# Public Service Pension Plan is Overrated for the Savvy Investor



## savvybuck (Feb 12, 2014)

I did an analysis on public service pensions, the contribution rates and the payouts, and it seems not as great as people make it out to be.


Hypothetical Joe is a 30 year old who just joined the workforce as a public servant earning $50,000 a year. As an employee, he is obviously eligible for the supposedly “gold plated” pension. According to the Treasury Board of Canada, he is required to contribute 8.15% of his earnings into the plan.










$50,000 x 0.0815 = $4075
So on his salary level, he is topping up $4075 per year.

According to the Treasury Board, your payout at age 65 is the following formula:










*This formula has been changed for the worst in 2015 going onward; However, I am going to use this for argument’s sake.

= 2% x Average Salary of Best 5 years x Number of Years worked.
= 0.02 x 50,000 x 1
= $1,000
So in our example, if Hypothetical Joe worked for a single year and quit, then at age 65, he would receive $1000 per year.

Thus, the question becomes, would you be willing to put in $4075 today and receive annual payments of $1000 per year after you hit 65?

What if you had invested that $4075 instead at a conservative 7.5% rate of return over the course of 35 years? That amount would actually grow to a staggering $51,208!

Now, the question becomes: *At age 65, would you prefer a lump sum payment of $51,208 or $1000 per year for the rest of your retirement?* I think, the answer is pretty clear now!


As for the full analysis for 35 years of employment:
http://savvybuck.com/2015/02/18/defined-pension-plan-overrated-for-the-savvy-investor/


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## Davis (Nov 11, 2014)

Interesting analysis, savvy. I'm not sure if 7.5% return counts as "conservative", but I admire your willingness to stir up the so-called "gold plated public service pension plan" issue in this big old nest of libertarian hornets we have here. Let the circus begin....


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## NorthernRaven (Aug 4, 2010)

I think there are a few errors in your analysis. First, you've mixed up the pre-2013 contribution rates with the 2013 benefits. The 8.15% contribution rate is for those who were in the plan before Jan 1, 2013. The contribution rate for new members like Hypothetical Joe is 7.05%. For pre-2013 people all pension ages are 5 years younger (payout at 60, max pension at 55 with 30 years service, etc). They are contributing more because of a more valuable pension (and there may be some catchup in there, I'm not sure).

Setting aside the fact that you need two years service to vest (you get a return of contributions if you quit before then), the public service pension is inflation indexed. So if Joe quits today with $1000 worth of pension, that $1000 figure will be higher in nominal dollars 30-some years from now. I'm a bit suspicious of calling a 7.5% nominal return "conservative", but a 7.5% real return (to make the dollars match) would definitely be a very good result. I suspect if you run the numbers with a more realistic real return, much of the difference will disappear.

Also, while I'd have to think it through, and check back on pension deductions, I think they are taken off your cheque before taxes. Investing on your own would take after-tax dollars, so you'd have to have more than $4075 in pre-tax income to create $4075 after-tax to invest. Depending on where the investment is held (RRSP, non-registered, etc), the before/after tax thing may alter the calculation that needs to be done.


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## Daniel A. (Mar 20, 2011)

I think your assumptions are a bit off.

Quote 

At the end of the chart, you would be 65 with a salary of $197,xxx before you retire. Your pension would be worth $131,543 per year. However, had you invested all your contributions at an index fund, it would have been worth over a million! 

Very confusing statement.


First off years of service are everything in any DB plan.
Next public employee's have inflation indexing working for them.
Their pensions are Guaranteed. 

A DB pension is very hard to beat from everything I've seen.


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## savvybuck (Feb 12, 2014)

NorthernRaven said:


> I think there are a few errors in your analysis. First, you've mixed up the pre-2013 contribution rates with the 2013 benefits. The 8.15% contribution rate is for those who were in the plan before Jan 1, 2013. The contribution rate for new members like Hypothetical Joe is 7.05%. For pre-2013 people all pension ages are 5 years younger (payout at 60, max pension at 55 with 30 years service, etc). They are contributing more because of a more valuable pension (and there may be some catchup in there, I'm not sure).
> 
> Setting aside the fact that you need two years service to vest (you get a return of contributions if you quit before then), the public service pension is inflation indexed. So if Joe quits today with $1000 worth of pension, that $1000 figure will be higher in nominal dollars 30-some years from now. I'm a bit suspicious of calling a 7.5% nominal return "conservative", but a 7.5% real return (to make the dollars match) would definitely be a very good result. I suspect if you run the numbers with a more realistic real return, much of the difference will disappear.
> 
> Also, while I'd have to think it through, and check back on pension deductions, I think they are taken off your cheque before taxes. Investing on your own would take after-tax dollars, so you'd have to have more than $4075 in pre-tax income to create $4075 after-tax to invest. Depending on where the investment is held (RRSP, non-registered, etc), the before/after tax thing may alter the calculation that needs to be done.



hrmm..ok I will look into this. But so far, I don't think any indexing is in the documentation..

Yes, if there is index for the contribution, then definitely the pension plan would be pretty awesome if you stick to it for 35 years.


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## NorthernRaven (Aug 4, 2010)

savvybuck said:


> hrmm..ok I will look into this. But so far, I don't think any indexing is in the documentation..
> 
> Yes, if there is index for the contribution, then definitely the pension plan would be pretty awesome if you stick to it for 35 years.


I think if you don't realize that most public sector DB pension are indexed you will have a very short career as a pension analyst...


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## none (Jan 15, 2013)

I did a quick in dirty and I figured the pension was doing about 6% - which is long term balanced index minus 1.4% management fee.


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## Eclectic12 (Oct 20, 2010)

savvybuck said:


> ... Now, the question becomes: *At age 65, would you prefer a lump sum payment of $51,208 or $1000 per year for the rest of your retirement?* I think, the answer is pretty clear now!


Nice trick question ... if the vesting period is two years, as I understand it - Joe has no choice, he gets his contributions plus growth back. Whether he invests it or blows it on the latest toys will be up to him.




savvybuck said:


> ... As for the full analysis for 35 years of employment ...


I'm not holding my breath that it's a reasonable analysis given that the illustration of how "bad" the pension is starts with a choice that does not appear to exist.




savvybuck said:


> ... But so far, I don't think any indexing is in the documentation..
> Yes, if there is index for the contribution, then definitely the pension plan would be pretty awesome if you stick to it for 35 years.


Any of the DB pensions I've been in do not index the contributions but index the benefit paid ... (typo maybe?). 

Cheers


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## Eclectic12 (Oct 20, 2010)

none said:


> I did a quick in dirty and I figured the pension was doing about 6% - which is long term balanced index minus 1.4% management fee.


The pension plan gives you enough info to know that the combined employee/employer contributions which have bought investments are doing?
(Never mind any employer top-ups ... )

I'm impressed.


Cheers


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## none (Jan 15, 2013)

The quick in dirty I did was figure out how much I put in each month, did a compound calculator and figured out what the in perpetuity payout would be. Turned out to be more less 6%


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## NorthernRaven (Aug 4, 2010)

none said:


> The quick in dirty I did was figure out how much I put in each month, did a compound calculator and figured out what the in perpetuity payout would be. Turned out to be more less 6%


You may be seeing 6% or whatever on _your_ contributions, but remember your employer is (?) making contributions also, so the return for the total contribution pool is lower. On the other hand, the pensions are annuities, so the fund benefits from the mortality credits of your less fortunate fellow pensioners.


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## Mookie (Feb 29, 2012)

Arithmetic aside, a DB pension is indexed to inflation and guaranteed for life, so I think I'll keep mine as the cornerstone of my retirement savings plan.


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## none (Jan 15, 2013)

NorthernRaven said:


> You may be seeing 6% or whatever on _your_ contributions, but remember your employer is (?) making contributions also, so the return for the total contribution pool is lower. On the other hand, the pensions are annuities, so the fund benefits from the mortality credits of your less fortunate fellow pensioners.


The 6% was on both the employer contribution and mine - not that they are any different, both are salary just by another name.

I'm happy taking the pension at 6% guaranteed b/c it's certainly nothing to scoff at. Indeed, turning my nose up would certainly be looking at the gift horse in the mouth.


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## 0xCC (Jan 5, 2012)

NorthernRaven said:


> I think if you don't realize that most public sector DB pension are indexed you will have a very short career as a pension analyst...


I think the point that savvybuck was making was that if Joe stops contributing to the pension after one year (or two years, I wouldn't expect that to change the results too much) there isn't any indexing in the pension payout between the time he stops contributing until the time he starts receiving the pension. In theory the "inflation adjustment" part of the pension payout calculation for this case should be handled by the average salary part of the equation. I'm not sure if that point is correct, but that is how I read the comment about the contribution being indexed.


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## Eclectic12 (Oct 20, 2010)

^^^^

First off ... for any DB pension I've been a part of, "stopping contributing" means quitting the job and moving to a new company as the plan wants to have as much as possible to ensure it can payout the benefits.

Secondly - where the vesting period is two years, as I understand it (and the way my DB pension(s) explained it in the booklet) - there is no choice ... one will receive the employee contributions plus growth and no pension. Over the vesting period mark - when one quits, one gets the choice of taking the pension earned down the road or transferring to a locked in RRSP (or LIRA).


Those minor points aside ... I question whether judging the pension based on say 3 years of service says much about how rich or poor the pension plan is for the average person. More importantly ... this is a situation the plan is not designed for and is heavily slanted against the pension and for individual RRSP or other investing.


If I were to claim the pension is a good deal because that someone joined the plan ten years before retirement and then collects their pension for twenty years will have received $137,500 versus contributing $49,924.89 - would people agree? Or would they object that I'm focusing on an exceptional case?


Cheers

*PS*

The other reason I'm leery of the findings is that the post plus the article say:


> According to the Treasury Board, your payout at age 65 is the following formula:


 with a graphic indicating 2% x Your Average salary *in excess* of the AMPE.

Looking closely at the graphic, it is clipped off. 

Checking the treasury web site, the formula is 1.375 x Your Average salary *up to* the AMPE 
*plus*
2% x Your Average salary in excess of the AMPE.


It would seem the formula used is over-estimating the benefits for those under the AMPE and under-estimating it for those over the AMPE.

I'll have to run the numbers to figure out which formula is being used.


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## fplan (Feb 20, 2014)

savvybuck said:


> *This formula has been changed for the worst in 2015 going onward; However, I am going to use this for argument’s sake.
> 
> = 2% x Average Salary of Best 5 years x Number of Years worked.
> = 0.02 x 50,000 x 1
> = $1,000



I think his Average Salary of Best 5 years = 50k/5 = 10k as he worked only one year.


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## OhGreatGuru (May 24, 2009)

The whole analysis doesn't make much sense, given how the pension plan actually works. But if we take your figures for 35yr service producing a lump sum capital at age 65 of ~1.09M. Invest that in current annuity rates, and you get only ~$73,600 annual income, compared to a pension of $135K annually.


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## Westerly (Dec 26, 2010)

With both of us in public service, we see nearly $1,000 (combined) each month taken off our cheques. Meanwhile, I have family in the private sector who make more than we do and will have to sell their house to retire, well, really just to get out of their mortgage. They have made good money, lived very well, and put away nothing. 

Leaving the math aside the "average" Joe wouldn't put those funds away for retirement, which is why it looks so rosy from the other side. As I'm reading this thread I'm looking forward to my pension more and more, and no longer begrudge the payments - we're getting closer.


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## RBull (Jan 20, 2013)

I didn't past the " 7.5% conservative return" to even consider the math.


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## NorthernRaven (Aug 4, 2010)

0xCC said:


> I think the point that savvybuck was making was that if Joe stops contributing to the pension after one year (or two years, I wouldn't expect that to change the results too much) there isn't any indexing in the pension payout between the time he stops contributing until the time he starts receiving the pension. In theory the "inflation adjustment" part of the pension payout calculation for this case should be handled by the average salary part of the equation. I'm not sure if that point is correct, but that is how I read the comment about the contribution being indexed.


No, if you leave the federal pension plan (and presumably any indexed DB plan) with the minimum two years of service vested, you have what is called a deferred annuity (the pension paid at age 65). The annuity amount is indexed to the CPI before 65 just like the payments are after 65.

savvybuck posted the same thing to the Redflagdeals forums. I'm not sure if they are just a really poor analyst or have some motive for stirring things up, but it is a fairly pointless thing.


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## Eclectic12 (Oct 20, 2010)

fplan said:


> I think his Average Salary of Best 5 years = 50k/5 = 10k as he worked only one year.


Actually ... if you check Treasury board's web site and grab the current CPP AMPE, it turns out that for 2015, the Average Maximum Pensionable Earnings is $53,600.

The "Average Salary up to AMPE" means that only the 1.375% part of the formula applies - none of the 2% part does.
This makes the formula = 1.375% x Average Salary up to AMPE x Your years of pensionable service.


Anything less than two years is moot as the Treasury Board explicitly says than leaving at any age will less than two years pensionable service means one gets the return of contributions plus interest ... there is no pension.
http://www.tbs-sct.gc.ca/pensions/options-eng.asp

Notice that in the table, that someone under 50 with two years of pensionable service is given the choice of a deferred annuity (i.e. the pension credits earned to date) or A transfer value which is the value of the pension benefits, payable in a lump sum. This amount must be transferred to another registered pension plan or to a locked-in retirement savings vehicle


Cheers


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## Sasquatch (Jan 28, 2012)

Are you kidding me :-O
Both my wife and I have DB public pensions, indexed to inflation for life.
I compare it to having a goose that laid the golden egg.
The money just keeps coming in at the end of every month, we usually get annual increases and we cannot empty our bank account(s) with the semi frugal lifestyle we've been used to all our lives.
We don't have to worry about investing any nest egg in today's uncertain markets or closely following and balancing any financial portfolio.
Our public pensions are guaranteed by the government(tax payer).
There is no way anyoner could have it any better than that and we thank our lucky stars for that every day.
We have some private investments( RRSPs, TFSAs etc.) but the thing is, we don't have depend on them for our day to day expenses. They are fully covered by our pensions. Life is good


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## sags (May 15, 2010)

One instance where accepting the commuted value of a pension may be desirable is in a situation where couples have 2 DB pensions with spousal benefits.

If they can pay their living expenses with 1 pension and combined CPP/OAS benefits...........it might not be a bad thing to have one pension turned into a mountain of cash.

It is predicted that more companies will be offering their retirees who are already collecting pensions, either equal annuities or cash. 

GM did it with their management, and are in talks with the UAW to do the same with hourly retirees by contract time in September 2015.

According to some big HR companies, other corporations are interested as well. They have developed software that informs the company the optimum time to do it.

http://www.mercer.ca/content/mercer.../2014/mercer-canada-pension-buyout-index.html

We may see more of it in the future.


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## bgc_fan (Apr 5, 2009)

Eclectic12 said:


> The other reason I'm leery of the findings is that the post plus the article say:
> with a graphic indicating 2% x Your Average salary *in excess* of the AMPE.
> 
> Looking closely at the graphic, it is clipped off.
> ...


Just a point that might clear this up. Because the public service pension is integrated with the CPP, below AMPE (set by CPP), you have to include CPP calculations so it average 2% throughout the salary range. You don't get a separate CPP payout when you retire.


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## NorthernRaven (Aug 4, 2010)

bgc_fan said:


> Just a point that might clear this up. Because the public service pension is integrated with the CPP, below AMPE (set by CPP), you have to include CPP calculations so it average 2% throughout the salary range. You don't get a separate CPP payout when you retire.


The federal public service pension (and probably most others) is _coordinated_ with CPP, not _integrated_. They do the split salary calculations so that the two sources will sum to produce the desired level of replacement income at a single rate of contribution, but they are still paid out separately. You _do_ get separate pension and CPP cheques, and you deal with pension and CPP people separately, and the timing can be different (early/late CPP choice is separate from start of pension payments).

This is also why the "bridge" payments from age 60 to age 65 (for those in the pre-2013 plan) are higher than the regular payments at age 65. The coordination is meant to provide a similar sum total of both sources, assuming election of normal age-65 CPP payments.


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## bgc_fan (Apr 5, 2009)

NorthernRaven said:


> The federal public service pension (and probably most others) is _coordinated_ with CPP, not _integrated_. They do the split salary calculations so that the two sources will sum to produce the desired level of replacement income at a single rate of contribution, but they are still paid out separately. You _do_ get separate pension and CPP cheques, and you deal with pension and CPP people separately, and the timing can be different (early/late CPP choice is separate from start of pension payments).
> 
> This is also why the "bridge" payments from age 60 to age 65 (for those in the pre-2013 plan) are higher than the regular payments at age 65. The coordination is meant to provide a similar sum total of both sources, assuming election of normal age-65 CPP payments.



Fair enough. The point being that the CPP contribution should be considered when determining the benefits of the public pension.


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## Eclectic12 (Oct 20, 2010)

bgc_fan said:


> ... You don't get a separate CPP payout when you retire.


My dad said otherwise as he received the company pension from the company and when he started CPP, the payments were received from the Canadian gov't.

The pension booklets from all of the private pensions I have participated in have said that CPP is started, the funds will be received from the gov't.

It would be strange to have to apply to the gov't for CPP and then have one's employer start paying it - would it not? 

Most companies I know don't like having to deduct then send the fees to the gov't so I suspect they would protest if they were asked as a third party with no benefit to them to take on managing the payouts as well.




bgc_fan said:


> Fair enough.
> The point being that the CPP contribution should be considered when determining the benefits of the public pension.


What? 

Everyone who is a member of CPP gets CPP - whether they are part of a public pension, private pension or have only RRSPs or have nothing.

As I understand it - the article is trying to evaluate the federal public service pension on it's own. IMO, that means that only the pension contributions and payout should be considered.


If one insists on using the combination of the pension payout plus the CPP payout - then one also needs to add in the CPP contributions being made by the employee.


Cheers


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## bgc_fan (Apr 5, 2009)

I didn't explain it clear enough. When it comes to the public service, the pension is usually calculated as 2% x years of employment x average of top five years. This 2% includes CPP, so when calculating the pension payout. That is why up until the APME it is only 1.375% while the remainder is accounted by CCP.


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## Sustainable PF (Nov 5, 2010)

Mookie said:


> Arithmetic aside, a DB pension is indexed to inflation and guaranteed for life, so I think I'll keep mine as the cornerstone of my retirement savings plan.


Ditto.


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## Eclectic12 (Oct 20, 2010)

bgc_fan said:


> I didn't explain it clear enough.
> When it comes to the public service, the pension is usually calculated as 2% x years of employment x average of top five years...


 ... which as I say ... may be fine for a pension plus CPP total income after CPP is started ... but *not* for what the article is talking about - what the pension on it's own will pay.


The Treasury Board web site in the link for retirement income from the pension says:


> Annual Lifetime Pension Calculation (Full-Time) = *1.375 percent* multiplied by your average salary up to the Average Maximum Pensionable Earnings multiplied by your years of pensionable service (maximum 35 years)
> 
> plus
> 
> *2 percent *multiplied by your average salary in excess of the Average Maximum Pensionable Earnings multiplied by your years of pensionable service (maximum 35 years)


http://www.tbs-sct.gc.ca/pensions/images/sources08-eng.html

The sample calculation uses this same formula.


My private DB pensions (three of them) have all used this same two factor benefit calculation, where the only part that differs from the Treasury Board formula is the % used for each factor.


Cheers


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## MoneyGal (Apr 24, 2009)

Read this whole thread. 

For me the biggest missing factor is that the person with no DB pension plan has to take significant investment risk with their retirement funds, while the person with the DB pension takes no investment risk. 

It is a cornerstone of investment analysis (since we are talking about cornerstones here after all!) that you must compare returns on a risk-adjusted basis. If you want to compare what your non-DBer will get compared to your DBer you cannot assume one takes investment risk and one does not.


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## Eclectic12 (Oct 20, 2010)

Re: biggest missing factor is the person with no DB pension has to take a significant investment risk.

+1 ... though a few posts have tried to point this out.

I'd bet such a person had they retired in 2007, would have been happy with their $1 mill+ but by early 2009 where most indexes had dropped by 20% to 35%, would have been scrambling.

The person with the DB pension would have been reading how their employer was putting in top-up contributions.


Re: comparing on a risk-adjusted basis

I can understand needing to keep it in mind ... but if the DB pension has the employer take on the investment risk, where one wants both to have investment risk to make them comparable - how would that happen?


Cheers


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## MoneyGal (Apr 24, 2009)

Eclectic12 said:


> Re: comparing on a risk-adjusted basis
> 
> I can understand needing to keep it in mind ... but if the DB pension has the employer take on the investment risk, where one wants both to have investment risk to make them comparable - how would that happen?
> 
> ...


The issue is that from the POV of the pension recipient, the fact that the employer had to take on investment risk is not relevant - the employee did not. 

The first point in your quote (which I should not have removed in retrospect) makes this exact point: if there are shortfalls, the employer is on the hook, not the employee. 

The employee's situation is not free of risk; it is, however, free of investment risk. (And we are talking about public service pensions in this case; there is no risk the employer will go bankrupt.)


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## Echo (Apr 1, 2011)

The other part of a DBP, aside from not having to risk anything in the market, is the forced automatic contributions on the employee side contribute to half the benefit. Would folks who prefer to opt-out of the plan actually save that amount on their own? It's too easy to skip this year's retirement contribution to fund a vacation, pay off a debt, buy a car, etc. A disciplined saver might be able to replicate the results of a DBP, but it's unlikely.

Just like the real question of rent vs. buy is whether or not the renter has the discipline to save and invest the difference. The home owner at least has the forced contributions (mortgage payment) and would likely go hungry rather than default on it.


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## MoneyGal (Apr 24, 2009)

p.s. I mean the biggest missing factor from the original post, not the fine commentary from CMFers.


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## Eclectic12 (Oct 20, 2010)

MoneyGal said:


> ... The first point in your quote (which I should not have removed in retrospect) makes this exact point: if there are shortfalls, the employer is on the hook, not the employee.


Which is where, if it was me with no pension and a big investment stash, I've want some buffer as they could be periods where the no pension person is forced to deplete their capital (or make do with less spending that time frame to preserve capital).




Echo said:


> The other part of a DBP, aside from not having to risk anything in the market, is the forced automatic contributions on the employee side contribute to half the benefit.
> 
> Would folks who prefer to opt-out of the plan actually save that amount on their own? ...
> A disciplined saver might be able to replicate the results of a DBP, but it's unlikely.
> Just like the real question of rent vs. buy is whether or not the renter has the discipline to save and invest the difference.


A good point, where knowing oneself will give one an idea of how likely or unlikely.


That's where returning to the article, I find the "savvy" part puzzling. 

There's enough discipline to dig out details and I expect enough discipline to realise the important of keeping making the contributions on schedule. The puzzle is when the "what could one do by investing the employee contributions" leaves out important info like employer contributions or employer investment risk.




MoneyGal said:


> p.s. I mean the biggest missing factor from the original post, not the fine commentary from CMFers.


I suspected as much ... :biggrin:


Cheers


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## gimme_divies (Feb 12, 2011)

Something else that has not been mentioned is the fact that when you die, your defined pension benefit will either go to your spouse at a 50% rate (federal pension), or evaporate into thin air if you have no spouse. My father passed away at 59 (1 year post-retirement) with a beautiful 35 years worth of Ontario gov't pension. My mom is now collecting 60% of that, and if she dies tomorrow, the pension becomes completely worthless. At least the investor saving in his/her RRSP does not have to worry about dying and having their RRSP rendered worthless.


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## Eclectic12 (Oct 20, 2010)

The pension "evaporate into thin air if have no spouse" looks suspect to me.

I have a private DB pension that pays less than the Federal pension (I suspect less than the Ontario gov't one) yet the pension booklet states that should I die without a spouse before ten years of pension is paid, my estate will be paid the balance of the ten year minimum. So dying 1 year post-retirement after 1 year's worth of pension is paid would mean the estate is paid for 9 additional years worth of pension.


For the Federal pension, the Treasury Board pension web site says:


> You, your eligible survivor and children, or your estate or succession cannot receive, in total, less than the amount of your public service pension plan contributions over the years.


http://www.tbs-sct.gc.ca/pensions/peserv-servpe-eng.asp

So while it might not be as rich as the pension would have paid had one lived a long time ... it is clearly not evaporating into thin air.


I also found interesting that for the Federal plan:


> The survivor benefit is payable immediately, regardless of whether you die during employment or retirement. It is fully indexation an annual basis for the rest of your survivor's life.


It would seem the survivor does not have to wait to start collecting an indexed amount.




gimme_divies said:


> ... At least the investor saving in his/her RRSP does not have to worry about dying and having their RRSP rendered worthless.


YMMV ... the RRSP holder can still make costly mistakes. 

If said investor forgot to switch their RRSP over to a short list of beneficiaries that can receive it as a tax free rollover, as I understand it, the RRSP will become one massive amount of income to be included on the year of death tax return.

Or if said investor for their RRIF included their spouse as a beneficiary but not a successor annuitant ... the tax free rollover will happen but with lots of extra headache/costs as the investments will be liquidated before being passed on as cash.


Cheers

*PS*

I would be surprised if the Ontario Gov't pension did not have some sort of similar minimums for those that are single.


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## NorthernRaven (Aug 4, 2010)

gimme_divies said:


> Something else that has not been mentioned is the fact that when you die, your defined pension benefit will either go to your spouse at a 50% rate (federal pension), or evaporate into thin air if you have no spouse. My father passed away at 59 (1 year post-retirement) with a beautiful 35 years worth of Ontario gov't pension. My mom is now collecting 60% of that, and if she dies tomorrow, the pension becomes completely worthless. At least the investor saving in his/her RRSP does not have to worry about dying and having their RRSP rendered worthless.


The federal public service plan has a "5 year minimum" payout. "_You, your eligible survivor and children, or your estate or succession cannot receive, in total, less than the amount of your public service pension plan contributions over the years ... if, at the time of death or later, no further benefits are payable to any survivor, the beneficiary of the supplementary death benefit will receive an amount equal to the greater of:
a return of your contributions plus interest; or
five years of basic pension payments, less whatever has already been paid (excluding indexing benefits)._"


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## namelessone (Sep 28, 2012)

CPP investment record: 7.1% ten year annualized return. :hopelessness:

We can expect similar result from Public Service Pensions Board.


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## NorthernRaven (Aug 4, 2010)

Public Service Pension Investments for the feds is 7% nominal over 10 years to March 2014. Their actuarial target is 4.1% real (so about 6.1% nominal); so they've been building a bit of extra cushion.


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