# Expanded CPP push, where is it coming from?



## Longwinston (Oct 20, 2013)

I watch financial news pretty closely, but this whole expanded CPP talk, to me, came out of nowhere. I have been wondering to myself, where is this coming from and why is this being pushed so aggressively from the left of the political spectrum and some provinces.

Well, if you were like me, wonder no more for I hve found what this is really about:



> The Canadian Union of Public Employees, the Canadian Labour Congress, the heads of the Ontario Teachers Pension Plan and the Ontario Municipal Employees Retirement System (OMERS), aggressively fought for CPP expansion. Their underlying objective has been to expand CPP benefits to help bail the public sector pension plans out of massive unfunded liability crises.
> 
> The pension benefits of the vast majority of Canada’s public sector pensions regimes are paid at about 70% of the employees average salary over the last five years of employment. But the 70% payout is calculated after deducting the CPP benefits the retiring employee will receive. Therefore, if the CPP benefit paid to middle-class Canadians were to double over the next couple of decades, the unfunded liabilities of the big public sector pension systems would be dramatically lowered.


Courtesy of the financial post.
So what this was really about is some desperate maneuvering to help PEI, ON, labour unions et al, help cover massive shortfalls in their defined benefit pension plans. So rather than, you know, fix the issue with their unfunded liabilities they try to bamboozle the tax payer to cover their shortsightedness.

Let that sink in for a moment. 
Yes, you should be angry and yes you should be thankful it was shot down today.

Be wary of who pushes these in the future because they will try again.


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## sags (May 15, 2010)

Today over 30% or retirees collect the GIS.

When the CPP was introduced over 60% of retirees collected GIS.

Without pensions, or enhancements of the CPP, we will head back to the 60% number again.

GIS is a direct subsidy from taxpayers to retirees. 

Is that what CPP opponents recommend as the solution?

Listening to Flaherty, he is back on the failed pooled pension scheme wagon again.

Nobody wants it. There is nothing to stop employers/employees from doing it already.

It is pretty sad, when the Minister ignored all the expert advice, and used a CFIB "report" as the authority on the subject.

It looks like Ontario will join the ranks of Saskatchewan and start their own pension plan.


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## sags (May 15, 2010)

Speaking of the CPPIB........they bought a whole bunch of farm land in one fell swoop, by purchasing the portfolio of the Assiniboia Farmland Fund.

115,000 acres of productive Saskatchewan farmland........for $128 Million.

_"Farmland is an attractive asset class that has historically delivered stable, risk-adjusted returns and the global outlook for agriculture in general is positive due to increasing demand for agricultural products," said Bourbonnais._

The CPPIB is looking around the world for more.

Only the large pension plans (as opposed to individual plans) have the cash to do these kinds of investments, that will return steady "rental" income for decades into the future.

http://ca.reuters.com/article/businessNews/idCABRE9BB0RB20131212


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## GoldStone (Mar 6, 2011)

Governments pay the employer portion of CPP contributions for the public servants.

Enhance CPP plan - governments are on the hook to contribute more.

Where exactly that money will come from??? 

Saskatchewan was the only province *not* to run a deficit this year.

Enhanced CPP calls for an automatic tax hike (or more deficits and debt for the future generations).


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## emperor (Jul 24, 2011)

We need to start giving more to savers and responsible spenders and less to borrowers and irresponsible people.


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## alingva (Aug 17, 2013)

emperor said:


> We need to start giving more to savers and responsible spenders and less to borrowers and irresponsible people.


it will not happen


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## andrewf (Mar 1, 2010)

I don't understand how a gradual expansion of CPP benefits is supposed to bail public sector pension plans that are currently underfunded. Was this study published by the Fraser Institute, by any chance?


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## AltaRed (Jun 8, 2009)

An expanded CPP is to cover folks who do not have the discipline to contribute enough to their own retirement savings. It is not to bail out DC or DB pension plans. The problem is that unless people are forced to save, i.e. make contributions to CPP or equivalent, they don't. The problem with an expanded CPP run on the same principles as the current CPP is that the employer is forced to ante up a portion as well. No wonder the unions and CARP and the like cheer this on...... free money they think! 

Except it is not. It is an additional payroll cost and economic burden on our economy as Flaherty has said time and again when this comes up(about a year ago and now this past week). That said, CPP is probably the most efficient and effective pension plan (retirement savings vehicle) around and is a good option to force people to save more. But IF we are to permit an expanded CPP, then the full burden should fall on the employee. After all, it is their failure to save, not that of the employer.


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## GoldStone (Mar 6, 2011)

andrewf said:


> I don't understand how a gradual expansion of CPP benefits is supposed to bail public sector pension plans that are currently underfunded.


The plans are integrated with CPP. Enhanced CPP reduces their future liabilities.


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## HaroldCrump (Jun 10, 2009)

GoldStone said:


> The plans are integrated with CPP. Enhanced CPP reduces their future liabilities.


^ Further to the above, the vast majority of provincial defined benefit plans in Ontario have a much higher contribution ratio for the govt. vs. the employee.
4:1 and even 5:1, as we have seen recently with the OPG and Hydro One scams.

However, CPP has a 1:1 contribution ratio.

Transferring a portion of the pensions from a provincial plan to CPP will reduce Ontario govt's financial burden.

It's a great idea...in fact, _all _the provincial plans should be dissolved and integrated with an expanded CPP.
Contribution ratios should be set at 1:1 across the board for all public sector plans.


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## GoldStone (Mar 6, 2011)

HaroldCrump said:


> Transferring a portion of the pensions from a provincial plan to CPP will reduce Ontario govt's financial burden.


It *may* reduce the burden, if government pension plans reduce the contributions once CPP is enhanced.

If they leave the contributions unchanged, enhanced CPP will increase the burden on the tax payers. We will be responsible for paying the same pension plan contributions AND the increased contributions to the CPP.


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## HaroldCrump (Jun 10, 2009)

GoldStone said:


> If they leave the contributions unchanged, enhanced CPP will increase the burden on the tax payers. We will be responsible for paying the same pension plan contributions AND the increased contributions to the CPP.


Hmm, ok, I didn't realize that is what they meant.
That would make Ontario's fiscal situation even worse.

In other words, this would be just another excuse to surreptitiously increase the compensation of govt. workers in Ontario.

Really, how much pension does a govt. worker need?


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## Longwinston (Oct 20, 2013)

sags said:


> Today over 30% or retirees collect the GIS.
> 
> When the CPP was introduced over 60% of retirees collected GIS.
> 
> ...


Low income Canadians who retire are already well served by OAS, GIS and CPP. No one is saying that they need more money.
What the target is a minority of middle class people who refuse to save for their retirement. Ergo, they are entirely irresponsible. Why should responsible people pay the price of irresponsibility?

More than that, why should we remove the incentive to save your money for retirement?
I save 15% of my income for retirement. If this went through I would have to cut it down to 12% to keep the same amount of money in take home pay. On top of all this, I would like to be in charge of my retirement funds, not a bunch of unknown politicians 30 years hence.

On top of this all – the push for this is not even about retirees. It’s about unfunded pensions from people who refuse to address the problems inherent in their unfunded defined benefit pension plans. I don’t have an employer funded pension plan – I’m on my own. Why should you and I have to further (we already are helping to fund the public pension mess) help them fund these overly lavish public pension plans?

This is a farce. Fix the problem before you ask me to help clean it up with my money. I don’t think that is too much to ask.
At the very least, they should be honest as to their motivations for increasing CPP.


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## Longwinston (Oct 20, 2013)

andrewf said:


> I don't understand how a gradual expansion of CPP benefits is supposed to bail public sector pension plans that are currently underfunded. Was this study published by the Fraser Institute, by any chance?


Did you not understand what I posted? I showed how that an increase in CPP benefits will drastically reduce the amount a pension plan will have to pay out. They are only responsible for the benefits on top of the government pensions. Increase the government pension and they have to pay out much less.

get it?


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## MoneyGal (Apr 24, 2009)

sags said:


> Today over 30% or retirees collect the GIS.
> 
> When the CPP was introduced over 60% of retirees collected GIS.
> 
> ...


[shrug]

The GIS was principally introduced to solve the problem of poverty among senior women, only a small percentage of whom were labour force participants and thus did not qualify for workplace pensions in retirement, including CPP. 

In the 1950s, only about 20% of women were labour force participants. That percentage has steadily risen with each successive generation and is now levelling out at approximately 60%. 

GIS and CPP are coordinated. We aren't going back to the days of 60% GIS takeup unless people en masse start dropping out of the work force.

There were 5M people over the age of 65 in 2011: http://www4.hrsdc.gc.ca/[email protected]?iid=33

There are 4.235M people receiving a retirement income pension from CPP in 2013: http://www.servicecanada.gc.ca/eng/services/pensions/statistics/statbook/2013.shtml

The "pay now or pay later" argument is a red herring, unless eligibility for CPP, GIS or OAS changes -- in which case that the argument being made suffers from the "moving the goalposts" fallacy.


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## Daniel A. (Mar 20, 2011)

I believe at a minimum people should be able to contribute to CPP all year long for a higher pension.

The other issue is that all provincial health plans subsidize low income.

With CPP/OAS/GIS we pay all the medical for that person and we all know that medical costs are rising.


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## andrewf (Mar 1, 2010)

GoldStone said:


> The plans are integrated with CPP. Enhanced CPP reduces their future liabilities.


It may reduce future underfunding, but it shouldn't help with already accrued underfunding, right?


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## Retired Peasant (Apr 22, 2013)

sags said:


> It looks like Ontario will join the ranks of Saskatchewan and start their own pension plan.


That was one of the worst things I heard yesterday. Just what we need given Ontario's stellar management of e-health, ornge, hydro.:hopelessness:


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## andrewf (Mar 1, 2010)

Longwinston said:


> Did you not understand what I posted? I showed how that an increase in CPP benefits will drastically reduce the amount a pension plan will have to pay out. They are only responsible for the benefits on top of the government pensions. Increase the government pension and they have to pay out much less.
> 
> get it?


You didn't link to any source material. You just wrote what you read in a paper. If CPP benefits are gradually increased (ie, over 25-30 years, how would the increase in CPP benefits reduce the degree of underfunding in pensions?


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## MoneyGal (Apr 24, 2009)

andrewf said:


> It may reduce future underfunding, but it shouldn't help with already accrued underfunding, right?


Decrease in a future liability increases pension solvency. 

I made this comment somewhere else (in this forum) recently: _current_ pension liabilities means the pension plan can't pay its current costs. This is where Canada Post is at (and why Canada Post should go on Gail Vaz-Oxlade's "Princess" program, so she can tell them, "you can't say you are profitable if you are meeting current costs using debt.")

Pension solvency issues means the pension would be in a deficit if it was wound up today -- however, those costs are not all due today. The solvency calculation estimates the shortfall if the pension was wound up today.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> You didn't link to any source material. You just wrote what you read in a paper.


This is the newspaper article the OP was referring to - http://opinion.financialpost.com/20...finance-ministers-make-right-call-on-big-cpp/


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## sags (May 15, 2010)

The author lost credibility when he wrote middle income earners are doing the "smart" thing by not saving at low interest rates, but borrowing and worrying about repaying the debt later.

He also claims pension plans are over estimating their returns at 4%.........and should target 2.7%?

Has he read any pension plan statements lately? Many are returning 9% or more.

They have diversified, as the CPP did a couple of weeks ago by buying farmland, to solidify their return on investment.

Maybe they won't achieve 9% or even 4% in the future..........but 2.7% is a ridiculously low assessment.

Maybe if they invest it all in GICs..............

Both sides are spinning this.............but the bottom line remains unchanged.

Gen X is nearing 50 years of age..........have little in retirement savings.........few pensions..........hold most of their wealth in a house.........and will depend on the government for support.

The Conservatives already know what is coming...........and that is why they announced they would change GIS qualifications to include "assets". The public outroar caused them to back away........for now.

It will come up again and next time it will be implemented.

Consider it a "wealth tax", without calling it that.


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## spirit (May 9, 2009)

Boy this all sounds familiar. Over 30 years ago my fellow employees fought to get out of their defined benefit plans because they could do so much better in the free market. 
30 years later the defined benefit plan we have looks wonderful and is the envy of all who do not have one.
But, and this is crucial, our plan works now because of mostly economies of scale and a very conservative funding formula over a long period of time.
The truth is most middle class Canadians have NOT saved their money, they have spent it and now are looking at how to fund their retirement after most of their earning potential is over. 
I would like to say....there is no magic bullet. Either save money now, or not and be prepared for the consequences. Enforced savings such as pensions, bond savings deducted from paychecks, are not sexy, certainly not promoted by financial institutions, but are an absolutely prudent way to save for the future.
The new enhanced pension plan is a great way for those who do not have a defined pension plan to get one. You too can be one of the lucky ones with a gold plated pension plan 30 years from now. You can have economies of scale, prudent management of resources and 30 years of paying into it. What!!!! You don't want it? Then be satisfied with what you will have 30 years from now and don't begrudge what we did.
Sorry for the rant but not all free market ideas are sound and wise and yes, I am a teacher. And no I am not a whiner and complainer, just speaking from the other side.


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## sags (May 15, 2010)

Absolutely true........

Interesting that the ones who make the decisions are due to collect numerous DB pension plans themselves.


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## wendi1 (Oct 2, 2013)

I am all in favour of personal responsibility, but there is the distinct possibility that some provincial governments forsee riots in the streets if the value of people's housing falls.

Lots of people in Toronto and Vancouver have put all their eggs in the real estate basket. And $1000 a month doesn't go very far in either of these cities.


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## Longwinston (Oct 20, 2013)

Daniel A. said:


> I believe at a minimum people should be able to contribute to CPP all year long for a higher pension.
> 
> The other issue is that all provincial health plans subsidize low income.
> 
> With CPP/OAS/GIS we pay all the medical for that person and we all know that medical costs are rising.


What?

I think you are saying that you should be able to pay more into the CPP as an option? I may be amendable to that depending on how optional it was but why not just use your RRSP or TFSA?
What's the advantage of CPP?

The other thing with Provincial Health Care is a Red Herring having nothing to do with CPP.


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## Longwinston (Oct 20, 2013)

andrewf said:


> You didn't link to any source material. You just wrote what you read in a paper. If CPP benefits are gradually increased (ie, over 25-30 years, how would the increase in CPP benefits reduce the degree of underfunding in pensions?


I can't explain it anymore clearly than I already have. If you can't get it with that then you will just have to noodle on it on your own.


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## Longwinston (Oct 20, 2013)

spirit said:


> Boy this all sounds familiar. Over 30 years ago my fellow employees fought to get out of their defined benefit plans because they could do so much better in the free market.
> 30 years later the defined benefit plan we have looks wonderful and is the envy of all who do not have one.
> But, and this is crucial, our plan works now because of mostly economies of scale and a very conservative funding formula over a long period of time.
> The truth is most middle class Canadians have NOT saved their money, they have spent it and now are looking at how to fund their retirement after most of their earning potential is over.
> ...


I don’t want to be forced to contribute to a retirement account that will be run by politicians 30 years from now, thanks.
As people with Defined Benefit Pensions all over the western world are finding out, nothing is certain in life, even defined benefit pension plans.
In most cases they are a victim of greed in the union running up ridiculously lavish pension schemes that the employer foolishly agreed to 20 years or so ago. Well that is coming home to roost. They are cutting back on these defined benefit pension packages in New Brunswick, current retirees will get less. Look at GM Pension holders. Ford and Chrysler too. Welcome to the free market I guess. No thanks, I’ll take that risk on my own thanks and accept the consequences thereof.

CPP, OAS and GIS should, and do, give a good support level to retirees in Canada. In fact, Canada has one of the most generous public pensions in the world. A middle class retiree who complains that they don’t have enough money to go south every winter because they didn’t save anything for retirement doesn’t get any sympathy from me. I’ll reserve it for those who are more deserving. One’s who have bad fortune not because of poor decision making but because of poor circumstances that were beyond their control.

It seems everyone in society is a victim now – even people who choose to be irresponsible. Well, I, for one, am tired of subsidizing people who choose to be irresponsible. Take the CPP, OAS & GIS and teach your children to not make the mistakes that you did.


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## GoldStone (Mar 6, 2011)

andrewf said:


> It may reduce future underfunding, but it shouldn't help with already accrued underfunding, right?


There is no such thing as future underfunding or accrued underfunding.

Public pension funds use a hybrid funding system. The system combines some elements of full funding and some elements of pay-as-you-go. Member contributions go in the common pot. The plans try to maintain the common pot in a steady state, looking as far as 70 years ahead. They have to make sure that (current assets + future contributions + future investment returns) are sufficient to cover all future liabilities.

As already mentioned, enhanced CPP reduces future liabilities. Ergo, plan underfunding shrinks.


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## sags (May 15, 2010)

What you are saying is the employer (taxpayer) would have to contribute to the CPP now.........as opposed to funding pension liabilities later.

The difference would appear to be that the employee would be funding part of it, through their own contributions out of their pay.


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## Daniel A. (Mar 20, 2011)

Anyone with an RRSP or TFSA can go to the trough and pull money out if its parked in the CPP this is not possible.

Giving people an option of making larger contributions to CPP when they can is helpful.

In my work life my CPP was always paid up by May most years but had I the opportunity to continue making payment I would have.

Provincial health care is another cost directly affected by how large a pension one has.

OAS /GIS have nothing to do with CPP either right.


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## Longwinston (Oct 20, 2013)

sags said:


> What you are saying is the employer (taxpayer) would have to contribute to the CPP now.........as opposed to funding pension liabilities later.
> 
> The difference would appear to be that the employee would be funding part of it, through their own contributions out of their pay.


No I am not saying that (assuming you were responding to me). Not sure if you aware of the move to shared risk public pensions, but they are here and they are affecting even current retirees.
This may come as a shock to them, but Defined Benefit Pensions Plans are not without risk and the taxpayer has been picking up the tab, but those days are coming to the end. They are going to be increasingly forced to fix the root of the problem - unsustainable benefits


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## Longwinston (Oct 20, 2013)

Daniel A. said:


> Provincial health care is another cost directly affected by how large a pension one has.


Can you explain your thought process on this please?
Thanks


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## andrewf (Mar 1, 2010)

GoldStone said:


> There is no such thing as future underfunding or accrued underfunding.
> 
> Public pension funds use a hybrid funding system. The system combines some elements of full funding and some elements of pay-as-you-go. Member contributions go in the common pot. The plans try to maintain the common pot in a steady state, looking as far as 70 years ahead. They have to make sure that (current assets + future contributions + future investment returns) are sufficient to cover all future liabilities.
> 
> As already mentioned, enhanced CPP reduces future liabilities. Ergo, plan underfunding shrinks.


Enhanced CPP reduces future liabilities, but what about reduced employer contributions to fund the increase in CPP contributions?


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## andrewf (Mar 1, 2010)

I can support an increase in the replacement rate of CPP benefits to about 50% of the current ~$51k maximum pensionable earnings. I don't think the role of CPP is to provide anything beyond a basic income in retirement. I would be fine with an opt-out DC plan administered by CPPIB. I really don't see a point in 25% replacement rate for incomes up to $100k. There's no compelling policy reason to make it mandatory or guaranteed.


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## none (Jan 15, 2013)

> There's no compelling policy reason to make it mandatory or guaranteed.

Like that has stopped them before.......


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## GoldStone (Mar 6, 2011)

andrewf said:


> Enhanced CPP reduces future liabilities, but what about reduced employer contributions to fund the increase in CPP contributions?


I don't follow. Please elaborate.

Note: The push to enhance CPP lacks any details. We don't know how CPP integration with pension plans is supposed evolve.


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## AltaRed (Jun 8, 2009)

andrewf said:


> There's no compelling policy reason to make it mandatory or guaranteed.


The issue is that unless contributions are mandatory, people won't opt in (or conversely will opt out) which is precisely why RRSPs are not being utilized fully. People fail to save unless forced to do so. Voluntary plans do not work as intended.


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## Daniel A. (Mar 20, 2011)

Longwinston said:


> Can you explain your thought process on this please?
> Thanks


Medical premium costs per month are subsidized for lower income people, someone with a decent pension pays their own premiums.

Just another cost born by the rest of taxpayers supporting those that have not saved for retirement.


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## AltaRed (Jun 8, 2009)

GoldStone said:


> I don't follow. Please elaborate.
> 
> Note: The push to enhance CPP lacks any details. We don't know how CPP integration with pension plans is supposed evolve.


I agree. We do not know whether ANY enhanced CPP would be integrated with DB pension plans (though they probably should). The real issue is not those who have DB plans. The issue is people without pension plans do not utilize the RRSP vehicle well enough and it is those that the enhanced CPP is intended to reach.


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## andrewf (Mar 1, 2010)

GoldStone said:


> I don't follow. Please elaborate.
> 
> Note: The push to enhance CPP lacks any details. We don't know how CPP integration with pension plans is supposed evolve.


Did this really require elaboration? I assumed that part of the proposed CPP expansion would be provisions to integrate with existing DB pensions. I don't see this as being politically viable otherwise.


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## sags (May 15, 2010)

I view the decision by the Harper government to defeat the proposal as an election gift to the Liberals.

We will see what comes out in the days ahead.........and the election down the road.


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## avrex (Nov 14, 2010)

I'm afraid, sags is correct.

In 2015, the electorate will choose between two different ideologies:
a) The Liberals / New Democrat backed Expanded CPP
b) The Conservative backed TFSA increase to 10,000.

The majority of Canadians don't have the will to save money on their own.

Therefore, a) will be selected. It's easier.


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## sags (May 15, 2010)

You just have to laugh when Jim Flaherty and Tony Clements talk about pensions not being affordable for Canadians.

_Dated Jan 23, 2012.

Three senior Harper Ministers – *Jim Flaherty*, John Baird and *Tony Clemen*t – must be grinning widely today. The troika were elected exactly* six years ago *and now they can retire worry-free, having finally qualified for their gold-plated MP pensions.

They are each entitled to *$68,000 a year if they hang on until 2015 – and $96,000 a year if they remain until 2019*. It keeps increasing from there._

http://www.theglobeandmail.com/news...-pension-amid-calls-for-reform/article620951/

They can begin collecting at age 55..........for life.

It looks like a classic case of.........."I got mine.......too bad for you."

Life is good at the top............

Remember the Golden Rule...........those with the gold........make the rules.


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## HaroldCrump (Jun 10, 2009)

sags said:


> They are each entitled to *$68,000 a year if they hang on until 2015 – and $96,000 a year if they remain until 2019*. It keeps increasing from there.[/I]


Jim Flaherty has been an MPP since 1995, and an MP since 2006.
His pension of $68K pales in comparison to the $150K+ pension entitlements of the fatcats at OPG, Hydro One, OPA, etc.

Not to mention the pensions of the other thousands of paper-pushers and minions on the Sunshine List all across the province.

And wasn't it you, sags, who said about a year or so ago that top Cabinet leaders like the Prime Minister, Finance Minister, Defense Minister, etc. should be paid no less than a private sector CEO of a multinational like the TD Bank or the Royal Bank.
I am pretty sure that was you....


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## sags (May 15, 2010)

Have no fears for the Flaherty family income in retirement.

According to Garth Turner's blog.........they will receive $310,000 per year.......indexed........for life.

http://www.greaterfool.ca/2012/03/30/geezer-dole/

I doubt I ever said Flaherty should earn what a private sector CEO earns. 

I believe I compared what private CEOs earned compared to the Finance Minister of Canada.

The point remains the same anyways............

Apparently, Canada can't afford pensions for everyone...........just a select few.


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## HaroldCrump (Jun 10, 2009)

sags said:


> Apparently, Canada can't afford pensions for everyone...........just a select few.


In that I completely agree with you.
The keyword here is _*just a select few*_.
And that "select few" include a few more than Flaherty and Clement.


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## sags (May 15, 2010)

The OP question is........"expanded CPP push, where is it coming from?"

A better question might be.........where is the push *against* an expanded CPP and DB pensions in general coming from?

This article and links........provide some clues.

http://wallstreetonparade.com/2013/...n-the-federal-reserve’s-100th-birthday-party/

_The program, *The Retirement Gamble*, showed how if you work for 50 years and receive the typical long-term return of 7 percent on your 401(k) plan and your fees are 2 percent, *almost two-thirds of your account will go to Wall Street*. Under a typical 2 percent 401(k) fee structure, almost two-thirds of your working life will go toward paying obscene compensation to Wall Street; a little over one-third will benefit your family – and that’s before paying taxes on withdrawals. The dirty secret is the negative impact that Wall Street fees subtract from compounded interest over long blocks of time.

In the program, Smith pulls up a compounding calculator on his laptop. On air, he shows the viewer the results:

Smith: “Take an account with a $100,000 balance and reduce it by 2 percent a year. At the end of 50 years, that 2 percent annual charge would subtract $63,000 from your account, a loss of 63 percent, leaving you with just a little over $36,000.”

You can prove the point to yourself. Pull up a compounding calculator on line. Assume an account with a $100,000 balance and compound it at 7 percent for 50 years. That would give you a return of $3,278,041.36. Now change the calculation to a 5 percent return (reduced by the 2 percent annual fee) for the same $100,000 over the same 50 years. That will deliver a return of $1,211,938.32. *That’s a whopping difference of $2,066,103.04 – the same 63 percent reduction *in value in Smith’s example._

http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/

It isn't any wonder business and financial institutions lobbied hard for Pooled Pension schemes.

Add in the cost of converting whatever capital is left into an annuity........and they take almost all of *50 years of saving*.


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## OnlyMyOpinion (Sep 1, 2013)

*"paying obscene compensation"*
That's why folks on CMF harp on the need to invest in ETF's with low MERS, or in equities with no MER. And that's why it 'pays' to be knowledgeable about where you're money is going and what fees you are paying. At least that choice exists now where it didn't only a few years ago. 
Go through all of your accounts and eliminate fees - pay credit card on time, pay bills on time, use a no-fee card or a fee that pays for itself over the year, use no charge chequing acc, keep minimum balances in investing accs, etc.
There's nothing wrong with business taking a slice of profit but it's competition that brings us, the 'consumer' of financial products those lower cost choices. These days, if someone is getting 'hosed' with fees it's their own fault.
The other stellar example of fees is calculating how much your house mortgage will cost over 25yrs and how much you will pay the bank. That's what prompted us to get with a plan and pay off our house shortly after buying it. That's what set us on the road to understanding our income, expenses and investments.


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## sags (May 15, 2010)

Good advice regarding fees and interest charges, but it appears that often an employee doesn't have many options in their 401K choice of investments, and the choices offered may the result of kickbacks to the company or broker.

Would a DC pension plan or Pooled Pension Plans in Canada allow for the choice to invest directly in equities or ETFs?

I would think it more likely the employer would strike a deal with one investment company and the employee would have to choose from their product offerings.......and suffer the fees.

The CPP has the ability to invest in greatly diversified areas, is well managed for a low cost.

The decision not to enhance the CPP seems more motivated by concern for financial institutions than for the future retiree.


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## Eclectic12 (Oct 20, 2010)

Longwinston said:


> .. In most cases they are a victim of greed in the union running up ridiculously lavish pension schemes that the employer foolishly agreed to 20 years or so ago. Well that is coming home to roost. They are cutting back on these defined benefit pension packages in New Brunswick, current retirees will get less. Look at GM Pension holders. Ford and Chrysler too. Welcome to the free market I guess ...


You might want to reconsider deciding the pension funding issues are strictly union related. The DetroitFreePress reviewed the GM pension and was shocked to discover that while the statement at the time was the "the market crash" had a big impact on the pension, their review of the numbers/investigation showed that the markets caused only 1/3 of the one year swing from something like a $10 billion surplus to a $16 billion deficit.

Granted - it's not as bad as some other US companies that swung from a small surplus to a deficit based on money being drained from the pension to pay executive salaries & bonus.


I'll search for link.


Cheers


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## Longwinston (Oct 20, 2013)

Sags, if you think saving and investing is a poor thing to do, then don't do it. It doesn't affect me. 
Increasing the CPP does.

I am a buy and hold long term direct dividend equity investor. I transfer my work RRSPs to my self directed account. Over the long term, I will pay next to nothing in fees.


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## Longwinston (Oct 20, 2013)

Eclectic12 said:


> You might want to reconsider deciding the pension funding issues are strictly union related. The DetroitFreePress reviewed the GM pension and was shocked to discover that while the statement at the time was the "the market crash" had a big impact on the pension, their review of the numbers/investigation showed that the markets caused only 1/3 of the one year swing from something like a $10 billion surplus to a $16 billion deficit.
> 
> Granted - it's not as bad as some other US companies that swung from a small surplus to a deficit based on money being drained from the pension to pay executive salaries & bonus.
> 
> ...


I don't understand your point. There are a ton of pensions in deficit situations in Canada. Increasing the CPP will dramatically lower how much a lot of these pensions are liable to payout to the pensioners as the CPP will be covering a larger percentage of the agreed to benefits. 

Why the pensions got in the bad spot they are in today is a whole different subject.


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## Daniel A. (Mar 20, 2011)

CPP changes would have no impact on my private company DB pension.

When people talk about their own plans everything is a guess does not matter if it's a DB / DC or TFS/RRSP

No one really has the answer till they collect but having a plan is a good start.

I've been collecting mine for a few years now and my plan is 100% fully funded.


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## Eclectic12 (Oct 20, 2010)

Longwinston said:


> I don't understand your point. ...
> Why the pensions got in the bad spot they are in today is a whole different subject.


Then why paint the current db pension deficits as the result of unions when factors such as mentioned, skipping needed contributions & gov't regulations limiting the size of surplus the db pension can legally hold onto have also played a role?


Cheers


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## sags (May 15, 2010)

Hundreds of billions of dollars sitting in DB pension funds.........maybe a Trillion or so, just beyond the reach of sticky banker fingers.

They must gaze upon it and dreamily ponder........."what if"


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## Longwinston (Oct 20, 2013)

Eclectic12 said:


> Then why paint the current db pension deficits as the result of unions when factors such as mentioned, skipping needed contributions & gov't regulations limiting the size of surplus the db pension can legally hold onto have also played a role?
> 
> 
> Cheers


I believe that unions bargaining, especially in the public sector, got agreed to DB pensions that were and are out of step with reality. The day of reckoning is here and this CPP push is an effort to defer that needed reckoning.

There are some pensions that are ok, but those are largely ones where these factors were not present, although some exemptions do exist.

You will note that the Expanded CPP pushers are the unions or public sectors fretting about the viability of these plans.


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## fraser (May 15, 2010)

DB plans, with a few exceptions, have made significant gains on the last 18 months. In fact, the vast majority are out of the 'danger zone'. Mercer's Q3 DB funding stats were surprisingly good, the Q4 numbers will be even better.


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## OhGreatGuru (May 24, 2009)

Longwinston said:


> I watch financial news pretty closely, but this whole expanded CPP talk, to me, came out of nowhere. I have been wondering to myself, where is this coming from and why is this being pushed so aggressively from the left of the political spectrum and some provinces.
> 
> Well, if you were like me, wonder no more for I have found what this is really about:
> 
> ...


Oh Horrors! Unions support better public pensions! What next? The Pope prays for Peace?

The Financial Post story, and the conclusions you have drawn from it, are so full of s**t I don't know where to begin. 

Someone who claims to "watch financial news pretty closely" yet finds the talk of expanded CPP "came out of nowhere" is so willfully ignorant it is beyond my capacity (or interest) to try to correct it. And the usual suspects have got out their favorite axes to grind about the evils of unions and DB pensions, instead of addressing the question of how best to address retirement income security for Canadians.


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## sags (May 15, 2010)

fraser said:


> DB plans, with a few exceptions, have made significant gains on the last 18 months. In fact, the vast majority are out of the 'danger zone'. Mercer's Q3 DB funding stats were surprisingly good, the Q4 numbers will be even better.


In a couple of years, the right wing lobby groups and media, will be arguing that pension surpluses belong to the company.

And we will be right back to where we were...........when companies were pilfering the pension plans.


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## Canadian (Sep 19, 2013)

sags said:


> In a couple of years, the right wing lobby groups and media, will be arguing that pension surpluses belong to the company.


That whole situation is a bit of a catch-22. Companies have to present the funding position of its pensions, which is understandable. But an overfunded pension isn't an asset in itself to a company [which weakens the argument that surpluses belong to the company]. All it means is the company currently does not need to fund its pension at present to meet its future pension obligations [until the asset is drawn down to zero or becomes a liability]. The company actually does not have any rights to those funds, however. Legislation surrounding pensions forbids companies from touching or having any control over the pension. It is owned [and controlled] by the trustee in trust for its pensioners. One who analyzes a company's financial statement without a full understanding of pensions would likely think a pension asset belongs to the company no different from other financial assets.

I don't write this to argue or render this point moot. I agree that such lobby groups very well could take this stance. It would make them look very silly though, because they would be very wrong.


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## Daniel A. (Mar 20, 2011)

Changes to the CPP will benefit the little guy providing much needed assistance.

Companies for to long have argued they can't afford increases just like they have argued the need not to contribute to their pension plans.
For the guy at the top of the food chain none of this seems to be a problem, they have everything.

I really don't know how the average person is going to retire given that they only have CPP & OAS !!!

I wouldn't want to be in that position.

My private DB pension allows me to spend my winters in Mexico living well under blue skies with summer in Vancouver.
I know several business owners that pay their staff poorly they can't afford an increase yet they do have everything for themselves.
Nice high end homes, expensive cars, all the toys one could have yet they claim not to be able to offer anything to their employees.

Greed is a wonderful thing.


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## fraser (May 15, 2010)

In some instances ownership of the surplus is clearly spelled out. 

I do not have a problem when companies that sponsor DB plans that DO NOT require employee contributions claim a surplus, or take a contribution vacation. After all, they provide 100 percent of the funding they are responsible for any deficit.

The DB plan that I belong to was 100 percent funded by the company. The company made substantial supplementary payments to the plan over the past 10 years. In past years prior to the deficit years they did not have to make a contribution because the plan investments were doing better than expected. IMHO they should be entitled to any surplus-but only in the form of a contribution holiday unless of course the plan is ended and the obligations are fully funded.

Jointly funded DB plans, ie employer and employee contributions, are an altogether different kettle of fish. Law firms are doing very well on this litigatation.


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## Longwinston (Oct 20, 2013)

OhGreatGuru said:


> Oh Horrors! Unions support better public pensions! What next? The Pope prays for Peace?
> 
> The Financial Post story, and the conclusions you have drawn from it, are so full of s**t I don't know where to begin.
> 
> Someone who claims to "watch financial news pretty closely" yet finds the talk of expanded CPP "came out of nowhere" is so willfully ignorant it is beyond my capacity (or interest) to try to correct it. And the usual suspects have got out their favorite axes to grind about the evils of unions and DB pensions, instead of addressing the question of how best to address retirement income security for Canadians.


And, yet, you fail to articulate even one rational position against what I said.
I save for my own retirement, I shouldn't have to contribute, involuntarily to an under funded pension plan that is far superior to 90% of the pensions out there. Let them figure it out on their own, don't ask the poor to subsidize the pensions of the rich.


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## Canadian (Sep 19, 2013)

fraser said:


> IMHO they should be entitled to any surplus-but only in the form of a contribution holiday unless of course the plan is ended and the obligations are fully funded.


The contribution holiday is what is set out in legislation when in a surplus position. Pension funding is a big balancing act. It is important to distinguish between an entitlement to receive the surplus and the entitlement to a contribution holiday when the pension is in a surplus position.


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## fraser (May 15, 2010)

One of the challenges that employers have had in the past is that they have been limited by legislation in their contributions when their DB plans were overfunded to something like 110%. Some want the ability to make excess contributions when business is good in order to decrease their tax liabilities. Seems OK to me, as long as the legislation also tightens up on pension deficits. Does anyone know if this change has been made-does it have to go through the house or can it be done through a change of the regulations or by cabinet decree?


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## OnlyMyOpinion (Sep 1, 2013)

Somehow missed this article by Jonathan Chevreau, "Even without Big CPP..." (Dec.17, MoneySense online):
http://www.moneysense.ca/retire/cpp
We enjoy the practical and relevant nature his articles.


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## OhGreatGuru (May 24, 2009)

Longwinston said:


> And, yet, you fail to articulate even one rational position against what I said.
> I save for my own retirement, I shouldn't have to contribute, involuntarily to an under funded pension plan that is far superior to 90% of the pensions out there. Let them figure it out on their own, don't ask the poor to subsidize the pensions of the rich.


Rationality?
"... an under funded pension plan..." CPP is not underfunded.

"... that is far superior to 90% of the pensions out there" If you admit that it is superior, why wouldn't you want to contribute to it?

"don't ask the poor to subsidize the pensions of the rich." I am completely puzzled as to how you think expanding CPP would have this effect.


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## Longwinston (Oct 20, 2013)

OhGreatGuru said:


> Rationality?
> "... an under funded pension plan..." CPP is not underfunded.
> 
> "... that is far superior to 90% of the pensions out there" If you admit that it is superior, why wouldn't you want to contribute to it?
> ...


.

I never said CPP was underfunded, I was clearly inferring that there are a lot of underfunded pensions that are hoping an increased CPP will bail them out. See the Canada post pension plan, under funded by billions now and with thousands upon thousands retiring over the next few years, it's going to collapse or need to be bailed out. Preference would be that they change it to make it self sustaining.

These pensions, like the Canada post pensions are "superior" in that they offer lavish benefits to its members that, it is now turning out, they didn't have the ability to pay for. Reversion to the mean will require a reduction in these benefits to make them self sustaining. Members and companies that made the pension agreement should make these needed changes, not ask the Canadian tax payer to subsidize their poor choices.

You are puzzled only if you are ignorant or partisan. CPP, OAS and GIS are universally agreed to cover adequately for the poorest seniors. In fact, coupled with income splitting, most low income people take home more money when retired than when they were working. Increasing Mandatory CPP contributions would be a disproportionate tax on low income earners to subsidize the lavish unsustainable pensions of the upper middle class.

Still puzzled?


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## HaroldCrump (Jun 10, 2009)

^ further to the above, just because a public sector pension plan is not underfunded does not mean it is a fair and equitable deal for the tax-payers.
Last month, we heard about the egregious excesses of the OPG, Hydro One, and other Ontario PS pension plans.
They are not underfunded (at least not like Canada Post and VIA Rail).
But that does not make it okay.

Many other public sector pension plans such as OTPP and HOOPP are held up as shining examples of pension plan management.
While that may be so, they are still significantly more generous than anything available in the private sector, and represent a large tax burden for the residents - current and future.


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## GoldStone (Mar 6, 2011)

The push to expand CPP has another angle: *a tax hike by stealth*.

Jack Mintz: Ontario plans to go it alone on pensions leave it with dubious options

Here's the money quote:



> How would Ontario pension fund contributions be treated under the personal income tax?
> 
> Currently, CPP contributions are not deductible from personal income – instead, a tax credit based on the low-income tax rate is provided. So, for example, an employee with $90,000 in income can deduct pension plan contributions for a tax savings of about 37 cent for each dollar but under the CPP get a tax credit about 20%.
> 
> ...


Jack Mintz wrote about Ontario go-it-alone plan. The same logic applies to the federal enhanced CPP. If they treat enhanced contributions the same way they do regular contributions - governments stand to pick up extra taxes for every dollar switched from a pension plan or an RRSP.

This might be another reason why Ontario is so eager to enhance CPP.


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## sags (May 15, 2010)

GoldStone said:


> The push to expand CPP has another angle: *a tax hike by stealth*.
> 
> Jack Mintz: Ontario plans to go it alone on pensions leave it with dubious options
> 
> ...


Mintz's argument might have merit, were it not for the fact that so few people are funding an RRSP.

He misses that the whole point of an expanded CPP is due to the failure of RRSP savings.

RRSP tax savings are only temporary in any event, and will be repaid in the future.


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## sags (May 15, 2010)

Longwinston said:


> .
> 
> I never said CPP was underfunded, I was clearly inferring that there are a lot of underfunded pensions that are hoping an increased CPP will bail them out. See the Canada post pension plan, under funded by billions now and with thousands upon thousands retiring over the next few years, it's going to collapse or need to be bailed out. Preference would be that they change it to make it self sustaining.
> 
> ...


Pension funds won't "collapse".

The employer is responsible for making up funding actuarial shortfalls, which change constantly due to economic circumstances.

Earned pension benefits can't be rolled back. They are derived from the combination of employee/employer contributions and investment income and are owned by the retiree.

If a company rolls up the pension plan........they are required to fully fund the pension to date.

If a company goes bankrupt while the pension is underfunded, the benefits would be lowered accordingly, if there are no assets to pay the underfunding of the pension.

An enhanced CPP would affect very few DB pensions, as the benefits would be for retirees 30 years down the road, at a time when most of the retirees wouldn't have a DB pension. That is the point of the enhanced CPP plan...........to replace DB pensions that the employees don't have.

CPP integration does lower some pension plan benefits for some pensions, but each plan is different, and each pension plan would have to review their plans and possibly recalculate their benefits if the CPP was enhanced. Or, they may decide to leave the plan as is and the retiree would simply gain higher retirement income from the combination of pension and CPP.

Some plans deduct the full CPP benefit from the "lifetime" pension, while others deduct a % of the CPP benefit.

It all depends on how the plan was set up to handle CPP integration.


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## sags (May 15, 2010)

HaroldCrump said:


> ^ further to the above, just because a public sector pension plan is not underfunded does not mean it is a fair and equitable deal for the tax-payers.
> Last month, we heard about the egregious excesses of the OPG, Hydro One, and other Ontario PS pension plans.
> They are not underfunded (at least not like Canada Post and VIA Rail).
> But that does not make it okay.
> ...


An accurate assessment which gets to the nub of the debate.

Which would be..............

Are public service employees overpaid in the combination of wages and benefits.........for the jobs they perform?

That should be the discussion, not the media types making up nefarious arguments trying to prove pensions are a bad concept in principal.


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## HaroldCrump (Jun 10, 2009)

sags said:


> Are public service employees overpaid in the combination of wages and benefits.........for the jobs they perform?


I agree completely that is the key question.
That is indeed the question we should all be asking.

Unfortunately, there is no easy answer because there is no free market to determine the price of unionized public sector labor force.
It is all based on politics, vote banking, govt. of the day, the clout of the current union leadership, and such factors - not the forces of demand and supply.

IMHO, a critical element that is missing in this wage determination is the transparency around the true cost of public sector compensation, and an assessment of the tax-payers ability to pay the current compensation levels.
In the absence of market forces, we should account for the ability to pay metric - does the tax payer of today (and future) have the ability to pay the current level of compensation?

There is a significant lack of transparency around the cost of compensation.
The vast majority of voters and tax payers do not realize the extent of public sector compensation.
Some of that opacity is by design, by intent.

Stories like the OPG and H1 pensions hit the newswires, a small number of people pay attention (barely), click their tongues tsk tsk tsk, raise an eyebrow or two in mock outrage, and then move on to watch the next hockey game, reality show, celebrity scandal, etc. and in less than 2 days, the entire matter is forgotten.

And then the same folks complain that they have no money for RRSP savings, 163% personal debt, student loans, and a $500K mortgage.



> That should be the discussion, not the media types making up nefarious arguments trying to prove pensions are a bad concept in principal.


Right, of course there is nothing fundamentally wrong or bad with pensions, even public sector defined benefit pensions.
The problem is that there is no transparent discussion about what these pensions are, how much it costs the tax payers, the relative chasm between general wage levels and public sector wage levels, and what is a fair wage for a given level of public services.


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## OhGreatGuru (May 24, 2009)

I am disappointed that a thread about the merits of expanding CPP became a debate/rant about "public service" pensions (of which there are many varieties, some actuarially sound and some not). The only connection is that some unions, including some public service unions, support the idea of expanding CPP. As pointed out by SAGS, expanding CPP won't "bail out" currently underfunded pensions, so the originally quoted newspaper article is full of s**t as I said. 

I believe there is a separate thread on public pensions. However, to try to make some "taxpayers" think a little I will say this:
- "Taxpayers" are also the employer for public service pensions.
- "Employers" should not be allowed to unilaterally escape from their financial obligations, even if the employer is the taxpayer.
- "Taxpayers" are fond of saying it is "the union's" pension plan. But in most cases the way the pension plan is set up and funded was determined by the government, acting on behalf of the taxpayer/employer. The unions in fact usually have no control over how the pension plan is managed.
- As often as not, underfunded public service pension plans are underfunded because governments, on behalf of the taxpayer/employer. decided it provided a short-term benefit to the taxpayer/voter to set it up that way.
- The Paul Martin/Jean Chretien government took $30B out of the "federal public service pension funds" (there was no real fund, just a bookkeeping account of debt obligations) to write off government debt, to the benefit of the taxpayer/employer. (This would have been illegal for any private employer to do.) They claimed at the time that the plan had a "surplus". Current governments are now claiming the pension plan is "underfunded" as a rationale for changing benefits and/or contributions.
- If taxpayers think it is all right for governments to default on their financial obligations to their employees, why should they not also default on other financial obligations, such as OAS & GIS, or even government debt instruments? 

- Public service workers are taxpayers too, and so are public service retirees, thanks to their pensions.


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## sags (May 15, 2010)

All money needs velocity in spending, to be effective in the economy.

Handing banks Trillions of dollars, to hold on their balance sheets or loan back to the government on arbitrage opportunities........was the biggest downfall of the US stimulus program. It was a flat out "gift" to the financial institutions.

Giving the money directly to the people, in cash and vouchers, would have circulated the money through the economy.

Public service pensions have the same effect. The money is spent and taxed.........sooner or later.

Enhancing the CPP would take some money out of the economy today........but replace it in the future.

It is no different than RRSP savings, and superior from a government revenue standpoint than TFSAs.

Although in the long run, it doesn't make any difference.....because all money created eventually flows back to the government.

The "difference" economically is how many "stops" the money makes along it's journey back.


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## richard (Jun 20, 2013)

Generally the CPP is well managed but has a few shortcomings. After hearing about a lot of options I think an expansion of the CPP could be productive under 2 conditions. First it's based on actual contributions from the beneficiaries. No extra contributions = no extra benefits. And there goes everyone who is demanding an expanded CPP to be paid for by the person who takes over their job  While older people would complain, this is a simple way to get a well-funded plan with good benefits in the future, that time period that does not exist in the mind of a politician.

And second it starts at a higher age. This solves 2 problems at once. First the benefits are a lot cheaper because there is more time to invest and less time to spend. And second it solves the major problem that hurts even the most prepared savers who made the maximum RRSP contributions every year. If they retire at 65 they don't know if they have to pay their bills for 2 years or for 50 years. Planning ahead is difficult when there is a large penalty for living longer. If an expanded CPP guaranteed that they would only have to pay their way until they are 85, retirement planning would be a lot simpler.

If something like this came about I might even start participating in the CPP again because it would offer benefits that are impossible to obtain through private decisions and the free market. I'll just sit here and wait for the government to consult me... any day now...


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## andrewf (Mar 1, 2010)

sags said:


> Enhancing the CPP would take some money out of the economy today........but replace it in the future.


CPPIB doesn't put money in a vault. They buy financial instruments such as stocks and bonds with cash. So whoever sold those financial instruments gets the money, and the money continues to circulate.


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## sags (May 15, 2010)

andrewf said:


> CPPIB doesn't put money in a vault. They buy financial instruments such as stocks and bonds with cash. So whoever sold those financial instruments gets the money, and the money continues to circulate.


True to an extent,......but the money may not all be invested into the Canadian economy.

Buying stocks in a company, that builds assembly plants in Asia..........for example.

Maybe the "enhancement revenue" could be directed solely towards Canadian infrastructure projects, with a nice return to CPPIB.

Like paying ourselves.......while getting the work done.


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## HaroldCrump (Jun 10, 2009)

_*Conservatives to propose new risk-sharing pension plans *_

_The Conservative government is throwing a new idea into the heated debate over Canadian pensions, launching a national discussion over proposed new pension plans that share the investment risk between employers and employees._

This seems to be along the lines of what was adopted by New Brunswick last year.
It is interesting that they are excluding the entire federal public service from these proposed changes, which has one of the most generous pension plans.

This seems targeted towards only crown corps. and regulated private sector corporations.
So it would also exclude the grotesque Hydro One, OPG, etc.

The details are not clear...will this lead to an increase in the employee as well as employer contributions, or will those remain same?
I suspect the unions' position will be that the employer share needs to go up to offset the risk sharing.


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## RBull (Jan 20, 2013)

It will be an interesting to see more details and the debate over this. Little doubt there will be a lot of push back from the areas with the most to lose. It's not surprising to see no consideration of this for the fed public service.


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## andrewf (Mar 1, 2010)

I'll have to read the report. I'm skeptical there is a structure can offer certainty on benefits, protect employers from having to top up plan shortfalls and protect the taxpayer from having to guarantee plans for defunct firms. Sounds too good to be true, therefore it probably is.

It is interesting that the Dodge report supports the position that actuarially fair CPP expansion would not be economically disastrous as the government contends. It seems to me that government is just desperate to defend themselves on the pension flank. They intend to do essentially nothing, but want to appear to do something to confuse low information voters.


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## fraser (May 15, 2010)

It would be more than a matter of increasing CPP and CPP premiums.

An overhaul of CPP would be required to make it more DB like-particularly as it relates to survivor benefits. They would have to review the social programs built into CPP. 

But a five percent increase in payroll costs and a five percent increase in ee premiums would have a detrimental impact on our fragile economy. The job situation in Canada at the moment is not as rosy as the Gov't likes to paint it. We are well behind the US in this regard.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> It seems to me that government is just desperate to defend themselves on the pension flank.
> They intend to do essentially nothing, but want to appear to do something to confuse low information voters.


That is my initial inference as well.
Unless it takes the tax-payers off the hook for topping up benefits, guaranteeing the returns built into the assumptions, or reduce employer contributions, etc. this is mostly political posturing.
I believe a large majority of public sector pension plans are still below the 50/50 contribution split, although employee contributions have risen a little in the last few years.
This should not be an excuse for the unions to bargain an increase in employer (tax-payer) contributions.


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## Westerly (Dec 26, 2010)

We are very aware of MERs on funds and the difference in value over years of a .5% vs. 3.5% MER, any idea what the cost of management of these pensions typically is?


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## Eclectic12 (Oct 20, 2010)

andrewf said:


> I'll have to read the report. I'm skeptical there is a structure can offer certainty on benefits, protect employers from having to top up plan shortfalls and protect the taxpayer from having to guarantee plans for defunct firms.
> 
> Sounds too good to be true, therefore it probably is.


The way I read it ... this was not intended to do away with top-ups so much as open up more options.

If the parties (one article mentions employers, employees and retirees) don't want to kick more in, then the benefits can be reduced, in proportion to the investment performance.

If they agreed to a top up, then all would add more instead of today's DB plan where only the employer adds more or the DC plan when nothing is done.



> It would be up to plan sponsors, members and retirees to determine the different elements of plan design, such as contribution rates.


and 



> If the returns are lower than expected, the plan would increase the size of the contributions and/or reduce the size of the benefits, without putting plan sponsors on the hook. If the returns are higher than expected, benefits could be increased or contributions could be reduced.


Admittedly ... the part about the "without putting plan sponsors on the hook" isn't clear but I suspect that it should have been worded along the lines of "solely on the hook".

http://www.benefitscanada.com/pensions/db/ottawa-calls-for-target-benefit-plans-51874


I don't believe this is aimed at doing anything at all, where a firm collapses.
The Nortel collapse has shown the gov't won't kick in to guarantee full benefits so I'm not sure what you are thinking the gov't needs to address for defunct company plans.

What is does do is give firms far more flexibility to reduce their pension commitments in leaner times, without totally removing the guarantee. 
In theory, this should mean more firms are defunct because of their business practices instead of because of pension top ups.


Of course all of this might not work so well if everyone has to agree and is likely to be easy to manipulate.
Most are not that savvy about pensions or asking about funding so abuse such as GM complaining that investment performance triggering top ups was killing them. When the Detroit Free Press analysed the numbers a couple of years later, investment performance accounted for the swing from a $10 billion surplus to a deficit of $2 billion deficit and withdrawals by GM added another $24 billion of deficit for about a $26 billion deficit.




andrewf said:


> It is interesting that the Dodge report supports the position that actuarially fair CPP expansion would not be economically disastrous as the government contends. It seems to me that government is just desperate to defend themselves on the pension flank. They intend to do essentially nothing, but want to appear to do something to confuse low information voters.


Yes ... they do little but can point to the new plan as giving a "full spectrum approach".


Cheers


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## Eclectic12 (Oct 20, 2010)

HaroldCrump said:


> That is my initial inference as well.


It's the Canadian thing to do ... :rolleyes2:





HaroldCrump said:


> ... I believe a large majority of public sector pension plans are still below the 50/50 contribution split, although employee contributions have risen a little in the last few years...


Apparently pension expert Malcolm Hamilton disagrees as while talking about the gov't incorrectly pricing the income guarantees, he states that worst of the pricing mismatch is:


> ... in the federal public sector where plan members are insulated from investment risk, as compared to the provincial public sectors where members frequently bear half of the risk, if not more.


http://www.benefitscanada.com/pensions/db/cost-of-public-sector-pensions-underestimated-report-50721


Interestingly, Mercer pension consultant Paul Forestell indicates closing down a DB plan doesn't immediately translate to the savings companies think it does. The example of the Saskatchewan government is used, where it was one of Canada’s first employers to close its pension plans to new hires, starting in 1977, and switch new workers into DC plans, where pensions vary depending on investment returns. Thirty-four years later, there are still 1,000 active employees in the old plans who haven’t retired yet, said assistant deputy minister of finance Brian Smith. He estimates it will take well over 80 years until the last remaining members of the DB plans.

All while also paying for the DC plan to run.

http://www.theglobeandmail.com/repo...hing-to-a-cheaper-pension-plan/article555646/


Cheers


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## Eclectic12 (Oct 20, 2010)

Westerly said:


> We are very aware of MERs on funds and the difference in value over years of a .5% vs. 3.5% MER, any idea what the cost of management of these pensions typically is?


I suspect this is an apples to oranges comparison.

The guarantee part is going to require frequent enough reviews by someone like an actuary to look at investment returns, mortality, numbers about to retire etc. and compare to the guaranteed benefit, all with enough lead time for the appropriate changes to be made.

Then too, if there is a big uptake - where there are lots of plan members to share this cost, it will be low. If not, it will be high.

I expect the ability to shift the target and/or adjust the contribution rates will add a bit to the cost compared to a traditional DB plan.


IAC, the largest private pension trust fund in the country and fourth-largest pension plan overall, HOOPP says their plan investment management costs work out to approximately 20 basis points. That compares favourably with the defined management expense ratios (MERs) of retail mutual funds, which can be as high as 200 basis points.

I'm pretty sure my private company DB pension isn't anywhere near as cheap as that.


Cheers


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