal or not?*



yyzvoyageur said:


> Here you go.
> 
> Legal or not, the government took a $30.2 billion surplus from the public service pension plan, and then started raising employee contribution rates (and they're still going up every year).


Actually, whether the sponsor has the right to withdraw a surplus is the key question. Are the pensioners entitled to more than they were promised? The two questions are interrelated. I don't doubt that employee contributions are rising, but that's an issue to be settled through negotiations.


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## Larry6417

Berubeland said:


> The government also steals money from unemployment insurance which develops surpluses from time to time but is entirely funded by employers and workers. I don't think this should be allowed, they can either increase benefits or lower premiums or just leave it there until the next recession.


Raiding EI was part of Paul Martin's plan to balance the budget. Last year the fed gov't created a crown corporation to administer EI such that payouts would equal contributions.

The recession will likely push EI into a deficit, so EI premiums will likely rise. Look at www.montrealgazette.com/news/canada...d+cost+jobs+business+group/2575704/story.html


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## yyzvoyageur

Larry6417 said:


> I don't doubt that employee contributions are rising, but that's an issue to be settled through negotiations.


I'd like to believe that that is the case, but in reality it's settled through legislation more often than not. I'm starting to wonder what the point of collective bargaining with the federal government is. The latest contract negotiations dragged on for over a year and a half after the previous contract expired. The feds then legislated 1.5% maximum pay hikes and employees were left with a "take it or leave it" collective agreement. Even when wages are actually negotiated in good faith, the feds have been known to freeze wages on a whim for years at a time.


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## Larry6417

yyzvoyageur said:


> I'd like to believe that that is the case, but in reality it's settled through legislation more often than not. I'm starting to wonder what the point of collective bargaining with the federal government is. The latest contract negotiations dragged on for over a year and a half after the previous contract expired. The feds then legislated 1.5% maximum pay hikes and employees were left with a "take it or leave it" collective agreement. Even when wages are actually negotiated in good faith, the feds have been known to freeze wages on a whim for years at a time.


If you look at the links provided, you'll see that federal workers are paid a premium to private industry workers. The same thing happens in private industry as well. My brother works for a company just coming out of bankruptcy. The company implemented an across-the-board 10% wage cut. It was take-it-or-leave-it.


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## ghostryder

Larry6417 said:


> Also, it's a myth that public sector employees usually make less than their private counterparts, though I'm sure that such is true in high-demand occupations. Look at www.cfib-fcei.ca/cfib-documents/WW_MB.pdf
> 
> Also see http://www.cfib-fcei.ca/cfib-documents/rr3077.pdf



Assuming the CFIB included all forms of compensation in their calculations. I can't tell. When they say that public sector employees are better compensated (including pensions) are they including stock options, bonuses, incentives, employee discounts, employee discounts on share purchases, profit sharing, etc, etc, etc...?


Or are they being selective in how they calculate their numbers so that their "research" supports their ideology? Like the Fraser Institute does when they calculate "tax freedom day".


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## CanadianCapitalist

I work in the private sector and my spouse works for the Government, so I have some insight into both sides of the story:

1. I cannot say how the average compensation in the public sector compares with private industry but I can tell you that for many jobs, the pay is significantly higher in the private sector. That's how it should be IMO precisely because the pension benefits are significantly better.

2. Those who complain about pensions, conveniently omit to take into account the fact that CPP benefits are integrated with public sector pensions. Essentially, it means a govt. employee can't retire and collect CPP and a govt. pension. You won't hear anything about CPP integration from those complaining loudly about how rich govt. pensions are.


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## HaroldCrump

ghostryder said:


> Who is better off at retirement? A public sector accountant making $65,000/yr with a DB pension, or his twin brother in the private sector making $100,000/yr salary, plus bonus, profit sharing, stock options, discount on employee purchase of shares, dollar for dollar RRSP matching?


ghostryder, I understand the point you are trying to make, however, your "profile" and assumptions about the typical private sector worker are overly optimistic.
Unless someone is working for a large blue-chip multinational corporation in a senior management position, there are no profit sharing, stock options, employee stock purchase plans, etc.
Sure, if you are a department manager at IBM or Goldman Sachs you'll have all of these and much more.
However, for a regular private sector worker none of these benefits exist.
Very few employers provide dollar-for-dollar RRSP match - it is usually a small % of salary (between 3 to 7% usually).
There are lots and lots of small to mid-size private sector organizations that do not provide any RRSP match.
Extended health, dental, vision and prescription drug plans are not as attactive and comprehensive as public sector either.

The hundreds of thousands in annual bonuses and stock options shyrocketing overnight are a thing of the past - not seen since the dot com bust of 2000.

Even if we agree that salaries are higher in private sector for the same job role, that marginally higher annual salary comes with a huge downside of uncertainity and susceptibility to layoff, recession, freezes, unpaid overtime, etc.

Your image of a typical private sector employee is very optimistic - reality is very different.


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## yyzvoyageur

HaroldCrump said:


> Extended health, dental, vision and prescription drug plans are not as attactive and comprehensive as public sector either.


Thanks for the laugh!

Compared with the health/dental plans I've had in the private sector, our public service plans are just terrible.


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## bean438

yyzvoyageur said:


> Thanks for the laugh!
> 
> Compared with the health/dental plans I've had in the private sector, our public service plans are just terrible.



My ex used to work for the Gap, and had all the medical benifits that far exceeded mine in the public service.

Bottom line who cares? Not happy with your job and wages benifits, be they public or private? Quit and do something else. Go work where the grass is greener.


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## Maltese

bean438 said:


> My ex used to work for the Gap, and had all the medical benifits that far exceeded mine in the public service.
> 
> Bottom line who cares? Not happy with your job and wages benifits, be they public or private? Quit and do something else. Go work where the grass is greener.


Exactly, I'm getting sick of all the bashing that goes on and on and on. If the engineers, accountants, lawyers and other professionals on this list believe that it's better to work for a government where there is a DPB, then apply. Jobs are sitting vacant waiting for qualified people to apply.


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## CanadianCapitalist

Maltese said:


> Exactly, I'm getting sick of all the bashing that goes on and on and on. If the engineers, accountants, lawyers and other professionals on this list believe that it's better to work for a government where there is a DPB, then apply. Jobs are sitting vacant waiting for qualified people to apply.


I agree. It is perhaps a commentary on human nature that private sector employees think Govt. employees are overpaid and Govt. employees look at their pay cheque and wonder what everyone else is jealous about. The grass is always greener on the other side, eh?


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## Larry6417

Maltese said:


> Exactly, I'm getting sick of all the bashing that goes on and on and on. If the engineers, accountants, lawyers and other professionals on this list believe that it's better to work for a government where there is a DPB, then apply. Jobs are sitting vacant waiting for qualified people to apply.


Maltese, I wonder what "bashing" you're referring to? The CD Howe report that started this thread argued, convincingly, that those saving for retirement through RRSPs are disadvantaged compared to those saving through DBPs. Is it "bashing" to suggest that those inequities are unfair? Is it "bashing" to suggest that Canadians would benefit from a top-up to the CPP? Or do you consider any comparison of public and private sector compensation to be "bashing"?


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## ghostryder

HaroldCrump said:


> Unless someone is working for a large blue-chip multinational corporation in a senior management position, there are no profit sharing, stock options, employee stock purchase plans, etc.
> 
> However, for a regular private sector worker none of these benefits exist.


Really? I had sales bonuses/incentives, deferred profit sharing, share purchase etc. when I worked as a cashier at a CT gas station. I've worked for other small businesses that offered profit sharing and employee stock purchases (and the dividends to go with them) as well.





HaroldCrump said:


> Very few employers provide dollar-for-dollar RRSP match - it is usually a small % of salary (between 3 to 7% usually).
> There are lots and lots of small to mid-size private sector organizations that do not provide any RRSP match.


Well that has not been my experience in the private sector. For me, either employers had no pension/RRSP matching at all or it was $ for $ match up to 12% or more. If I put in 6% they matched that by at least $ for $ or better.




HaroldCrump said:


> Extended health, dental, vision and prescription drug plans are not as attactive and comprehensive as public sector either.



Not my experience in this case either. Every private employer I have worked for had better benefits than when I was a public employee. Plus, the only time I had to share the cost of my benefits was when I was a municipal employee.



HaroldCrump said:


> Even if we agree that salaries are higher in private sector for the same job role, that marginally higher annual salary comes with a huge downside of uncertainity and susceptibility to layoff, recession, freezes, unpaid overtime, etc.


Isn't that what I said? Private sector employees face volatility, upside and downside. Public don't face that volatility as much. Though they can face cutbacks, layoffs etc at the whim of a government. Whether or not it is necessary, and often for political perception rather than actual need.




HaroldCrump said:


> Your image of a typical private sector employee is very optimistic - reality is very different.


Maybe my experience, along with that of my friends, family, co-workers etc has been different than yours.

Since I have worked on both sides of the fence, I have seen how green each side is.


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## moneymusing

I'm finding this debate very interesting.

Larry mentioned that comparing two people who make $40,000/yr, one with DBP and one without is the important comparison. The person with the DBP will be better off according to the CD Howe report. True, based on their report.

I think the point that others are trying to make is that when it comes down to it, people are not measured by their salary but by their job title/description. So I guess it's a bit of an orthogonal discussion right now.

Comparing two people making $40k/yr.
Comparing two accountants (one with DBP and one without).

As a result of these differing views, people are approaching the problem from different ways. Top-down and bottom-up. Two people making the same money per year highlights the inequities in the retirement vehicles and takes the top down approach to the policy. Deciding whether a person should be working in public vs. private sector is more bottom-up, and is a personal value proposition question.

I'm not sure which way is better to look at this question and haven't really chosen a side.


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## bean438

A friend of mine pulls in roughly the same amount as I do. He is a painter/decorator.
He has no DB pension, but he can deduct the costs of his "home office", and pay his wife a salary to "keep the books".
As a taxpayer this costs me money, just as a DB pension costs taxpayers. (I am also a taxpayer so i also pay for my own DB plan).
His "office" is a truck, and a cell phone. He can also write off his travel expenses to go to work. My second job has me driving all over the city, as I work in different buildings. I cannot deduct my expenses as I am a t4'd employee. 
Human nature will tell me it is "not fair", but you know what? Nobody held a gun to my head and made me apply for my job with it's perks and "rich" pensions.
Likewise no gun was held to my friend's head either.
Does it suck my RSP room is lowered by my PA? Yes, but my second job gives me more room, even though I do not enjoy the "gold plated" ability to write off my expenses.
Bottom line is every job had it's advantages/disadvantages, pension benefits, or lack of, tax advantages, perks, stability or lack of. It is easy to pull up stats to back your beliefs, and they are just that, beliefs. Easy to look at what you dont have, and demand it be taken away from others.
Its all about choices and at the end of the day you can always go back to school, switch jobs, or start a business.
If it makes sense to you then do it.
I do not envy my buddies "perks". He has to worry about finding clients, (actually this is false. A good painter will ALWAYS have work), managing books, keeping travel logs, save for his own retirement.
I show up, do my job, and collect a check every 2 weeks.
Dont think someone deserves their cake? Then do what they do and quit whining.


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## Larry6417

bean438 said:


> A friend of mine pulls in roughly the same amount as I do. He is a painter/decorator.
> He has no DB pension, but he can deduct the costs of his "home office", and pay his wife a salary to "keep the books".
> As a taxpayer this costs me money, just as a DB pension costs taxpayers. (I am also a taxpayer so i also pay for my own DB plan).
> His "office" is a truck, and a cell phone. He can also write off his travel expenses to go to work. My second job has me driving all over the city, as I work in different buildings. I cannot deduct my expenses as I am a t4'd employee.
> Human nature will tell me it is "not fair", but you know what? Nobody held a gun to my head and made me apply for my job with it's perks and "rich" pensions.
> Likewise no gun was held to my friend's head either.
> Does it suck my RSP room is lowered by my PA? Yes, but my second job gives me more room, even though I do not enjoy the "gold plated" ability to write off my expenses.



Your example is bizarre because you compare a salaried employee, yourself, to an independent contractor, your friend. Of course the contractor will have more deductions than you do! But what about a salaried employee in the private sector compared to a salaried employee in the public sector? That's the more important question.




bean438 said:


> It is easy to pull up stats to back your beliefs, and they are just that, beliefs. Easy to look at what you dont have, and demand it be taken away from others.
> Its all about choices and at the end of the day you can always go back to school, switch jobs, or start a business.
> If it makes sense to you then do it.


Again, you make bizarre assumptions. First, I''m not worried about my own personal situation. I probably have an excessive amount of education. I'm worried about the social policy and the cost to myself as a tax payer. Also, I place more belief in a statistical comparison than I do in anecdote e.g. my ex had better benefits at the Gap, ergo all private sector jobs have better benefits.




bean438 said:


> I show up, do my job, and collect a check every 2 weeks.
> Dont think someone deserves their cake? Then do what they do and quit whining.



I'm glad that you do your job. Really, I am. I'm sure that everyone else here does his job too. Again, you make unwarranted assumptions. I have no desire to "do what they do." I'm debating social policy. Please explain to me how objecting to unfair tax policy is whining. 

Gosh, all those black people protesting during the civil rights movement should have quit whining and turned themselves white!


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## CanadianCapitalist

First of all, it is unclear how increasing RRSP contribution limits will help at all. Canadians have a saving for retirement problem, not a RRSP contribution limit problem:

http://www.canadiancapitalist.com/low-savings-not-rrsp-contribution-limits-are-the-problem/

If it's fairness and fairness alone that is the issue, the C. D. Howe report gets failing grade. It completely ignores CPP benefits that is available to private sector employees without a pension but is integrated with public sector pensions. CPP + RRSP could add up to as much as 26 percent for someone making $50K and close to 22 percent for someone making $100K.


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## bean438

Larry you dont get it. Life isnt fair. Learn the rules of the game, and play it to your advantage.
If you are not happy with what you are doing then quit. You are over educated so you should have no problem finding another job.
Private/public doesnt not matter. my point was that we can all ***** and whine about how good everyone else has it.
Who cares? I paid for your education as a taxpayer, Does it bother me? Nope. We all benefit from an educated society.
I didn't mean that ALL private companies have shitty benefits compared to public. My point was that public benefits are not always "richer" than private.
Thats what it is all about. Different strokes for different folks.

Pick something you like to do and do it. Not happy? Quit and find something else.

The end.


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## Larry6417

bean438 said:


> Larry you dont get it. Life isnt fair. Learn the rules of the game, and play it to your advantage.
> If you are not happy with what you are doing then quit. You are over educated so you should have no problem finding another job.
> Private/public doesnt not matter. my point was that we can all ***** and whine about how good everyone else has it.
> Who cares? I paid for your education as a taxpayer, Does it bother me? Nope. We all benefit from an educated society.
> I didn't mean that ALL private companies have shitty benefits compared to public. My point was that public benefits are not always "richer" than private.
> Thats what it is all about. Different strokes for different folks.
> 
> Pick something you like to do and do it. Not happy? Quit and find something else.
> 
> The end.


Life isn't fair? Gosh, Master Bean, thanks for your wisdom! I never would have figured that out if it weren't for you!. Mr. Bean you have made unwarranted assumptions through this entire thread. I'm very happy with my own situation. What I'm debating is social policy.


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## MoneyGal

Whoa! Is that really...called for? I don't understand how this discussion got so heated.

Edited to say this post is now referring to a deleted post...


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## CanadianCapitalist

@Bean: I have deleted your post. Please adhere to Forum rules. There is no reason to hurl abuse at another member. We can disagree with each other and be civil at the same time.


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## MoneyGal

(Warily dipping a toe back in): this is responding to CC's post. 

It seems to me that one of the ways we can look at this issue is from the standpoint of horizontal equity - which proposes that people in like situations get similar (if not identical) tax treatment. 

From my point of view, that means that whether or not Canadians *do* use up their RRSP contribution room (which we clearly, in aggregate, do not) is not the issue - but the issue is whether someone who *does* use up all available tax-sheltering room can shelter as much income as is required to provide the kind of income streams that DB civil service pension plans provide in retirement. 

If I am a diligent saver, earning the same amount as a civil service peer and maximizing all tax-sheltering opportunities, but they have a richer retirement although they have not materially saved more than me - that is a public policy issue, no? Or at least - were I in that situation, I might be tempted to conclude so. 

I admit this is not the strongest area of interest for me, so I am unlikely to run the numbers myself. But if the proposition from the C.D. Howe report is that a private sector worker would have to shelter 34% of income (which isn't possible) in order to get the same kinds of benefits that a DB civil service plan pays out, then it seems to me that if some workers can shelter 26% or 22% of income - there's still a gap, right? 

I should probably read the C.D. Howe report. I'm interested to know how they calculate the income streams from the DB pension - in particular whether they are estimating a lifetime benefit or just year over year benefits. 

Full disclosure: I started out my working life as a federal civil servant. I was then self-employed for many years. I am working as an employee now. No benefits, no pension; never happier.


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## CanadianCapitalist

MoneyGal said:


> I admit this is not the strongest area of interest for me, so I am unlikely to run the numbers myself. But if the proposition from the C.D. Howe report is that a private sector worker would have to shelter 34% of income (which isn't possible) in order to get the same kinds of benefits that a DB civil service plan pays out, then it seems to me that if some workers can shelter 26% or 22% of income - there's still a gap, right?


Yes, if all things are equal, a public sector employee who sheltered 34% of income would be better off than someone who is sheltering only 22%. However, all things are not equal. Admittedly, I can't speak for every job description but the jobs I'm familiar with, the govt. pays less than the private sector. All I'm saying is that it is far too simplistic to argue that a Govt. employee shelters 34% of her income, therefore a private sector employee should.


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## MoneyGal

Hmmm. But if you compared people on salary alone (leaving aside the question of whether someone in a particular *profession* is earning more or less in the public and private sectors), then there's unfairness, right? 

That's what I meant by horizontal equity. 

It seems to me the discussion about whether people in particular professions (lawyers, accountants, etc.) earn more or less as public sector workers or in private practice is a separate discussion. 

Don't get me wrong. I think those are important considerations - how much appetite for risk you have, and how much variance you can tolerate in your personal financial situation. But I think those are beside the main point, which is tax fairness.


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## bean438

CanadianCapitalist said:


> @Bean: I have deleted your post. Please adhere to Forum rules. There is no reason to hurl abuse at another member. We can disagree with each other and be civil at the same time.


And his comments were not abusive? I found them to be, so maybe his should be deleted too.
I WAS civil, and he was a dick. When people are dicks to me I tell them where to go.


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## Larry6417

CanadianCapitalist said:


> First of all, it is unclear how increasing RRSP contribution limits will help at all. Canadians have a saving for retirement problem, not a RRSP contribution limit problem:
> 
> http://www.canadiancapitalist.com/low-savings-not-rrsp-contribution-limits-are-the-problem/
> 
> If it's fairness and fairness alone that is the issue, the C. D. Howe report gets failing grade. It completely ignores CPP benefits that is available to private sector employees without a pension but is integrated with public sector pensions. CPP + RRSP could add up to as much as 26 percent for someone making $50K and close to 22 percent for someone making $100K.


The CD Howe report makes interesting comments. It points out that employer contributions to a DBP are not subject to CPP (and EI) while employer contributions to a group RRSP are. So it may *not* be unfair to integrate a DBP with CPP. 

There are other inequities. Losses in an RRSP do not create extra contribution room while losses in a DBP mandate extra contributions. Pension credits are available to DBP holders at 55 while RRIF holders must wait until 65. Also, DBP holders can income-split with a spouse at any age while RRIF holders must wait until 65. Those inequalities should be dealt with, ideally by giving more to RRSP holders, not taking away from DBP holders.


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## Larry6417

The "dick" responds:

I did not hurl abuse at Bean, but I certainly did my part to "heat" the conversation. For that, I apologize. This is an excellent forum with many outstanding contributors. Again, my apologies for bringing down the tone of the conversation.

I am not worried about my personal retirement situation. I am in a very fortunate financial position, and I don't take it for granted. I grew up in a very poor family that struggled to make ends meet (not always successfully). My interest in this topic is one of enlightened self-interest and simple fairness. It is simply unfair to allow greater tax deductions for retirement savings to one group over another. 

Enlightened self-interest is also a consideration. The leading edge of the baby boom has entered or will soon enter retirement. Many of those people, esp. those counting on RRSPs, will not have saved enough. What will those people do? Will they all say, "Shucks, it's all my fault. I should have made better choices 20 years ago." Or will they look on with envy at people perceived to be "wealthy" (me) and those with DBPs. I think the latter is more likely. And what will the politicians do? Will they do what's right, or will they simply cater to the importuning masses? Again the latter is more likely. Those perceived to be wealthy or better-off face the possibility of higher taxes/fees/surtaxes to support those who didn't save enough for retirement.


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## MoneyGal

Another quick thought: if so much RRSP room is unused (and we know it is), then perhaps raising contribution limits provides a relatively low-cost way of reducing tax unfairness (as in, if we assume low takeup, then the foregone tax revenues would be minimal). 

Whether or not people use the extra room - at least it would be available for them to use. "Tax breaks for the rich?" Yes, but RRSPs have never been anything but that, really; given the progressive (but capped) contribution limits. 

G-d forgive me, I am not a public policy analyst.


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## HaroldCrump

MoneyGal said:


> Whether or not people use the extra room - at least it would be available for them to use. "Tax breaks for the rich?" Yes, but RRSPs have never been anything but that, really; given the progressive (but capped) contribution limits.


So are you saying that the RRSP program is a tax break for the "rich"?
Please tell me you didn't say/imply that....


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## MoneyGal

RRSPs are only "tax breaks for the rich" in the sense that they are progressive and based on earned income. 

You get more room and therefore the ability to shelter more earnings if you have more income. 

If you have a low income (notwithstanding that arguably you wouldn't *need* more tax-sheltering room), you have less capacity to use the tax-sheltering mechanism of the RRSP. 

There isn't, by way of counterexample, a single amount of contribution room for everyone. 

This wasn't supposed to be a contentious point but I should not have just dumped that thought in there...and I probably should have used less inflammatory language. Perhaps I was absorbing some of the other heat generated in the thread...


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## Larry6417

bean438 said:


> And his comments were not abusive? I found them to be, so maybe his should be deleted too.
> I WAS civil, and he was a dick. When people are dicks to me I tell them where to go.


Aren't you the one who said life wasn't fair?

Sorry, Bean. I couldn't resist!


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## houska

CanadianCapitalist said:


> Yes, if all things are equal, a public sector employee who sheltered 34% of income would be better off than someone who is sheltering only 22%. However, all things are not equal. Admittedly, I can't speak for every job description but the jobs I'm familiar with, the govt. pays less than the private sector. All I'm saying is that it is far too simplistic to argue that a Govt. employee shelters 34% of her income, therefore a private sector employee should.


I'm with CC on this. I've done a calc for my wife which shows that her pension benefits were effectively a 3% bonus for her in her 1st year of work, and would be 45% in the year before retirement age if she stays. I didn't think of it at the time, but that is tax-preferred to a level much more than in the private sector.

But them's the breaks. She could work at a higher salary and higher rate of salary increases in the private sector, but with lower ability for tax-preferred retirement savings. On the other hand, she could (albeit with a witholding tax penalty) withdraw RRSP savings from a private sector job but she can't get at the pension early - and the bulk of the deferred comp accrues later in her career compared to the private sector.

I have a friend who is an entrepreneur with his own company and a family trust (tremendous income tax deferring power), and he has an income stream of passive investments paying dividends also with tremendously advantaged tax treatment. Them's also the breaks. I'm slightly envious of him, but I don't see any huge iniquity in the system there either.


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## CanadianCapitalist

Larry6417 said:


> The CD Howe report makes interesting comments. It points out that employer contributions to a DBP are not subject to CPP (and EI) while employer contributions to a group RRSP are. So it may *not* be unfair to integrate a DBP with CPP.
> 
> There are other inequities. Losses in an RRSP do not create extra contribution room while losses in a DBP mandate extra contributions. Pension credits are available to DBP holders at 55 while RRIF holders must wait until 65. Also, DBP holders can income-split with a spouse at any age while RRIF holders must wait until 65. Those inequalities should be dealt with, ideally by giving more to RRSP holders, not taking away from DBP holders.


CPP and EI contributions top out at the $45K level. Someone earning below that shouldn't even think RRSP because of high marginal taxes on RRSP withdrawals for low-income Canadians. I'm not saying it is unfair that CPP is integrated with DB pensions, just that those who argue fairness should at least mention it and include it in their analysis.

It's true that losses in DBP mandate extra contributions. Again, why leave out the other side of the coin? Gains in DBP excess of liabilities mean contributions can be trimmed back. And spousal RRSPs already allow you to split retirement income. The so-called inequalities are not as clear cut as C. D. Howe makes it out to be.


----------



## CanadianCapitalist

Larry6417 said:


> Enlightened self-interest is also a consideration. The leading edge of the baby boom has entered or will soon enter retirement. Many of those people, esp. those counting on RRSPs, will not have saved enough. What will those people do? Will they all say, "Shucks, it's all my fault. I should have made better choices 20 years ago." Or will they look on with envy at people perceived to be "wealthy" (me) and those with DBPs. I think the latter is more likely. And what will the politicians do? Will they do what's right, or will they simply cater to the importuning masses? Again the latter is more likely. Those perceived to be wealthy or better-off face the possibility of higher taxes/fees/surtaxes to support those who didn't save enough for retirement.


I think we agree that Canadians have a saving problem. And yes, if the vast majority of Canadians are retiring without an adequate nest egg, they'll envy those who they perceive are having it good -- i.e. those with "generous" DB pensions and healthy RRSP account balances. And politicians will be happy to do anything that will earn them votes; so they'll find ways to tax the "rich". But I fail to see how increasing contribution limits will help when there is so much contribution room already accumulated.

IMO, a few steps can help. Perhaps, signing up for a RRSP by default (and allowing contributors to opt out) would "nudge" Canadians to save more for their retirement. I think supplementary CPP (again with the option to opt out) would be great idea as well.


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## Larry6417

CanadianCapitalist said:


> CPP and EI contributions top out at the $45K level. Someone earning below that shouldn't even think RRSP because of high marginal taxes on RRSP withdrawals for low-income Canadians.


That may be true, but until the TFSA, Canadians didn't have much choice.




CanadianCapitalist said:


> It's true that losses in DBP mandate extra contributions. Again, why leave out the other side of the coin? Gains in DBP excess of liabilities mean contributions can be trimmed back. And spousal RRSPs already allow you to split retirement income. The so-called inequalities are not as clear cut as C. D. Howe makes it out to be.


If a sponsor withdraws money from a DBP, it means there is an actuarial surplus i.e. the pensioners are on track to receive all their benefits. Therefore, I don't consider withdrawals from a DBP to be as detrimental as losses in an RRSP. But I do agree that increasing RRSP limits won't help average Canadians. We need a top-up to the CPP.


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## HaroldCrump

Larry6417 said:


> But I do agree that increasing RRSP limits won't help average Canadians. We need a top-up to the CPP.


We had a thread on that topic a few weeks ago.
I am very much in favour of that type of arrangement i.e. optional, voluntary extra contributions into CPP.
I don't even need a tax deduction for those contributions - just the fact that I can get longevity insurance out of such a plan makes it worthwhile.
That will truly make the DBP "have-nots" as close with the DBP "haves" as possible - leveling out the inequality/unfairness (real or perceived).


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## investnoob

Larry6417 said:


> ...We need a top-up to the CPP.


I'm curious. By that, do you mean an increase in contributions to the C.P.P. by workers and as a result an increase in benefits?

Just wanted to clarify, many people I've heard say that mean they want increased benefits, but they don't want to increase their contributions. I was even asked to sign a petition that asked for the doubling of c.p.p., OAS, and GIS benefits!


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## MoneyGal

Another option for "increasing CPP" is to base the maximum pensionable earnings on a greater proportion of the average wage, instead of 25%.


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## HaroldCrump

investnoob said:


> I'm curious. By that, do you mean an increase in contributions to the C.P.P. by workers and as a result an increase in benefits?


Yes, voluntary increase in contributions.


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## houska

Larry6417 said:


> There are other inequities. Losses in an RRSP do not create extra contribution room while losses in a DBP mandate extra contributions. Pension credits are available to DBP holders at 55 while RRIF holders must wait until 65. Also, DBP holders can income-split with a spouse at any age while RRIF holders must wait until 65. Those inequalities should be dealt with, ideally by giving more to RRSP holders, not taking away from DBP holders.


There are other important "iniquities" going the other direction. RRSPs are a lot more flexible - you can borrow for the home buyer's plan or for education, you can withdraw (with penalty) for any reason if you need the money before retirement. You generally can't (correct me if I'm wrong) with a DBP. You can choose your own risk-return profile with an RRSP, not (by definition) in a DBP. Should we address those iniquities too by giving more to the DBP holders? 

The above is slightly facetious, but the point I'm trying to make is that defined contribution regimes (of which RRSPs are one) and defined benefit pensions differ in many respects. I'm not terribly fussed that those with one can shelter more than those with the other. I am concerned how little many people in the more flexible one are making use of it...


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## CanadianCapitalist

investnoob said:


> I'm curious. By that, do you mean an increase in contributions to the C.P.P. by workers and as a result an increase in benefits?
> 
> Just wanted to clarify, many people I've heard say that mean they want increased benefits, but they don't want to increase their contributions. I was even asked to sign a petition that asked for the doubling of c.p.p., OAS, and GIS benefits!


Yes, the supplementary CPP contributions will be voluntary. And extra benefits will only be available for those who make extra contributions based on how long and how much they contributed. There was even talk of supplementary CPP working like a DC plan. i.e. there are no benefit guarantees.

Of course, there are people who will sign any petition if it will mean more money in their pockets. Heck, I'll sign a petition myself asking the Govt. to pay up for a special group that has me as a member.


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## CanadianCapitalist

Larry6417 said:


> If a sponsor withdraws money from a DBP, it means there is an actuarial surplus i.e. the pensioners are on track to receive all their benefits. Therefore, I don't consider withdrawals from a DBP to be as detrimental as losses in an RRSP. But I do agree that increasing RRSP limits won't help average Canadians. We need a top-up to the CPP.


The point I'm trying to make is that if you have a surplus in the RRSP, it belongs to you. No such benefit in the DB plan and DB pensioners like to complain that this is unfair (it isn't. Surplus or deficit, the Govt. is on hook for the benefits promised). Actually, not just complain. The Government is fighting a battle in the courts over its move to withdraw a surplus from the public sector pension plan in the late 90s. The DB plan members complain that the Govt. stole their money.


----------



## MoneyGal

By sheer chance I was reading a book on the history of social security in Canada on the streetcar on my way to work this morning. 

I read a whole chapter on various proposals to amend the CPP over time - including the development of a "homemaker's pension," which would have provided a CPP income in retirement for women who did not participate in the paid labour force. (Proposed by a parliamentary task force on pension reform which reported in 1983. Obviously not adopted, though.)

It's actually fascinating (to me) to read about how our current system arose, and what paths it took before we ended up where we are now.


----------



## cardhu

CC said:


> CPP and EI contributions top out at the $45K level. Someone earning below that shouldn't even think RRSP because of high marginal taxes on RRSP withdrawals for low-income Canadians.


That is an exaggeration ... low-income Canadians should do the same thing that all other Canadians should do, which is to make the best choices they can, given their circumstances ... the evaluation of whether there is benefit in using RRSP does hinge on tax rates during retirement, but not on _marginal_ tax rates ... it is no particular challenge, even for many people in the lowest tax bracket, to arrange their finances so that they face a tax burden on RRSP withdrawals that is FAR less than their marginal rate ... (or marginal effective tax rate, as the case may be).


----------



## CanadianCapitalist

cardhu said:


> That is an exaggeration ... low-income Canadians should do the same thing that all other Canadians should do, which is to make the best choices they can, given their circumstances ... the evaluation of whether there is benefit in using RRSP does hinge on tax rates during retirement, but not on _marginal_ tax rates ... it is no particular challenge, even for many people in the lowest tax bracket, to arrange their finances so that they face a tax burden on RRSP withdrawals that is FAR less than their marginal rate ... (or marginal effective tax rate, as the case may be).


Fair enough. I should have said higher average tax rates but my point stands. Someone earning $40K or so is already in the lowest tax bracket. They'll be better off paying the tax now and saving in a TFSA first and then a taxable account because of clawbacks in retirement benefits that hits those in the low income brackets with a very high tax rate.


----------



## MoneyGal

There is probably no one answer that captures all situations. 

However, I did run a bunch of calculations last year for someone in my city, which is Toronto. If you make an RRSP contribution, your net income goes down - and all family benefits delivered through the income tax system and based on net household income (CCTB, Ontario child benefit and, in Toronto, subsidized daycare) go up - if you are eligible for them. 

In that case, by making an RRSP contribution, the family was able to increase their Canada and Ontario child benefits as well as qualify for partially subsidized daycare. The dollar-for-dollar comparison was actually quite startling, especially given that all the benefits I identified are non-taxable. That is, the tax reduction was minor - but the increased benefits from the RRSP contribution were substantial. 

A TFSA contribution would have left net income higher, and reduced all child-related benefits. Make sense?


----------



## CanadianCapitalist

MoneyGal said:


> There is probably no one answer that captures all situations.
> 
> However, I did run a bunch of calculations last year for someone in my city, which is Toronto. If you make an RRSP contribution, your net income goes down - and all family benefits delivered through the income tax system and based on net household income (CCTB, Ontario child benefit and, in Toronto, subsidized daycare) go up - if you are eligible for them.
> 
> In that case, by making an RRSP contribution, the family was able to increase their Canada and Ontario child benefits as well as qualify for partially subsidized daycare. The dollar-for-dollar comparison was actually quite startling, especially given that all the benefits I identified are non-taxable. That is, the tax reduction was minor - but the increased benefits from the RRSP contribution were substantial.
> 
> A TFSA contribution would have left net income higher, and reduced all child-related benefits. Make sense?


Yes. It makes total sense. In fact, I ran a post on it:

http://www.canadiancapitalist.com/your-turn-boost-your-cctb-by-contributing-to-your-rrsp/

Like you say, you have to run a cost-benefit analysis of a RRSP contribution for a household's situation. And then plan the RRSP withdrawals carefully, perhaps by retiring early, so that you don't give up your gains and more in transfer payment clawback in retirement.


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## MoneyGal

CC: perhaps you could re-run that post, and note that the TFSA provides a new element to the planning situation.


----------



## ghostryder

houska said:


> you can withdraw (with penalty) for any reason if you need the money before retirement.



There is no penalty for withdrawing from your RRSP. You need only pay tax on the withdrawal, since that money has not been taxed yet.


Contrast this to the US 401(k) where there is an actual penalty (on top of income tax) for early withdrawal.


----------



## Larry6417

ghostryder said:


> There is no penalty for withdrawing from your RRSP. You need only pay tax on the withdrawal, since that money has not been taxed yet.
> 
> 
> Contrast this to the US 401(k) where there is an actual penalty (on top of income tax) for early withdrawal.


I think Houska is referring to the withholding tax. It's not a penalty per se but a pre-payment of income tax.


----------



## cardhu

CC said:


> Fair enough. I should have said higher average tax rates but my point stands.


Well, perhaps your point is something other than what you wrote ... otherwise no, your point does not stand ... your statements imply that someone in the lowest bracket should not bother to _think_, because the result is a foregone conclusion ... that because of program clawbacks, it is impossible for them to benefit from RRSP ... and that simply is not true ... many people with incomes in the lowest tax bracket could very easily be better off using RRSP than TFSA, even if they save so aggressively and invest so successfully that they retire into the next bracket up ... this won’t be true for everyone of course, but certainly well within the realm of possibility for a lot of people. 

There are very few absolutes in personal finance, and your point is not one of them ... as general rules go, it lacks “generality” ... I think the one thing a person should ALWAYS do, is evaluate the specifics of a situation and take the best course of action under the circumstances … you can’t go wrong that way … that’s a general rule that is truly general.

BTW, I wasn’t talking about “average” tax rates, either ... I was talking about the tax burden attributable to RRSP withdrawals. 



> Like you say, you have to run a cost-benefit analysis of a RRSP contribution for a household's situation.


This is more like it ... it does, however, directly contradict your other recent statements.


----------



## cardhu

ghostryder said:


> Private sector people also don't have "surpluses" in their RRSP's stolen to pay off the national debt.
> .........
> Most DB pensions are "co-ordinated" with CPP so when the pensioner starts collecting CPP, their pension is clawed back by that amount. Someone with an RRSP/RRIF does not face that.


Ghost, I’m surprised to see you engaging in such rhetoric

Surpluses can’t be “stolen” from DBP members, because they don’t belong to DBP members in the first place ... DB benefits are determined by formula, not by the value of the fund (except perhaps in very rare and isolated circumstances) ... odd that I’ve never seen or heard of DB members being willing to take ownership of a deficit ... private sector pension funds are a little different because they can and do go bankrupt, but the public sector pensions are virtually bulletproof ... I have no doubt that if the fund was unable to keep up with payouts, then the employer (read: taxpayer) would be called upon to step up to the plate.

There is no “clawback” of pension benefits in an integrated plan, and it is misleading to suggest there is ... with CPP integration, pension members receive every dime that their contributions have purchased ... contributions are calculated on the basis of the projected payouts, and an integrated pension merely has its schedule of payments rearranged to bring more of the value forward toward the beginning of retirement, prior to age 65 ... an employer could offer a non-integrated pension, with the same contribution cost to the employee/employer, by lowering the benefits prior to age 65, in order to raise the benefits after age 65, but the overall value of the payouts would not change ... alternatively, a non-integrated pension could retain the higher payments all the way through, but that would be a greater value, and would require higher contributions by the employee ... are the employees willing to pony up for that? 

DBP members are not disadvantaged by CPP integration in comparison to RRSP/RRIF users ... in both cases, you get exactly what your contributions have paid for ... an RRSP user can just as easily shift value toward the early years of his retirement, by taking larger draws prior to age 65, and then reducing draws once CPP kicks in (and in fact, that is an integral part of many plans) ... the key difference on that score is that RRSP users have more flexibility to choose what they want their draw schedule to look like, while DBP members have to take whatever the formula delivers ... that flexibility can be a good thing in the hands of someone who knows what they’re doing, but it can also be a disaster waiting to happen.


----------



## cardhu

Larry said:


> •	Pension credits apply to DB plans at any age while income from an RRSP/RRIF can receive the credit only when recipient is 65 or older.
> •	Income from a DB can be split between spouses at age 55 while those using a RRIF must wait to 65 to do so.


Redundant ... these two complaints are one and the same ... fix the former, and the latter ceases to exist ... This one bugs me, and I hope to see it corrected.



> RRIF rules force holders to take out large amounts which limits their ability to defer tax.


Actually, RRIF rules prevent people from shooting themselves in the foot by deferring too long ... just as its usually better to spread the contributions over a number of years in order to maximize the tax break on contributions, its also usually better to spread the withdrawals over a number of years, in order to minimize the tax burden. 
The rules work out to a series of moderate withdrawals over a very long time period ... under ideal circumstances, the withdrawal pattern would resemble an indexed DB pension.

Since I plan to use my RRSP for the purpose that it was intended, I have no problem whatsoever with the RRIF withdrawal schedule. I think most people who complain about it are using the RRSP for something other than its intended purpose.


----------



## Four Pillars

cardhu said:


> ...
> 
> Since I plan to use my RRSP for the purpose that it was intended, I have no problem whatsoever with the RRIF withdrawal schedule. I think most people who complain about it are using the RRSP for something other than its intended purpose.


Exactly. When you agree to the benefits of RRSP tax deferral then you also have to agree to any rules that come along with that. If you don't like the RRIF rules then don't contribute to your RRSP.


----------



## bean438

cardhu said:


> Redundant ... these two complaints are one and the same ... fix the former, and the latter ceases to exist ... This one bugs me, and I hope to see it corrected.
> 
> 
> Actually, RRIF rules prevent people from shooting themselves in the foot by deferring too long ... just as its usually better to spread the contributions over a number of years in order to maximize the tax break on contributions, its also usually better to spread the withdrawals over a number of years, in order to minimize the tax burden.
> The rules work out to a series of moderate withdrawals over a very long time period ... under ideal circumstances, the withdrawal pattern would resemble an indexed DB pension.
> 
> Since I plan to use my RRSP for the purpose that it was intended, I have no problem whatsoever with the RRIF withdrawal schedule. I think most people who complain about it are using the RRSP for something other than its intended purpose.



Is it possible RIF's will become eligible for splitting in the future? Seems only fair, and with an aging, huge voting demographic I can see this happening.

As for RIF withdrawals I agree with you. WHat was the point of contributing the money in the first place, let it sit there until you die? Sounds like fun.


----------



## MoneyGal

RRIF withdrawals are considered pension income, hence they are already eligible for pension income splitting.


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## cardhu

After age 65 only ... that is why the spousal RRSP continues to be relevant.


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## bean438

Could that be a possible human rights challenge?


----------



## Larry6417

cardhu said:


> Redundant ... these two complaints are one and the same ... fix the former, and the latter ceases to exist ... This one bugs me, and I hope to see it corrected.


Not redundant! The two issues are related but distinct. 

Let's imagine that the issue of income splitting has been addressed such that DBP and RRIF hiolders can income-split at the same age. Now compare two widows (or widowers), both age 60. One has a DBP while the other has a RRIF. Income splitting helps neither, but the DBP holder is better off because she has pension credits while the RRIF holder does not. Allowing income-splitting under 65 will help couples relying on RRIFs, but couples with DBPs are still better off because they can income split *and* use the pension credit.

Let's now imagine the converse, that pension credits can be applied to RRIF withdrawals under the age of 65 but income-splitting still isn't allowed. The RRIf holder has a credit worth $2,000 of pension income X 15% = $300 of non-refundable tax credit. You claimed in your post that allowing pension credits to RRIF holders less than 65 would make inequities of disallowing income-splitting "cease to exist." I beg to differ. Income-splitting can save far more than the pension credit is worth.

To create tax equality, both issues must be addressed.


----------



## Larry6417

Four Pillars said:


> Exactly. When you agree to the benefits of RRSP tax deferral then you also have to agree to any rules that come along with that. If you don't like the RRIF rules then don't contribute to your RRSP.


So inflexibility is a virtue?

Let's detail the changes to the RRSP/RRIF system over the past few years. This list is by no means exhaustive.

First, the contribution limits have changed. In 1986 the limit was the lesser of $7,500 or 20% of earned income. In 1991 the limit was increased to $11,500. Now the upper contibution limit is $22,000 for 2010 or 18% of earned income (not 20%).

Second, the age at which a RRSP must be converted to a RRIF was 71. Then it was changed to 69. Then it was increased back to 71. The RRSP was first introduced in 1957, so I find it odd that the RRIF limit hasn't increased as much as life span has.

Third, contribution room can now be carried forward indefinitely. At one time unused contribution room was lost permanently.

Fourth, foreign securities were limited. Now there is no limit.

Fifth, administration/advisory fees for RRSPs used to be tax-deductible - no longer!

Sixth, RRSPs , except for contributions the last 12 months, are now creditor-proof under federal legislation as of 2008 (some provinces had earlier legislation).

Seventh, RRSPs used to allow up to $8,000 of over contributions. Now that limit is $2,000.

Eighth, the HBP (home buyers' plan) and LLP (life-long learning plan) have been introduced and allow one to withdraw funds tax-free from an RRSP as long as the funds are repaid in a set time.

I'm sure that I've forgotten many other changes. RRSP/RRIFs are tweaked continually according to what people want, what makes sense (not always the same thing!), and what the tax man wants. Canadians have a (lack of) savings problem. Discouraging saving is an irrational social policy.


----------



## bean438

Larry6417 said:


> Aren't you the one who said life wasn't fair?
> 
> Sorry, Bean. I couldn't resist!





Got me there! I get real worked up over the DB pension thing. I even stopped being friends with a few people because I was tired of being ripped apart at x mas dinner year after year.


----------



## Larry6417

bean438 said:


> Got me there! I get real worked up over the DB pension thing. I even stopped being friends with a few people because I was tired of being ripped apart at x mas dinner year after year.


You weren't the only one who got worked up! I fully apologize for my posts. I was more than a bit snotty.


----------



## HaroldCrump

Larry6417 said:


> You weren't the only one who got worked up! I fully apologize for my posts. I was more than a bit snotty.


I don't blame either of you...you guys are not the only one with these opinions, impressions and views.
I believe the playing field is not level at all between the DBP "haves" and the "have nots".
It is not just about taxes in retirement - it is also about longevity insurance, quality of life in retirement, portfolio risk vs return, etc.


----------



## bean438

Larry6417 said:


> You weren't the only one who got worked up! I fully apologize for my posts. I was more than a bit snotty.


I apologize too. If you werent a guy I would kiss you.


----------



## bean438

cardhu said:


> Ghost, I’m surprised to see you engaging in such rhetoric
> 
> Surpluses can’t be “stolen” from DBP members, because they don’t belong to DBP members in the first place ... DB benefits are determined by formula, not by the value of the fund (except perhaps in very rare and isolated circumstances) ... odd that I’ve never seen or heard of DB members being willing to take ownership of a deficit ... private sector pension funds are a little different because they can and do go bankrupt, but the public sector pensions are virtually bulletproof ... I have no doubt that if the fund was unable to keep up with payouts, then the employer (read: taxpayer) would be called upon to step up to the plate.
> 
> There is no “clawback” of pension benefits in an integrated plan, and it is misleading to suggest there is ... with CPP integration, pension members receive every dime that their contributions have purchased ... contributions are calculated on the basis of the projected payouts, and an integrated pension merely has its schedule of payments rearranged to bring more of the value forward toward the beginning of retirement, prior to age 65 ... an employer could offer a non-integrated pension, with the same contribution cost to the employee/employer, by lowering the benefits prior to age 65, in order to raise the benefits after age 65, but the overall value of the payouts would not change ... alternatively, a non-integrated pension could retain the higher payments all the way through, but that would be a greater value, and would require higher contributions by the employee ... are the employees willing to pony up for that?
> 
> DBP members are not disadvantaged by CPP integration in comparison to RRSP/RRIF users ... in both cases, you get exactly what your contributions have paid for ... an RRSP user can just as easily shift value toward the early years of his retirement, by taking larger draws prior to age 65, and then reducing draws once CPP kicks in (and in fact, that is an integral part of many plans) ... the key difference on that score is that RRSP users have more flexibility to choose what they want their draw schedule to look like, while DBP members have to take whatever the formula delivers ... that flexibility can be a good thing in the hands of someone who knows what they’re doing, but it can also be a disaster waiting to happen.




Every DB plan is different. I believe mine allows an option to "front end" a larger initial amount based on projected CPP earnings, or you can just take the "normal" amount and not have the CPP "clawed back".
We can also choose no survivor benefit, 2/3 survivor, or 50% survivor.


----------



## Larry6417

bean438 said:


> I apologize too. If you werent a guy I would kiss you.


Uh...I think a handshake would be OK.


----------



## cardhu

Larry6417 said:


> To create tax equality, both issues must be addressed.


Eligibility for the pension credit and eligibility for income splitting are the same thing … think of them as conjoined twins … you can’t send one to Calgary while the other stays home in Winnipeg … if one goes, they both go … they are inextricably joined at the hip. 
Redundant. 



> _what people want, what makes sense (not always the same thing!)_


Exactly … what people want doesn’t always make sense … the existence of a mandatory minimum withdrawal does happen to make sense … (you can haggle over the specific numbers if you like, but I won’t take part… the current numbers are a remarkably smart setup, they were not some random sequence plucked out of thin air) … and it offers some protection to prevent people shooting themselves in the foot by making poor choices.


----------



## Larry6417

cardhu said:


> Eligibility for the pension credit and eligibility for income splitting are the same thing … think of them as conjoined twins … you can’t send one to Calgary while the other stays home in Winnipeg … if one goes, they both go … they are inextricably (don't you mean inexplicably? ) joined at the hip.
> Redundant.


Cardhu, your explanations are entertaining, if irrational. Tax credits and income-splitting as conjoined twins! Does that make income tax deduction an older sibling? Is the TFSA the rich uncle? 

The pension credit was originally born as a pension deduction in 1975; tax-payers were allowed to deduct $1,000 from their eligible pension income. Apparently, that was deemed too rich for taxpayers. The pension deduction was changed to a less valuable pension credit (again up to $1,000) in 1987. Widespread income-splitting of pension income (DBP payments, RRIF over 65) was legislated in...2007 (splitting of CPP payments dates to the mid 1980s). Does this mean that the "conjoined twins" were born 30 years apart? Or does it mean one twin got a sex-change? Or maybe one twin got a sex-change and went to Winnipeg while the other went to Calgary. Entertaining!

How do you think Revenue Canada feels about the two strategies? If a couple claimed the pension credits but forgot to file a "Joint Election to Split Pension Income" (form 1032, see www.cra-arc.gc.ca/tx/ndvdls/tpcs/pnsn-splt/hw-eng.html), how do you think a conversation with CRA would go?

*Conversation with CRA* (we wish):

Mr+Mrs Taxpayer: "We forgot to fill out a joint election to split our pension income! What happens now?"

CRA: "Golly Mr and Mrs Taxpayer, don't you know that the CCRA doesn't really care about all those silly forms? Filing a form 1032 is just redundant if you've already claimed for pension credits! The two are conjoined twins! You can't send the income-splitting to Calgary while the pension credits stay home in Winnipeg! Here's your big tax refund without all the requisite forms!"

I doubt CRA considers the two to be "conjoined twins." In the end, What CRA thinks is more relevant than what either one of us think. Thanks for the entertainment!


----------



## Larry6417

cardhu said:


> Exactly … what people want doesn’t always make sense … the existence of a mandatory minimum withdrawal does happen to make sense … (you can haggle over the specific numbers if you like, but I won’t take part… the current numbers are a remarkably smart setup, they were not some random sequence plucked out of thin air) … and it offers some protection to prevent people shooting themselves in the foot by making poor choices.


You claim you don't want to "haggle" over the current numbers, yet you do. Your support for the current withdrawal schedule is supported by nothing more than bland admonishments that the schedule is "best" for everyone. _RRIF holders shouldn't worry their pretty little heads over these numbers! Someone much smarter has already figured out what's best for them! _Cardhu, you and I are much different. You are more..._trusting_ (one way to express it). The withdrawal schedule was last changed in the early 1990s. See www.nilsonco.com/investoru/rrsps_rrifs_RRIFwithdrawalschedule.htm

Given the increase in lifespan, one would expect the schedule to have lower minimums so that people can make their money last longer. Wrong! The new schedule forces higher, earlier withdrawals. You're right Cardhu. The new schedule isn't random. It's designed to drain savings sooner rather than later so the tax man gets his cut sooner rather than later. 

I'm glad the withdrawal schedule works for you, but why do you assume it's best for everyone? Some couples may have very good reason to delay or minimize withdrawals. Some may want to collapse the plan to buy a joint-and-last survivor annuity, but they're waiting for interest rates to rise (or for their equities to recover) while they drain non-RRIF assets.


----------



## cardhu

Larry said:


> Cardhu, your explanations are entertaining, if irrational.


Not irrational ... eligibility for the pension credit and eligibility for income splitting are the same thing. 
You cannot be eligible for pension splitting without ALSO being eligible for the pension credit.
You cannot be eligible for the pension credit without ALSO being eligible for pension splitting.



> Mr+Mrs Taxpayer: "We forgot to fill out a joint election to split our pension income! What happens now?"


Ludicrous ... if someone neglects, through ignorance, or incompetence, or the incompetence of their advisors, to take advantage of an opportunity they are eligible for, that is hardly the fault of the legislation (speaking of irrational and bizarre) ... pension-splitting cannot and should not be automatic, because the optimum degree of splitting is not necessarily 50/50 ... taxpayers must make a conscious decision to elect to split ... and if they are competent, that’s what they’ll do. 



> I doubt CRA considers the two to be "conjoined twins."


CRA doesn’t need analogies because they already understand the law ... they know perfectly well that eligibility for the pension credit and eligibility for pension splitting are the same thing. 

To get tax equality on these points, only one of these items needs to be addressed ... fix the pension-credit discrepancy, and the pension-splitting discrepancy ceases to exist.


----------



## cardhu

Larry said:


> Your support for the current withdrawal schedule is supported by nothing more than bland admonishments that the schedule is "best" for everyone.


I never said it was best for everyone ... that is your misinterpretation ... what I said was that the existence of a mandatory minimum withdrawal schedule makes sense.



> _ The withdrawal schedule was last changed in the early 1990s _


Yes, and before that it was changed in 1986 ... what’s yer point?



> _ you and I are much different. You are more...trusting (one way to express it). _


I’m beginning to realize what you are more of ...... 

My comments are based on analysis of facts, math & logic, trust has nothing to do with it. 

The vast majority of the population has a poor understanding of the RRSP/RRIF program ... and judging by the prevalence and repetition of myth among the DIY community at large, online resources, financial media, popular book-sellers, and independent think-tanks, many among these groups still harbour some combination of various misconceptions ... take for example, the commonly held but incorrect view that RRSP/RRIF withdrawals are always taxed at your marginal rate ... that you would be willing to have the gov’t change the legislation based merely on what people “want”, suggests you are far more trusting than I. 



> _ I'm glad the withdrawal schedule works for you, but why do you assume it's best for everyone? _


Again, I never said it was best for everyone ... that is your misinterpretation ... what I said was that what people want doesn’t always make sense ... just because people “want” to scrap the RRIF withdrawal schedule doesn’t mean that it should be done. 



> _ one would expect the schedule to have lower minimums so that people can make their money last longer. Wrong! _


Actually, savings last the same length of time either way, if you stick religiously to mandatory draws only. 



> _ The new schedule forces higher, earlier withdrawals. _


Tunnel vision ... you can’t assess a particular RRIF schedule based solely on what happens in any particular single year, or two year period, or six-year period ... more important is how the RRIF performs over its entire existence ... considering most people retire before age 65, that could mean several decades of existence ...


----------



## MoneyGal

Yanno, CMF doesn't "rock" when it descends into posts like these, that broadly slur the participants on this forum.


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## CanadianCapitalist

cardhu said:


> The vast majority of the population has a poor understanding of the RRSP/RRIF program ... and judging by forums such as these, the vast majority of those who _think_ they understand it, harbour some combination of various misconceptions ... take for example, the commonly held but incorrect view that RRSP/RRIF withdrawals are always taxed at your marginal rate ... that you would be willing to have the gov’t change the legislation based on what that crowd of yahoos wants, suggests you are far more trusting than I.


It is never a good idea to insult other peoples' intelligence, even if you think they hold the opinion that they are wrong. Most posters on this forum are a very intelligent, educated and overall pretty smart bunch -- bunch of yahoos they definitely are not.


----------



## Ben

To be, or not to be: that is the question:
Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing end them?


----------



## cardhu

Point taken ... my post was never meant as a shot at CMF, or its membership, although I can see how my wording could have been taken that way ... I have edited the language, hopefully it is clearer now. 

Intelligence isn’t the issue ... it never was ... I agree that most participants in this (or any other) forum are intelligent and more knowledgeable about the subject matter than the general population ... my point was that the DIY community* at large, is not immune from myth and misconception _despite_ being intelligent and _despite_ being more knowledgeable ... I maintain that gov’t should not alter legislation based solely on what people* “want”, because there is too great a risk that what they* want is not what makes sense. 

* the views expressed in this post are not directed specifically toward CanadianMoneyForum, its owners, or its members ... past performance is no guarantee of future results ... contest void where prohibited by law.


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## MoneyGal

So, we're not stupid, we just believe in myths and misconceptions, and what we want makes no sense?


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## Sampson

CanadianCapitalist said:


> It is never a good idea to insult other peoples' intelligence, even if you think they hold the opinion that they are wrong. Most posters on this forum are a very intelligent, educated and overall pretty smart bunch -- bunch of yahoos they definitely are not.


I'm a yahoo!


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## cardhu

Who is "we" ???


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## MoneyGal

cardhu said:


> most participants in this (or any other) forum


You gave a definition in your post.


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## Ben

Cardhu has shown regret for a one poorly worded line, uttered in the heat of fierce battle.

Who hasn't said something they regret later? He that is without sin among you, let him first cast a stone. Let's move on.


----------



## Larry6417

*Someone wants a stone?*



Ben said:


> Cardhu has shown regret for a one poorly worded line, uttered in the heat of fierce battle.
> 
> Who hasn't said something they regret later? He that is without sin among you, let him first cast a stone. Let's move on.


I certainly can't claim never to have sinned or thrown stones. Ask Bean. He can explain.  However, I think Cardhu meant what he said; he just didn't mean to say it. 

Ben is right though. There are more important things to discuss than what Cardhu actually thinks of this forum. 

Let's return to one of the original issues. Cardhu claimed that pension tax credits and income-splitting were "one and the same," "conjoined twins," and "fixing the one fixed the other." I contend that the two are related but separate tax reduction strategies. 

So what's my evidence? Pension credits were born as a pension deduction in 1975. Widespread income-splitting of pensions was not legislated until 2007 (splitting of CPP dates to the mid-80s). Therefore, it is possible to have one (pension credits) without the other (income-splitting); in fact, that was the situation for decades. Also, fixing the one does not "fix" the other. Pension credits are worth hundreds to a couple, but income-splitting can be worth thousands. Therefore, application of pension credits alone does not "fix" lack of income-splitting because income-splitting is worth far more than the tax credits. Couples need both. Also, CRA clearly considers the two strategies to be separate because the application for tax credits is distinct from that of income-splitting.

So what's Cardhu's evidence? His evidence consists of an inapt analogy: pension credits and income-splitting are "conjoined twins." The analogy is inapt because pension credits existed before wide-spread income-splitting. Aside from this analogy, Cardhu offers no other evidence.


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## Larry6417

cardhu said:


> My comments are based on analysis of facts, math & logic, trust has nothing to do with it.


Let's review the new and old RRIF withdrawal schedules www.nilsonco.com/investoru/rrsps_rrifs_RRIFwithdrawalschedule.htm

A withdrawal rate of ~ 4% is considered a "safe" rate i.e. won't cause depletion of capital. The new schedule is always over 4%. The "new" RRIF schedule was introduced in the early 1990s when interest rates were higher than today. The "new" schedule calls for higher, earlier withdrawals. Therefore, the new schedule will cause greater depletion of capital than the old schedule.




cardhu said:


> Actually, savings last the same length of time either way, if you stick religiously to mandatory draws only.


What's your evidence for the above statement? You claim to rely on "math" and "logic." Where are they? Here's my logic: high, early withdrawals (as seen in the new RRIF withdrawal schedule) lower the amount of tax-deferred income within the RRIF. Therefore, depletion of capital will occur more quickly. The RRIF may last as long, but the amount of capital will be less.

I would be very interested in hearing your "math and logic."


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## steve41

> A withdrawal rate of ~ 4% is considered a "safe" rate i.e. won't cause depletion of capital. The new schedule is always over 4%. The "new" RRIF schedule was introduced in the early 1990s when interest rates were higher than today. The "new" schedule calls for higher, earlier withdrawals. Therefore, the new schedule will cause greater depletion of capital than the old schedule.


You are assuming that the forced RRSP withdrawal goes to spending. When you force a net income to a specific level, excess money forced out of the RRIF beyond which you need for spending will necessarily moved into say, your nonreg pot. Overall, the amount of remaining capital simply changes complexion.... more/less reg equates to less/more nonreg.

Changing the RRIF withdrawal rules doesn't make much difference to after tax income in a needs-based projection.


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## Larry6417

steve41 said:


> You are assuming that the forced RRSP withdrawal goes to spending. When you force a net income to a specific level, excess money forced out of the RRIF beyond which you need for spending will necessarily moved into say, your nonreg pot. Overall, the amount of remaining capital simply changes complexion.... more/less reg equates to less/more nonreg.
> 
> Changing the RRIF withdrawal rules doesn't make much difference to after tax income in a needs-based projection.


You're right Steve. The money doesn't have to be spent. The point I'm making is that RRIF holders have less flexibility with higher withdrawal rates. For example, if a couple have already maxed out savings within their TFSAs, then they will have to pay tax on the amount withdrawn as well as ongoing taxes. They can save only the after-tax amount. With a lower minimum withdrawal, the couple can leave the amount within the RRIF and defer tax to another day.

The RRIF withdrawal schedule was set when interest rates and coupon rates were higher. In the midst of historic interest rate lows, the present withdrawal schedule drains capital.


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## Larry6417

*My apologies*

I thought that Cardhu and I were having a vigorous discussion in which both sides "gave" as good as they "got." Given the content of other posts allowed on this site, I genuinely did not believe that my post (a limerick spoofing Cardhu's position, no vulgarity) would offend anyone's sensibilities. My apologies to anyone offended.


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## cardhu

Moneygal said:


> You gave a definition in your post.


Yanno, you are seeing only what you want to see, rather than what’s actually written ... to set the record straight, the alleged _”broad slur against participants in this forum”_ that you referenced earlier never existed except in your imagination ... as I already said, the lack of clarity in my wording contributed to your misinterpretation, but make no mistake, your misinterpretation is precisely what it was. 

And here you are doing it again ... I write _”the DIY community is not immune ... “_ and from this you get _ “Moneygal and her friends believe in myths, etc. etc.”_ .... ?!?!?!?!? .... that is a leap of illogic of staggering proportions.


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## cardhu

Larry said:


> I think Cardhu meant what he said; he just didn't mean to say it.


Interesting theory ... but given that you're having so much trouble even knowing what I wrote, how could you possibly hope to guess what I “meant”? 

Your demand for “evidence” is laughable, considering you have provided none of your own ... all you’ve done is trotted out a series of ridiculous arguments that have no bearing on the matter at hand ... your confusion is centered on the fact that you are attempting to refute something that no one has said ... you are having a phantom argument with yourself ... yet again ... and your argument is thoroughly irrational ... this is beginning to sound a bit repetitive, but feel free to read what I _actually_ wrote. 

•	most taxpayers do not have access to a time-machine, so cannot travel back to a time when the rules were different than they are today ... but even if they could, the rules that apply in 2010 are the 2010 rules ... your time-travel argument is ludicrous and irrational ... not evidence.
•	if someone neglects, through ignorance, or incompetence, to take advantage of an opportunity they are eligible for, that does not change the fact that they were, in fact, eligible ... your incompetence argument is ludicrous and irrational ... not evidence.
•	the dollar value of the benefit has nothing whatsoever to do with pension-splitting eligibility ... irrelevant ... not evidence.
•	distinct applications?!?!? ... irrelevant ... not evidence. 
•	a pension amount is not a “strategy” ... it’s a tax credit.

What you so loosely refer to as "evidence", is clearly nothing of the sort.

Under the rules that exist in 2010, you cannot be eligible for pension splitting without ALSO being eligible for pension amount tax credit. 
Eligibility for the pension amount credit and eligibility for income splitting are one and the same. 

To acheive tax equality on these points, only one item needs to be addressed ... fix the pension-amount discrepancy, and the pension-splitting discrepancy ceases to exist.


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## MoneyGal

Cardhu: I don't think the post you are referencing (the one you wrote) is even there any more - or if it is, it's been edited. 

I apologize if I misunderstood your words and reacted in anger (although I have no way of knowing, at this point, what it was I was reacting to).

I do not like posts that imply I'm an idiot and someone else knows better than I what's in my best interest, and that's what I got from part of your (now either deleted or edited) post. I'm not sure what else to say. You say I misinterpreted what you wrote; and as far as I can tell what you wrote isn't even there any more. Perhaps we can both move on?


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## OhGreatGuru

You will notice that public servants work for an employer who has (once again) unilaterally decided to freeze public servant wages, once again making them whipping boys for bad fiscal policy and the cost of bailing out all those private sector companies.

On another note, I notice the CD Howe Institute didn't mention GM, where private-sector workers were not paying a dime towards their DB pension plan, it was 100% covered by the employer. (Of course that's not working out too well right now.) So GM workers were getting an even better deal than us fat-cat public servants. So why isn't CD Howe attacking private pension plans as "unfair" to people without pension plans?


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## cardhu

I moved on long ago ... the only reason I brought it up again was your more recent leap of illogic , which arose from material that has been neither deleted, nor edited ... I've been away for a few days, so please excuse the delayed response ... I am quite happy to drop it for good if you will refrain from accusing me of saying things I never said.


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## cardhu

OhGreatGuru said:


> You will notice that public servants work for an employer who has (once again) unilaterally decided to freeze public servant wages...


You will also notice that some public servants are being offered substantial lump sum "severance" bonuses, as compensation for NOT losing their jobs. 



OhGreatGuru said:


> GM workers were getting an even better deal than us fat-cat public servants. So why isn't CD Howe attacking private pension plans as "unfair" to people without pension plans?


Yeah, many GM union members have no idea how good they have had it ... but didn't their pensions get cut as a condition for the recent bailout? ... I didn't pay that much attention, but I know they (union members) were making a lot of noise about it at one point ... difficult to imagine that ever happening in the public sector.


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## cardhu

Larry ... there are some fundamentals that you need to understand about the RRSP/RRIF program ... it is designed for tax-efficient deferral of income, and a structured RRIF withdrawal schedule is part and parcel of that tax-efficient setup ... a systematic deregistration of the assets is *necessary* for tax-efficiency ... you can haggle over the specific numbers if you like, but I won’t participate ... I will however point out where your logic is defective, your reasoning unsound, and your complaints unfounded. 

Lets review the RRIF schedule  ... 

As you can see, both the current and former withdrawal schedules force deregistration in a pattern that, under “normal” circumstances*, results in a peak withdrawal at some point, followed by a series of progressively smaller and smaller withdrawals ... whether that peak withdrawal is bigger in the current or former schedule varies by circumstance. 

As you can see, both the current and former withdrawal schedules force deregistration in a pattern that, under “idealized” circumstances, results in a period of steady, unchanging withdrawal amounts, with the current schedule producing a longer period of lower withdrawal amounts, and the previous schedule producing a shorter period of higher withdrawal amounts. 

Your complaint that the “new” RRIF schedule enriches the taxman at the expense of the retiree is a cheap conspiracy theory ... actually, the 1993 changes improved the tax-efficiency for many (if not most) people ... more assets are deregistered at a low tax rate, and less are deregistered at a high tax rate. 

Your complaint that the RRIF schedule depletes savings is misguided and irrational ... savings are depleted by SPENDING (or by poor investment choices) not by deregistration ... neither RRIF schedule (current or former) forces an annuitant to SPEND their money ... if someone’s bills are _“spread before them, all overdue”_, it has nothing whatsoever to do with mandatory RRIF withdrawals, and is more likely due to their ineptitude in managing money (there’s that “incompetence” argument again ... ludicrous)

Your complaint that the RRIF schedule causes you to _“lose the retirement contest”_ is pure, unadulterated b*******, with no rational basis. 

Your complaint that the current RRIF schedule penalizes seniors in today’s low interest rate environment is unfounded ... actually, the improvement in tax-efficiency brought about by the current schedule is more dramatic for low return rates, than for high return rates. 

The notion of a “safe” withdrawal rate has no relevance to a RRIF ... of course the prescribed factor is more than 4%, you cannot unwind a RRIF tax-efficiently with withdrawals held at 4% ... if ever there was a case epitomizing the argument that gov’t should not amend legislation based merely on what people want, this is it ... a genuinely BAD idea, with no regard to (or comprehension of) the implications ... a change virtually guaranteed to enrich CRA at the expense of retirees.


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## OhGreatGuru

_You will also notice that some public servants are being offered substantial lump sum "severance" bonuses, as compensation for NOT losing their jobs._

The term "severance" is a misnomer. CRA's term of "retiring allowance" is bit more accurate, but even that is not entirely correct. But the word "severance" in most people's minds conjures up an image solely of someone whose employment is involuntarily teminated.

The so-called "severance" payment in public service contracts is payable whether you are fired or retired, and whether or not you obtain gainful employment elsewhere. It is part of your overall benefit package, just like your pension. In the federal public service the amount may vary depending on whether your separation is by layoff, resignation, or retirement on immediate pension, but a substantial severance is payable in all cases, depending on years of service. This in all the collective agreement contracts.

In the recently announced case involving Ontario PST collectors, the province was contractually obligated to pay severance to all its former employees, regardless of whether or not they went to new jobs. The employees had earned this benefit through their years of service. There was no reason for the federal taxpayer to pick up the tab by adding their provincial years of service in computing their future federal retirement benefits.


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