# CARP's call for a Universal Pension Plan



## Jon Chevreau (Apr 4, 2009)

I touched on this in my blog yesterday:

http://network.nationalpost.com/np/...gly-support-a-new-universal-pension-plan.aspx

On the other hand, FP Comment today has three related pieces, including one by Jack Mintz that questions wisdom of superfunds in general:

http://www.nationalpost.com/todays-paper/story.html?id=1520301

See also piece on the travails of the Quebec Pension Plan:

http://www.nationalpost.com/todays-paper/story.html?id=1520302

Arguably, the CPP is in better shape. You could argue that if it's not broken, don't fix it. Seems to me the combination of CPP, OAS, RRSPs, TFSAs, an employer pension if any, and non-registered savings, should suffice. But perhaps some here have other views?dA

P.S. See also 60 Minutes show from Sunday on America's sad experience with 401Ks: basically like Defined Contribution plans here.

http://www.cbsnews.com/stories/2009/04/17/60minutes/main4951968.shtml


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## archanfel (Apr 7, 2009)

The minute I see the word "mandatory" is when I start to cry "communism!"  I am always astonished by people's willing to blame others (government, banks, whatever) yet refuse to take any responsibilities for their own actions.


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## ethos1 (Apr 4, 2009)

Jon Chevreau said:


> I touched on this in my blog yesterday:
> 
> Arguably, the CPP is in better shape. You could argue that if it's not broken, don't fix it. Seems to me the combination of CPP, OAS, RRSPs, TFSAs, an employer pension if any, and non-registered savings, should suffice


Being 62 & already collecting CPP, I would never have thought for one minute that the fund would dry up in my lifetime.

I will be depending on the CPP, OAS, GIS & max GST credits, but, unluckily without employer pension plan or RRSP's ... TFSA's have too short a run for my benefit

I say, pitty on the 20 year olds today, some of who post on here who all believe they can amass a fortune to retire by 40


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## CanadianCapitalist (Mar 31, 2009)

I like to have the control of saving and investing for my retirement and would be loathe to give that up. We already have CPP and OAS supplying a part of the retirement income and I like having the choice of saving inside a RRSP. The problem with government plans is that like annuities, they provide an income stream without anything left over. They also lack flexibility in the sense that there are rules about when a participant would be eligible for pension etc. I like the current rules and take full advantage of it and would like it to remain that way.


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## Jon Chevreau (Apr 4, 2009)

Yes, this gets to the whole issue of taking personal responsibility for one's investments. Problem is 401Ks are more or less self-managed: I sometimes jokes that Canada's "self-directed RRSPs" are often "self-wrecked" by poor decisions. As I point out in my latest tweet and blog, if Americans are down 40 or 50% in their 401Ks, they were clearly close to 100% in equities and didn't heed the traditional guidelines of diversification and asset allocation. If they were even 40% in bonds, they shouldn't be down more than 20%, especially after the rally of the last six weeks.

http://twitter.com/JonChevreau


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## archanfel (Apr 7, 2009)

Jon Chevreau said:


> Yes, this gets to the whole issue of taking personal responsibility for one's investments. Problem is 401Ks are more or less self-managed: I sometimes jokes that Canada's "self-directed RRSPs" are often "self-wrecked" by poor decisions. As I point out in my latest tweet and blog, if Americans are down 40 or 50% in their 401Ks, they were clearly close to 100% in equities and didn't heed the traditional guidelines of diversification and asset allocation. If they were even 40% in bonds, they shouldn't be down more than 20%, especially after the rally of the last six weeks.
> 
> http://twitter.com/JonChevreau


Exactly. That's why I have absolutely no sympathy for retirees who are complaining their retirement savings are gone. They took on risks that they couldn't afford.


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## mfd (Apr 3, 2009)

Jon Chevreau said:


> ...if Americans are down 40 or 50% in their 401Ks, they were clearly close to 100% in equities and didn't heed the traditional guidelines of diversification and asset allocation. If they were even 40% in bonds, they shouldn't be down more than 20%, especially after the rally of the last six weeks.


60 minutes had a few of these people on their show this week. When I heard that they were down 40%+ I started screaming. It was obvious they got caught up in the market and didn't have the appropriate asset allocation. Where has personal responsibility gone?

As for CPP and UPP, its my belief that the average person isn't capable of saving appropriately to retire so I support these ideas. What I don't like is defined benefits. The government should take the money, invest it conservatively and automatically adjust your asset allocation based on your age and risk profile. Twice a year you'll get a statement and when you are ready to retire the money is yours to do as you wish. If you spend it irresponsibly then you figure out what you'll do next.


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## lb71 (Apr 3, 2009)

archanfel said:


> Exactly. That's why I have absolutely no sympathy for retirees who are complaining their retirement savings are gone. They took on risks that they couldn't afford.


Or they were misled.


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## archanfel (Apr 7, 2009)

lb71 said:


> Or they were misled.


If they have alzheimer's, then it would be a valid excuse.  More likely they were lured by the higher returns, yet are unwilling or unable to shoulder the corresponding risks. 

"I don't blame people for their mistakes, but I do ask that they pay for them. " 
-- John Hammond.


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## stephenheath (Apr 3, 2009)

I'm hugely against this idea. It removes all flexibility from a working family to decide on how much to save depending on circumstances, it removes all access to their savings (no more tapping the RRSP to eat if you lose your job, now all your money is in the CRAP fund), it would crowd out other savings (RRSP, TFSA, Investments) that can be passed with your estate where you choose and replace them with funds that become a government windfall if you die before breaking even. 

If CPP needs to be increased a bit to provide enough funds that people don't live in poverty (assuming they worked enough), then I suppose I'd be fine with that, since otherwise my savings would be taxed more to cover the welfare or guaranteed income supplement programs that would exist, but beyond that, let people decide for themselves how much to save and when to retire, and let them deal with the consequences.


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## CanadianCapitalist (Mar 31, 2009)

archanfel said:


> If they have alzheimer's, then it would be a valid excuse.  More likely they were lured by the higher returns, yet are unwilling or unable to shoulder the corresponding risks.


I'm not so sure it is the investor's fault in every case. It is also possible that the advisor turned out be incompetent or negligent. I personally know friends who buy mutual funds from richly compensated advisors and receive nothing in return: no financial plan, no IPS and no asset allocation advice.

It is hard for me to blame the paying public if the advisor doesn't do any of the things they are supposed to. After all, I know nothing about medicine or dentistry and trust my doctor or dentist to know what she is doing. IMO, there is a huge regulatory issue with the financial services industry.


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## archanfel (Apr 7, 2009)

CanadianCapitalist said:


> I'm not so sure it is the investor's fault in every case. It is also possible that the advisor turned out be incompetent or negligent. I personally know friends who buy mutual funds from richly compensated advisors and receive nothing in return: no financial plan, no IPS and no asset allocation advice.
> 
> It is hard for me to blame the paying public if the advisor doesn't do any of the things they are supposed to. After all, I know nothing about medicine or dentistry and trust my doctor or dentist to know what she is doing. IMO, there is a huge regulatory issue with the financial services industry.


I don't trust my financial advisor at all. Neither do I trust my doctor and dentist, but there's little I can do about that. Of course, I trust any of them a lot more than I trust the government. 

I am not sure regulations can change anything. Some sort of defined benefit pension would be interesting, but it should be transparent and voluntary.


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## archanfel (Apr 7, 2009)

stephenheath said:


> I'm hugely against this idea. It removes all flexibility from a working family to decide on how much to save depending on circumstances, it removes all access to their savings (no more tapping the RRSP to eat if you lose your job, now all your money is in the CRAP fund), it would crowd out other savings (RRSP, TFSA, Investments) that can be passed with your estate where you choose and replace them with funds that become a government windfall if you die before breaking even.
> 
> If CPP needs to be increased a bit to provide enough funds that people don't live in poverty (assuming they worked enough), then I suppose I'd be fine with that, since otherwise my savings would be taxed more to cover the welfare or guaranteed income supplement programs that would exist, but beyond that, let people decide for themselves how much to save and when to retire, and let them deal with the consequences.


I wonder when CARP will call for a national organ donation program where they harvest organs from young people to keep the old ones alive. I remember there was a SF novel on this scheme, can't recall the name at the moment though.


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## ethos1 (Apr 4, 2009)

archanfel said:


> I wonder when CARP will call for a national organ donation program where they harvest organs from young people to keep the old ones alive. I remember there was a SF novel on this scheme, can't recall the name at the moment though.


When this comes in, let me be the first recipient, I want to live to be at least 100 and have the energy of a 20-year old


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## archanfel (Apr 7, 2009)

ethos1 said:


> When this comes in, let me be the first recipient, I want to live to be at least 100 and have the energy of a 20-year old


Found it, it's called "Caught in the organ draft" by Robert Silverberg. It's an interesting read and free here: http://www.scifi.com/scifiction/classics/classics_archive/silverberg3/silverberg31.html


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## Four Pillars (Apr 5, 2009)

> "I wonder when CARP will call for a national organ donation program where they harvest organs from young people to keep the old ones alive."


Hilarious - but still - it wouldn't surprise me.


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## DAvid (Apr 3, 2009)

mfd said:


> What I don't like is defined benefits. The government should take the money, invest it conservatively and automatically adjust your asset allocation based on your age and risk profile. Twice a year you'll get a statement and when you are ready to retire the money is yours to do as you wish. If you spend it irresponsibly then you figure out what you'll do next.


Ah, but defined benefits are like a lottery -- you know how much you could win, I mean, get paid, but you never actually know if you'll get to collect all you are 'entitled' to earn. Those who die early pay the benefits to the long term survivors.

By way of example, if you have a Defined Benefit Pension Plan, your estate will receive a payout up to the value of your contributions, but not the employer's contributions, nor the earnings on the contributions.

The government already has plans in place that allow your suggestion -- RRSP, TFSA, etc -- you just have to have the _common sense_ to contribute. Good luck finding much of that.


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## Jon Chevreau (Apr 4, 2009)

I've just updated my blog with a 4,000 word edited transcript of Tuesday's two-hour session of CARP and other pension reformers before the House of Commons Standing Committee on Finance. I've highlighted various passages that should be of interest to younger working Canadians:

http://network.nationalpost.com/np/blogs/wealthyboomer/


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## archanfel (Apr 7, 2009)

Jon Chevreau said:


> I've just updated my blog with a 4,000 word edited transcript of Tuesday's two-hour session of CARP and other pension reformers before the House of Commons Standing Committee on Finance. I've highlighted various passages that should be of interest to younger working Canadians:
> 
> http://network.nationalpost.com/np/blogs/wealthyboomer/


Wow, amazing. Exactly like the book. The politicians can not vote down the plan or their own pensions would be threatened. 

From CARP:
" the only members of defined benefit plans will be politicians and public servants. This is an untenable situation as taxpayers/voters are unlikely to accept their taxes being used to pay for retirement plans that they themselves cannot access."

From the book:
"a lot of important seniors might in fact die if something didn't get done fast. So a coalition of senators from all four parties rammed the organ-draft measure through the upper chambers in the face of a filibuster threat from a few youth-oriented members. It had a much easier time in the House of Representatives, since nobody in the House ever pays much attention to the text of a bill up for a vote, and word had been circulated on this one that if it passed, everybody over sixty-five who had any political pull at all could count on living twenty or thirty extra years, which to a Representative means a crack at ten to fifteen extra terms of office. Naturally there have been court challenges, but what's the use? The average age of the eleven Justices of the Supreme Court is seventy-eight. They're human and mortal. They need our flesh. *If they throw out the organ draft now, they're signing their own death warrants. *"


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## Maple_Leaf (Apr 20, 2009)

*Oh no! I'm a Bolshevik!*

My mind was changed in favour of at least a minimal govenment sponsored system of index mutual fund investing by this 2001 Bill Bernstein article in Barron's:

http://www.efficientfrontier.com/ef/102/401.htm

Let's face it, most people just can't invest their money effectively. Heck, half the population can't deal with fractions. Also, the temptation to spend instead of save is just too great. And when they do save they try to swing for the fences with risky asset allocation. When these people get to age 65 they will outnumber those of us who were prudent savers and investors. They are likely to use the ballot box to "get their share." We might as well plan now to have a mechanism to deal with this, if it's not too late already.


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## Mike H. (Apr 15, 2009)

Maple_Leaf said:


> My mind was changed in favour of at least a minimal govenment sponsored system of index mutual fund investing by this 2001 Bill Bernstein article in Barron's:
> 
> http://www.efficientfrontier.com/ef/102/401.htm
> 
> Let's face it, most people just can't invest their money effectively. Heck, half the population can't deal with fractions. Also, the temptation to spend instead of save is just too great. And when they do save they try to swing for the fences with risky asset allocation. When these people get to age 65 they will outnumber those of us who were prudent savers and investors. They are likely to use the ballot box to "get their share." We might as well plan now to have a mechanism to deal with this, if it's not too late already.


We already have a universal pension plan; in the form of CPP, OAS, GIS and various provincial entitlements for seniors. This is fine with me; I don't want old ladies eating cat food under a naked light bulb because they depended on their husbands to take care of them. For most seniors, this provides enough income to live a decent, not lavish lifestyle; if they also have a paid-for residence. 

However, a mandatory pension plan to 'level the playing field' for everyone is just a wealth transfer from the wise or lucky; to the foolish or unlucky. The economic promise of Canada as a nation is twofold. The first is relative equality of opportunity but NOT equalization of result. The second is that we will take care of those people in our society who can't care for themselves. But it's a "Here's your free bus pass" kind of care; not "Here's your new car every five years and a trip to Florida". You have to earn those!


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## MoneyGal (Apr 24, 2009)

CC: while I agree with your post in general (I think the model for financial advice in Canada is broken), I also feel strongly that the responsibility for an investor's success is shared with their advisor (if they have an advisor). 

Yes, there are incompetent advisors. And yes, many advisors *don't* provide an IPS or asset allocation advice, etc. 

But I think there is a HUGE problem with the phrase "financial advisor" - most of the people who work in this capacity are product salespeople, compensated for transactions only; and the label "financial advisor" (a label that can be used by ANYONE) obscures that basic fact. (As does the comparison with doctors, for example; the more apt comparison is to a car salesperson.)

I don't understand the mentality that says "the advisor should monitor my accounts, the advisor should allocate and rebalance my assets" when the client has entered into a purely transactional relationship with the advisor, who is compensated *by the product manufacturer* _at the moment of sale_ and for _keeping the client invested_ in the product. While I am clear that many advisors obscure the transactional nature of the relationship, I also think clients of these kinds of advisors participate in this lack of clarity by not asking sufficient questions. 

Yes, people need better advice than what they are getting. But the appetite to pay for advice independent of a product sale is pretty limited, even among people with lots to invest. 

My other thought is that there are entire shelves FULL of books on personal finance at local libraries and bookstores (and in the growing world of personal finance blogs and online communities, such as this one). I am sure that not one of those books has ever said, "buy a financial product, ignore the statements, pay no attention to costs, and hope for the best." 

How do you make people care about these issues? I don't know. We need both a better model for providing financial advice AND a more engaged public.

Hope this doesn't sound too ranty.


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## CanadianCapitalist (Mar 31, 2009)

If others are wondering, MoneyGal is talking about this post on my blog:

*CARP’s proposal for an Universal Pension Plan*

... and check out the discussions in the comments section.


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## MoneyGal (Apr 24, 2009)

CanadianCapitalist said:


> I'm not so sure it is the investor's fault in every case. It is also possible that the advisor turned out be incompetent or negligent. I personally know friends who buy mutual funds from richly compensated advisors and receive nothing in return: no financial plan, no IPS and no asset allocation advice.
> 
> It is hard for me to blame the paying public if the advisor doesn't do any of the things they are supposed to. After all, I know nothing about medicine or dentistry and trust my doctor or dentist to know what she is doing. IMO, there is a huge regulatory issue with the financial services industry.


Sorry CC, I was talking about your post in this thread, the one I've quoted above.

(I totally agree with your blog post, not just "mostly" agree with it - and I think others should read it, and the comments, too! But that's not what I was responding to.)


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## Mike H. (Apr 15, 2009)

If I earn the maximum $116,667 per year and contribute 20% until my retirement age; this would be $490,000 in contributions for me; and with a time value of money of 10%; a future value of over $1.6M.

Do I really want to trust a government body with $1.6M of my money???

First of all, I'm sure that the rate of return will never approach 10%. There would be some combination of shovelling contributions into general revenue; and politically motivated investments.

Secondly, I am also sure I would never receive the full benefit of my contributions. Galloping socialism would take from ants and give to the grasshoppers.

Thirdly, did the CARP proposal stipulate paying pensioners only the benefits they have earned; or do they want rapid implementation such that young workers subsidize baby boomers?

No matter how the math is played, I am sure I can provide myself with a much more lavish retirement for the same money...


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## OhGreatGuru (May 24, 2009)

Mike H. said:


> If I earn the maximum $116,667 per year and contribute 20% until my retirement age; this would be $490,000 in contributions for me; and with a time value of money of 10%; a future value of over $1.6M.
> 
> Do I really want to trust a government body with $1.6M of my money???
> 
> ...


Actually the current system takes from ants and gives to grasshoppers. 
1. No-one (or at least few) can live on CPP alone.
2. The taxpaying ants are paying for GIS for the grasshoppers who didn't put aside any other savings.
3. The taxpaying ants are also paying for OAS for everyone, but get their own clawed back if they were too good at saving for their own retirement.


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## OhGreatGuru (May 24, 2009)

I'm with CARP in principle. 
-Current CPP rates are inadequate for most people to live on.
-Employers are pulling out of pension plans and contribution plans all over the place. 
-Obtaining adequate pensions was a fundamental objective of organized labour at the beginning of the 20th century. Now employees are losing ground.
-In the long term it is in the interest of society and government to ensure adequate pension plans.
-CARP is not proposing the pension be government funded - it would be funded by contributions as CPP currently is.
- CPP is now actually invested money, not just numbers in a government ledger book, and is not financed through general revenues.

It is probably unrealistic to expect the introduction of a truly universal, mandatory plan as CARP proposes in the foreseeable future. But improvements could be made to CPP:
a) Increase contribution rates and corresponding benefits (They should be about double what they are, if you look at typical contribution rates for other pensions);
b) allow voluntary contributions by people who are earning less than the CPP earnings max, or who are seasonally/part time employed; or child-raising, etc.
c) allow voluntary contributions even above the current contributory limits for those who wish to use CPP as their primary retirement vehicle, giving them a totally portable pension plan.


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## archanfel (Apr 7, 2009)

OhGreatGuru said:


> I'm with CARP in principle.
> -Current CPP rates are inadequate for most people to live on.
> -Employers are pulling out of pension plans and contribution plans all over the place.
> -Obtaining adequate pensions was a fundamental objective of organized labour at the beginning of the 20th century. Now employees are losing ground.
> ...


Exactly what's the advantage of trusting the money to government? b) and c) can both be achieved by putting the money into your RRSP account.


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