# My big fat pension



## Rainey

Talk these days on many financial forums includes no shortage of public sector pension envy (funny, when my private sector pals were bragging to me about their stunning end of year bonuses a few years ago, pensions never came up). Nonetheless, at the risk of stirring up the vitriol I have a scenario to put to this group.

I intend to walk away from my government pension plan next year. I want to leave and start my own business.

If I do so, I would leave with an indexed pension of about 40K indexed from the point of departure. If I don't, I would qualify for a pension of roughly 100K in today's dollars at age 60.

I've run the numbers and concluded that its not realistic to try and replace that pension income independently, meaning my plan is to retire with less. Even so, here's my argument as to why what seems like a goofy move actually makes sense:

1. my wife is also in a public sector plan and I want to diversify
2. the 40K together with my wife's pension will cover retirements expenses (I've done retirement budget after retirement budget and honestly, with no mortgage, no childcare, lower tax rate, we probably won't need more than 50% of our current income to maintain the same standard of living)
3. I don't want to end up hanging on to a government job I don't like just for the sake of my pension

So, what do you think?


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## mind_business

How old are you Rainey? How many years before you and your wife retire?


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## rikk

"If I do so, I would leave with an indexed pension of about 40K indexed from the point of departure. If I don't, I would qualify for a pension of roughly 100K in today's dollars at age 60." ... I'd be really interested in how you arrived at those numbers, thanks.

Just to say "3. I don't want to end up hanging on to a government job I don't like just for the sake of my pension" why stick with the same position ... while with the GC I held ... let's see ... 12 positions not including acting positions, worked with good people, lots to do, had a great time.


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## MoneyGal

I don't think that sounds like a goofy move. Why would you stay in a job you don't want to stay in, when you can get what you say is a sufficient pension if you leave now?


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## kcowan

Many government people I know have diversified into hobbies or other pursuits while continuing on the gravy train. I know private sector people who join the government for their last 15 years to get on the gravy train. So there are many different scenarios and only you can make the right decision.


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## slacker

Depends.

If the goal is to achieve maximum amount of money received, then this is a goofy move.

If the goal is to achieve happiness while still satisfying 100% of your financial needs, then this sounds like a sweet move.


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## sags

The government is cutting back......at least they say they are........no early pension buyouts?


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## MoneyGal

slacker said:


> Depends.
> 
> *If the goal is to achieve maximum amount of money received*, then this is a goofy move.
> 
> If the goal is to achieve happiness while still satisfying 100% of your financial needs, then this sounds like a sweet move.


Well, it depends, right? 

If the goal is to _maximize lifetime income_, then staying in the job and getting a bigger pension makes sense. 

If the goal is to _have the potential to leave a financial legacy_, then getting out now makes sense (presuming the OP continues to save in an RRSP, TFSA or non-reg accounts). 

What if the OP stays in the job he dislikes to maximize (guaranteed) income in retirement, but dies a few years into that well-funded retirement? No maximized money (leaving aside a spousal pension - the point is that the OP himself doesn't receive a maximized lifetime income). In that case, would it have been better to leave the job now, receive less guaranteed income in retirement, but do something he likes better for the rest of his life? 

I personally think that being able to "mix and match" DB and other income is really, really valuable. I wish there were more options like this - that you could buy units of service, rather than going all-in with a DB pension or no pension (for employers that offer a DB pension). (Hope that makes sense.)


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## MoneyGal

sags said:


> The government is cutting back......at least they say they are........no early pension buyouts?


This isn't a pension buyout; it would still be a pension (as the OP described, anyways).


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## Plugging Along

I am in a similar conundrum with me debating if I should go into my own consulting and leave my pension.

I left my private sector pension, which is pretty much the same as my public db pension. I left my private sector because I no longer enjoyed work environment after 13 years. I actually went into public sector for a lot less money. I have always planned to leave my public sector job to go consulting. I can make more than double what I make now. However, now that I have been in public sector job, I am once again loving what I am doing, and am getting opportunities that are really interesting and potentially make a difference. I have now decided that I will stay where I am now as long as I am enjoying what I am doing and finding the work interesting.


I think the key piece is really what you want out life. If you can afford to leave, and find work that you would enjoy more, then I say go for it. If leaving will not provide any financial hardship, and you already have enough, then why are you staying at a job you hate. I always said I would never be tied down with the golden handcuffs. Life's to short trade it only for money. 

So no, I don't think it's stupid to get another job providing that you will still be able to provide for yourself.


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## Rainey

*More detail*

To respond to some of the questions and points raised:

- I've got a good 20 years before retirement (indeed, I'm the type that generally likes work and so I can see doing part time gigs well past 60)
- my calculations were based on my present salary and assumed that if I stayed in my current job I'd get prompted once
- and I would agree with rikk -- work in the public sector can be, and has been, great

But I'm ready to try something new -- to concentrate on a specific aspect of my current job that I'm quite good at and love to do, this will be the foundation of my business. My guess is that it will be financially successful -- the corporate tax rate and other write off options can make a significant difference in take home pay. I actually gave it a dry run for six months at the end of a period of leave. I made very good money but my eyes were also opened as to the reality of running my own shop. 

As for my scenario, I'm trying to think through what if scenarios, as in, what if I make a go of it, but have little money left over each month for RRSPs? Is my 50% retirement income requirement naive? I also wonder if I'll replace "golden handcuff resentment" with persistent "RRSP angst"!

I know well there are no answers to these quewstions, but I still find opinions useful.


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## MoneyGal

Rainey said:


> I also wonder if I'll replace "golden handcuff resentment" with persistent "RRSP angst"!
> 
> I know well there are no answers to these quewstions, but I still find opinions useful.


You could take the view that you are getting the best, and the worst, of both worlds.


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## rikk

Rainey said:


> I actually gave it a dry run for six months at the end of a period of leave. I made very good money but my eyes were also opened as to the reality of running my own shop ...


Fwiw ... my more successful buddies (raised families, nice homes, vacations, ... ) who left the public sector were successful imo because they set up their own companies such that others worked for them; those that stuck with working on their own, contracting, ... because they "loved the work" are still working and imo not getting anywhere ... fwiw.


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## Rusty O'Toole

Don't be a fool. Hang onto the government tit until they throw you out. You have no idea what you would be letting yourself in for.


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## 44545

rikk said:


> Fwiw ... my more successful buddies (raised families, nice homes, vacations, ... ) who left the public sector were successful imo because they set up their own companies such that others worked for them; those that stuck with working on their own, contracting, ... because they "loved the work" are still working and imo not getting anywhere ... fwiw.


Entrepreneurship takes a special type of mindset and it isn't for everyone. Likewise working for a Fortune 500, or working for government.

IMO, the decision should be based as much on need as want; a lot of people "want" to run their own business but their personalities would make that choice financial suicide. Similarly, there are people who would like the benefits of working for the government but have a temperament unsuited to it.

Government in general is a large entity. Those considering leaving their government jobs might consider that leaving their current job doesn't necessarily mean leaving the government.


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## rikk

CJOttawa said:


> Government in general is a large entity. Those considering leaving their government jobs might consider that leaving their current job doesn't necessarily mean leaving the government.


OT: Agree ... as above ... "why stick with the same position ... while with Government of Canada (GC) I held ... let's see ... 12 positions not including acting positions, worked with good people, lots to do, had a great time". I've met people who later regretted their "knee jerk reaction" to a poor working environment ... sure, competing for a position takes time and effort ... maybe that's the problem, too much effort. I did land in one position that was definitely not for me ... the work was fine, the working conditions (staff attitude etc.) were not ... took me 11 months to get out of there and on to another position where I actually stayed for 5 years ... was typically no more than 3 years, then the learning curve flattens, time for something new.


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## Rainey

My Big Fat Pension -- Update

Wow, I started this thread over two years ago. And it seems my predictions of "leaving next year" were a bit off. I'm actually leaving next month -- it is amazing how one year can drift into two.

But I've made good use of the extra year. Doing extensive planning and networking in advance of making the leap. I also began teaching at University in my area of expertise (the pay is peanuts but good fun, and doesn't hurt in terms of credibility). 

I announced my departure some time ago and so have time to discuss my choice with colleagues. Some have looked at me in shock and disbelief, others with real envy. But most understand my rationale.

One interesting choice was raised by my accountant. I'm young enough to be able to take a lump sum instead of my deferred pension and he ran the numbers to see which option would make more sense. I assumed there wouldn't be much of a debate, frankly, as the pension would be the better option but his analysis introduced a nuance:

"If you plan to live past 85, take the pension, if not, the lump sum is the deal". I ran my details through one of those life expectancy calculators and it seems I'm likely to last until 87. Pension it is, then.

As expected, there's a mix of excitement and dread as the move gets closer. But a lot more on the excitement side, frankly. Truth is, I've pretty much managed out most of the risk of my so called "courageous leap". Perhaps I'm more of a public servant than I like to admit.


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## Jon_Snow

Congrats. I will be leaving my job and leaving a juicy DB pension on the table at some point in the near future as well. I have been saving and investing for many years as though my pension didn't exist... investment income is now at the point where it simply is not worth hanging on to a job I loathe just for sake of a pension. 

I very much look forward to the reaction of my overlords and coworkers as they pick their jaws up from the floor.


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## Eclectic12

... not sure why posters are talking about leaving the pension.

Leaving the job means capping the pension. Deciding to transfer the 
money elsewhere so that no pension is paid is IMO, leaving the pension.

They are separate decisions.


Cheers


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## Rainey

Eclectic12 said:


> ... not sure why posters are talking about leaving the pension.
> 
> Leaving the job means capping the pension. Deciding to transfer the
> money elsewhere so that no pension is paid is IMO, leaving the pension.
> 
> They are separate decisions.
> 
> 
> Cheers


Separate decisions, and separate perspectives too. Leaving most DB plans, as you say, doesn't mean forfeiting all benefits. But oddly enough, this is too often the perspective of those in these systems. 

I'm leaving with a 35% pension which, to some of my colleagues, is a failure. I see it as a gift.


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## Jon_Snow

Rainey said:


> Separate decisions, and separate perspectives too. Leaving most DB plans, as you say, doesn't mean forfeiting all benefits. But oddly enough, this is too often the perspective of those in these systems.
> 
> I'm leaving with a 35% pension which, to some of my colleagues, is a failure. I see it as a gift.


I see working until old age in order to get a full a pension as a failure. It's all a matter of one's perspective.


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## OnlyMyOpinion

*"I see working until old age in order to get a full a pension as a failure."*
That sounds as if you consider those of us who anticipate a more standard retirement age and source of retirement income to be failures? Those of us who happen to have children; haven't benefited from Vancouver's housing price increases; supported other family members throughout; didn't have two income earners and above-average monthly income - those of us who worked 40yrs to do this and still earn a decent retirement.
A helpful and informative perspective.


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## Jon_Snow

It may have come off sounding more harsh than intended. My coworkers, most of whom are older than myself, with bodies that are literally breaking down, have no choice but to work into their 60's in order to have enough pension income to fund even spartan retirements. They have saved very little, racked up debt - basically lived irresponsibly because many have been told how good their pension is and how it will take care of them. A good friend of mine basically has no knees left, bone grinding on bone - you can hear the sound walking beside him - he is in his mid 50's and knows he has to work another ten years, and even then, the pension amount won't be huge. It's much too late for him to move into a less physically taxing field.

OnlyMyOpinion, my previous statement was influenced by what I see at my particular job, and I should have explained what I meant. I have no problem with people working into normal retirement age, if they choose.


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## Addy

Rainey said:


> I'm leaving with a 35% pension which, to some of my colleagues, is a failure. I see it as a gift.


Oddly enough, I'm trying to convince hubby to get out the earliest he can and not have to wait to 65 for his pension. He can retire at 55 with a 50% pension, and I will have roughly $400 or so (in todays dollars) coming in with my 2/3 small pensions. To me, that's enough for us to live off comfortably, and we have nest eggs for backup if need be. We are in our early 40's right now and I can't imagine working until 65 or into my 70's. I want to enjoy life. For some, work is enjoying life which is great, I wish I could say the same. But I dream of travelling (on the cheap) while I'm still mobile enough to do so.


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## sags

Pensions are like winning the Cash For Life Lottery...........and who wouldn't want to win that?

I have seen many people do foolish things and live to regret their decisions later.

We had people get married and quit.........quit and run off with a trucker.......quit to start a business.........quit to start a new career.

They often pose the same wistful question when I bump into them now......"I suppose you are retired now and collecting the pension"?

I ran into one a month ago, who asked that question. She is working as a waitress in a local truck stop. A friend is driving a cab.

I have never met anyone who retired with their pension who said....."I wish I had quit and given up my pension".

Surrendering a pension has the potential to be a life altering experience.........maybe a bad one.

I would think long and hard before going in that direction.


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## sags

Eclectic12 said:


> ... not sure why posters are talking about leaving the pension.
> 
> Leaving the job means capping the pension. Deciding to transfer the
> money elsewhere so that no pension is paid is IMO, leaving the pension.
> 
> They are separate decisions.
> 
> Cheers


True but when you terminate employment, you usually are only entitled to the pension accrued and lose any ancillary benefits such as health care, life insurance, and other retirement benefits.


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## Rainey

Life altering? I mean, it's a monthly cheque.

To me, a pension alone does not provide a great life, nor does the lack of one prevent it.

We all crave security but, at least to me, can't let insecurity turn us scared and dependent.


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## Rainey

I have never met anyone who retired with their pension who said....."I wish I had quit and given up my pension".

True, but you're likely only talking to the success stories. I play hockey with one such guy who enjoys a six figure pension. This guy is having the time of his life.

But I knew another guy who was utterly miserable in his job. At one point in his career he was a star performer and had any number of organizations competing for his services. By the time I met him his star had all but burnt out. He had just drifted for too long and he was out of options - the pension and eventual freedom being his singular focus. Unfortunately, he suffered a brain aneurysm a few years from the finish line and that was that.


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## Addy

I agree with those who say a pension can be a great thing, but if you loathe your job why stick with it simply for a pension? You're wasting years, possibly decades of your life that way. If you plan on retiring in Canada on your pension alone it may not be enough for a lot of people, especially if you have debt (including a mortgage) when you retire.

My passion is travel, and if I can't travel when I retire what's the sense of retiring, I might as well keep working and travel on my vacations with the money I earn.


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## Four Pillars

Jon_Snow said:


> I see working until old age in order to get a full a pension as a failure. It's all a matter of one's perspective.


And I see someone continuing to work even though they hate their job and complain about it daily and have enough money to easily retire or do something else as a failure. Sound like anyone you know?

Okay, that's not a failure at all. Actually you're in a great position - take advantage of it.

That's my perspective.


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## fraser

I left my public service job to travel and then start another career. I did not like my job. In fact I did this again..with a private employer. I was not willing to work at a job that I disliked. I did end up with another pension. But I also earned much more than I would have in the public service job, enjoyed my work immensely, and was in fact able to retire early with a pension and a nest egg. I cannot imagine working all you life at a job you dislike simply to get a pension at the end.


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## MoneyGal

fraser said:


> I cannot imagine working all your life at a job you dislike.


Short version applicable to me.


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## Pluto

Rainey said:


> I intend to walk away from my government pension plan next year. I want to leave and start my own business.
> 
> 
> 3. I don't want to end up hanging on to a government job I don't like just for the sake of my pension
> 
> So, what do you think?


Follow your heart. You are a capable person and will do fine in business. Money from a big fat pension is not the be all and end all.


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## Addy

Pluto said:


> Follow your heart. You are a capable person and will do fine in business. Money from a big fat pension is not the be all and end all.


Agreed, it would be a shame to toil at a job you begrudge and then something happen (failed health or worse) and you never get to enjoy that 'big fat pension'.


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## Karen

I can't see that it would be any worse than the opposite scenario - you quit your job, limit the size of your pension, and then die before your new career as an entrepreneur becomes successful. The sad part is dying too young.


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## DesignerDee

Oh no! I guess I am a double failure - I won cash for life, *and* I have a pension! Btw my first cheque should come at the end of the month! At the age of 56, how will I ever hold my head up?


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## houska

sags said:


> I have never met anyone who retired with their pension who said....."I wish I had quit and given up my pension".


Work on your ouija board skills to be able to talk with the dead and you may find quite a few 

Sorry, couldn't resist...but I'm actually serious. I know a number of retirees with DB pensions. Many are very happy with their lives, but I know a number -- especially with health that became precarious earlier than they planned for -- who are quite bitter how much of their lives they gave over to working. I haven't asked them explicitly, of course, but I have heard a number muttering that they wished they had retired early. Presumably they meant the whole shebang, including a much restricted pension.


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## Eclectic12

sags said:


> ...Surrendering a pension has the potential to be a life altering experience.........maybe a bad one ...


It all varies ... the first pension I "surrendered" was for a 70% pay increase and two years later, a similar pension. 

Sure ... I could have not made the cut but it's not always a problem.


Cheers


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## Eclectic12

Jon_Snow said:


> I see working until old age in order to get a full a pension as a failure. It's all a matter of one's perspective.


 ... not sure I'd apply this generally.

IAC - the potential for worse is out there. My dad's incentive to find ways to save for retirement were all the retired people working at other jobs or coming back in as temps to make ends meet.


Cheers


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## Eclectic12

Rainey said:


> Separate decisions, and separate perspectives too. Leaving most DB plans, as you say, doesn't mean forfeiting all benefits. But oddly enough, this is too often the perspective of those in these systems.


From my perspective ... it's not forfeiting any benefits ... that's when the pension is underfunded & cuts benefits.

It's forfeiting the opportunity to enhance the benefits ... just as being fired, declared redundant, having a debilitating stroke or dying on the job can cap the benefits as well. :cower:


As to what others see ... that seems to be a fear point of view.


Cheers


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## sags

To each their own.

I was brought up that when you are old enough.....you work (age 16 for me and 20 for my wife). When you work.......you pay your own way. You work until you retire. You don't have to like it. My mother summed it up for me early in life........"Those that work get to eat".

Maybe that is the reason 40% of young adults are still living at home........waiting for their perfect job to come by.

Who ever promised them that work would be anything more than a way to pay the bills............did them no favors?


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## Karen

I agree with sags, and it sounds as if our mothers had the same attitude - my mother's way of putting it was, "If you love your job, they wouldn't have to pay you to do it!"

That being said, my mother (a federal public servant) loved her job. My Dad, on the other hand, disliked his immensely, but, having grown up on an Alberta farm during the Depression, was only too glad to have it (and it's pension plan) and lived a very satisfying life by indulging in his beloved hobbies, his last one being building and flying ultralight planes. I don't think it ever crossed his mind that he should quit his job because he didn't like it.


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## My Own Advisor

Worked since I was 12, had a paper route until I worked at McDonald's when I was 13, worked there for a few years until I was 16. My mother figured if I had enough energy to play video games, play road hockey all night with my friends, I could work. She was right.


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## fraser

What surprised me was how many people in the DB plan where I worked clamoured for a DC plan and actually moved over to it when they were given a choice of remaining in the DB or moving to the new DC. The majority moved over.


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## pwm

I agree with sags on this one. I dragged myself into a job I didn't much like for 35 years because of the pay, the pension, and benefits, and I was thankful for it. My wife didn't work and we had 2 kids to raise so I couldn't afford to quit and go chasing rainbows. Also no one ever told me I would feel fulfilled, emotionally gratified, or that my sense of self worth would be enhanced by the experience. If you get those feelings from your activities, then you have a hobby, not a job. 

I did it for the money and the pension and I'm not feeling any shame for doing it. In fact, I feel a great sense of achievement, just as one does after completing any nasty difficult task. For 9 years now I have received $2,000 a month pension payments, and if I die first my wife will continue with 66.66% of that. For me, it definitely was worth it.


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## Eclectic12

fraser said:


> What surprised me was how many people in the DB plan where I worked clamoured for a DC plan and actually moved over to it when they were given a choice of remaining in the DB or moving to the new DC.
> 
> The majority moved over.


When people get focussed on one point and don't take a step back to look at the big picture ... this happens.

I went through it with a co-worker four times the difference between a guaranteed benefit from a DB plan versus the risk of the investments of a DC plan. Since he started the job later in life - to me, it was clear the DB plan was the winner.

He was focussed on the PA reducing his earned RRSP contribution room to almost nothing and was going to convert.
In frustration - I have up and made the final comment of "if you doubt it - run some scenarios".

Two weeks later he loved the DB plan and had decided not to switch as his comparison showed that with an 8% growth rate, he would be out of retirement money in six years where the DB plan would keep on paying.


Cheers


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## fraser

That is interesting. As I recall the PA was a key driver at the firm where I worked. 

Not just the increased PA annually but also the PA reversal resulting from the rollover to a DC plan. People wanted a 'quick hit' from an one time RRSP contribution.

The information package at the time, which I still have, provided an estimated PA reversal amount. As I recall, most people ended up with a smaller PA reversal than the amount estimated.


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## Eclectic12

Hmmm ... the PAR I received from leaving the company and deciding to leave the pension was pretty close to the estimate.

I'd hazard a guess that where ever the estimate came from - it didn't have the proper input for the specific plan.


Cheers


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## fraser

In todays Financial Post. Interesting analysis on RRSP contribution rates in Canada.

http://business.financialpost.com/2...so-much-better-than-it-looks/?__lsa=5a3b-6233


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## carverman

fraser said:


> What surprised me was how many people in the DB plan where I worked clamoured for a DC plan and actually moved over to it when they were given a choice of remaining in the DB or moving to the new DC. The majority moved over.


Back in the late 90s, I was offered a option to switch over to a DC plan from the Nortel DB plan. Nortel was still going strong then, so there was no reason to suspect bankruptcy in 2008. 
Nortel was offering generous company matching to a DC plan at that time and it certainly looked attractive enough to switch over, but I thought about it over
night and had a gut feeling that I should stay with the DB plan...I was very glad that I stayed with the DB plan..because if they had commuted the value of the DB plan over to my
DC plan, and only contributed for another 10years and even then the last 8 years would have seen very little contribution because they kept declaring losses,
I would be "sucking air" by today. 
Even if the current DB plan is severely underfunded, I still have money coming in every month and will have even when the DB plan is wound up this year (or next).


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## Addy

fraser said:


> In todays Financial Post. Interesting analysis on RRSP contribution rates in Canada.
> 
> http://business.financialpost.com/2...so-much-better-than-it-looks/?__lsa=5a3b-6233


Interesting read. I'm not sure if I agree or disagree with RRSP's - my husband has a fairly large one, I have a fairly small one but I'm not completely sold on them because he has a defined benefit pension so I'm worried he may end up being over taxed when he retires. But in the end if we have enough money to live comfortably on then we're blissfully happy.


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## Sammi

fraser said:


> In todays Financial Post. Interesting analysis on RRSP contribution rates in Canada.
> 
> http://business.financialpost.com/2...so-much-better-than-it-looks/?__lsa=5a3b-6233


This is a terrible article. The percentage of people who do save may be higher but how much? People choosing to save in TFSA instead of RRSP? Fine, how much? Has the average amount put towards retirement increased or decreased is the real question. Who cares where they park their money, it's how much.


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## sags

Consider the source of the article........

Fred Vettese works for the pension and wealth management industry.

He has written past articles opposed to CPP expansion in the past, including previous Financial Post articles.

CARP examined one of his articles and his objections to the expansion of the CPP with this article...........

The financial industry has much to lose if the CPP is expanded or Provinces create their own pension plans.

All those high management fees go bye bye..............

http://www.carp.ca/tag/fred-vettese/


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## HaroldCrump

sags, before you criticize Fred Vettesse, have you actually read his book _The Real Retirement_?
I have read it, and he makes some very good points about the "retirement crisis".
I found the methodology and conclusions in the book quite sound.










Also, just because someone works for a "pension and wealth management industry" does not mean they are automatically biased, corrupt, and greedy.

I can assure you that there is _not one word _- I swear, not one word - in the book stating that private fund management is superior to govt. pension plans.
He does not extol the virtues of high fee mutual funds, segregated funds, and other evil creations of the private financial industry.

The closest he comes to recommending any product is private annuities.
There is one small chapter recommending that those without defined benefit pension plans may want to consider various types of annuities.

I suppose in your view only highly paid govt. bureaucrats have good ethics and honesty, and have the best interest of society at heart.
In your view, pension and retirement should be left to the govt.

You keep talking about high management fees.
Are govt. funded pension plans "free", or even low-cost?
Are all those bureaucrats and fund managers working at OTPP, HOOPP, CPPIB, PSPIB and the paper pushers administering OAS working for free?
Who is paying them?

As for CARP, doesn't the same criticism apply to them?
They are nothing more than a lobbying group for well-off seniors, masquerading as a senior support group.
Their primary vested interest is in maximizing the social programs for seniors.
It is because of lobbying by organizations such as CARP that seniors making $100K are able to get handouts from the govt. such as OAS and age credits.


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## fraser

Are you suggesting that simply because the author is a Chief Actuary at Morneau Sheppell, or because he opposes CPP expansion, that the article has no merit or does not contain factual information?


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## carverman

HaroldCrump said:


> The closest he comes to recommending any product is private annuities.
> *There is one small chapter recommending that those without defined benefit pension plans may want to consider various types of annuities.*


Here's what I don't like about annuities..and I am being faced with selecting one or a LIF.



> What is the cost of an annuity?
> Life annuities cost more than other types of arrangements because they provide guaranteed payments over your lifetime.
> When interest rates are low, the cost of annuities rises, since there will be relatively less income earned on your investment.





> Insurance companies take into consideration three pricing components -- investment yield, mortality and expenses.
> Also built into the cost of the annuity are regulatory requirements for insurance companies to set aside certain reserves and capital.
> These requirements allow insurers to guarantee payments for as long as you live. Some may argue that other investments can offer greater returns, but only an insurance industry
> annuity guarantees payments for life.
> 
> The monthly income you receive WILL DEPEND on several factors: your age (is your life expectancy likely to be another 10 years or another 30 years?);
> your health (if it is poor and your life expectancy is lower than average,
> you could qualify for an "impaired-risk annuity" which would provide greater monthly income); current long-term
> interest rates; whether you choose a single life or joint annuity; what guaranteed period you choose and any other options you choose to add.
> For instance, a single-life annuity (on your life only) will produce a higher monthly income, based on the same capital, than a joint-and-last-survivor annuity.
> Likewise, a short guarantee period will produce a higher monthly income than a longer guarantee period.


In any case, the Insurance company will be making money off your annuity while paying out your monthly stipend.


----------



## HaroldCrump

carverman said:


> Here's what I don't like about annuities..and I am being faced with selecting one or a LIF.
> In any case, the Insurance company will be making money off your annuity while paying out your monthly stipend.


Well, the guarantees cost money.
The longevity guarantee, the inflation protection guarantee, the payment guarantee period - they all cost something.

It is true that private annuities cost more for an individual than participating in a mandatory pooled pension plan (such as a DBP or CPP).
In the book referenced above, Fred Vettese makes the case the income replacement ratio of approx. 25% provided by CPP should be adequate for a comfortable, middle class retirement.
He also makes the case that the oft-quoted 70% income replacement ratio is way higher.

Of course, he deftly avoids the politically charged issue that all the public sector pension plans target 70% income replacement because they use a 2% accrual rate per year of service.


----------



## fraser

I read Jim Leech's book The Third Rail. He is very much in favour of an expanded CPP and DB pensions. He is definitely, or he was definitely part of the industry as head of the Ontario Teachers Pension Plan.

Figures just released are indicating that something like 97 percent of DB pensions are funded at greater than 90 odd percent. The company that I once worked for has three. At the end of December they were up to 95, 95, and 108 percent funding. 

Jim Leech is a huge fan of DB's. One would expect this given that he managed on of the most successful plans for so long. His issue is that they need to change-risk has to be shared. He devotes a chapter to what New Brunswick has recently done to put their public service pension plans on the road the financial stability. It was short, well written book.


----------



## carverman

HaroldCrump said:


> They are nothing more than a lobbying group for well-off seniors, masquerading as a senior support group.
> Their primary vested interest is in maximizing the social programs for seniors.
> It is because of lobbying by organizations such as CARP that seniors making $100K are able to get handouts from the govt. such as OAS and age credits.


I would think that any senior out there that has a gross income of $100k or more, would have most of their OAS clawed back.


----------



## My Own Advisor

For sure carverman, OAS starts clawing around $75k. 

Any senior making $100k, with no debt, is living very well.


----------



## HaroldCrump

fraser said:


> I read Jim Leech's book The Third Rail. He is very much in favour of an expanded CPP and DB pensions.


According to sag's logic, Jim Leech is terribly biased.
To paraphrase sags:
_Consider the source of the book........
Jim Leech works for the public sector pension management industry._

The New Brunswick "shared risk" pension reform is a big step in the right direction, but a far, far cry away from rationalizing the tax-payer burden.
Incidentally, CARP has protested strongly against those changes.


----------



## fraser

I view CARP like I view any other self interest group. I do not always agree with them. They speak for their members. I am not a member and they certainly do not speak for me on all issues.

CARP may not like the changes but CARP's view is not always the 'gold standard' in my opinion. The long term economic outlook and demographic realities of provinces like NB and NS require that they get their long term obligations in check. These are both provinces where economies/populations/ provincial revenues are expected to shrink in real terms. Increasing and/or unrealistic pension obligations would eventually lead to a very difficult state of affairs. They are also provinces with high personal tax burdens-most especially NS.

I just wish some politicians in other jurisdictions would step up to the plate and re-evaluate/reshape their respective pension liabilities. Before it is too late.


----------



## HaroldCrump

fraser said:


> I just wish some politicians in other jurisdictions would step up to the plate and re-evaluate/reshape their respective pension liabilities. Before it is too late.


Won't happen...the unions won't let them.
Politicians are rotated every 4 years, whereas unions are like the Rock of Gibraltar....unrelenting, unmoving, inflexible.

Folks like Jim Leech, Jim Keohane, and Michael Latimer (the top 3 public sector pension plans) have had it good....they have lived through the golden age of defined benefit pensions with increasing govt. spending, expanded public sector workforces, generous above-inflation raises, unqualified govt. guarantees and backstops, etc.

They haven't had to deal with falling revenues/profits, funding cutbacks, unwillingness of employees to participate in DBPs, and other problems that can completely upset the apple cart of nice fancy charts, graphs, and models.


----------



## kcowan

carverman said:


> I would think that any senior out there that has a gross income of $100k or more, would have most of their OAS clawed back.


Yes but a couple can make $72k each and not face any clawback. At $100k, an individual faces about 50% clawback.


----------



## sags

Having failed at other arguments..........such as DB plans are all destined for failure.......the CPP is unsustainable........the new approach in these articles is to rehash the same old commentary........from a slightly different approach. This latest is "there is no retirement crisis".

The basic core of the commentary is always the same though.

Savings and retirement money should always flow through financial institutions....pooled pensions, annuities etc.

Are all "experts" biased ? Corporate, unions, fund managers....??

Of course they are. It is up to people to decide which "biased" expert speaks for them.


----------



## HaroldCrump

sags said:


> Savings and retirement money should always flow through financial institutions....pooled pensions, annuities etc.


CPP is also a pooled pension.
Nothing is free.
Just because the source of a funding isn't easily apparent does not mean it is free.

For instance - OAS vs. CPP.
We all see the CPP deductions come out of our paycheques, so we know what it costs.
But not OAS, because it comes out of general tax revenues.

Those that argue for handing over the responsibility of retirement savings to the govt. seem to forget that everyone along the food chain has to get paid.
Handing over retirement income management to govt. throws you at the mercy of politicians and policy makers that serve only their interests.

You end up with situations like unfunded, overly generous pension plans for MPs, grossly over-paid and over-pensioned public sector workers, while at the same time, OAS and CPP being cut or deferred.


----------



## fraser

CPP does not have all the attributes of a defined pension plan. There are some social programs built into it that carry a cost to those in the plan.. Items like the disability insurance provisions. 

CPP does not comprehend certain DB pension norms such as survivor benefits in the usual way. The plan is particularly disadvantageous and discriminatory as it pertains to survivor pension benefits when both spouses are receiving maximum CPP. 

I believe in CPP and I would like to see it expanded beyond the average industrial wage. Not all at once, but phased in so that employers and employees could adjust to the increased costs/deductions. 

But CPP also needs some 'tweeking' to make it more DB pension like for everyone-especially dual income family units.


----------



## carverman

kcowan said:


> Yes but a couple can make $72k each and not face any clawback. At $100k, an individual faces about 50% clawback.


Income splitting?


----------



## HaroldCrump

Yes, and there are many other such tax breaks available for well off seniors.
OAS, age credit, income splitting, provincial health plans, and many more.

These days with the financial hardships facing the sandwich generation, and given the very low rate of senior poverty in our country, IMHO, it is questionable whether these kinds of tax breaks are still justified.


----------



## fraser

Pension income splitting, and the proposed family income splitting have absolutely nothing to do with good tax policy and absolutely everything to do with politics, ie. getting the current Government elected and re-elected. Full stop. 

Every economist and tax expert that I have read on the subject all claim that this is a very poor method of income redistribution...including our late Finance Minister Jim Flaherty.

Having said that, for the first time, I was happy to move half of my pension income over to my spouse.


----------



## Eclectic12

carverman said:


> Here's what I don't like about annuities..and I am being faced with selecting one or a LIF ...
> 
> In any case, the Insurance company will be making money off your annuity while paying out your monthly stipend.


 ... and if you were allowed to invest in anything else, the seller would also be making money off your investment.

Or did you think the investment companies were being nice by offering MFs/ETFs/Shares/Savings accounts for free?


I hate to tell you ... but unless your investment that is funding your retirement is in a business - you are paying someone now matter what you choose.


Cheers


----------



## Eclectic12

My Own Advisor said:


> carverman said:
> 
> 
> 
> I would think that any senior out there that has a gross income of $100k or more, would have most of their OAS clawed back.
> 
> 
> 
> For sure carverman, OAS starts clawing around $75k.
> 
> Any senior making $100k, with no debt, is living very well.
Click to expand...

Not sure why you would think this ... the level for the OAS clawback to start is being raised in 2014 from $70,954 to $71,592.

http://www.advisor.ca/news/industry-news/cra-releases-2014-inflation-adjustments-136165


According to this table, while most of the OAS is gone, in 2012 it took an income of $112,771.60 to eliminate OAS.

http://retirehappy.ca/minimizing-old-age-security-clawback/


Cheers


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## sags

The expenses for an annuity appear to be very high. 

I calculated it would take 20 years of return of my own capital, with a 0% return on investment, before the annuity provider had to pay a dime.

That would put our ages in a joint annuity at 83 for me and 87 for my spouse, until we depleted our own capital.

If you calculated "some" investment returns on the capital over 20 years...........the ages would be extended further out.

Annuity providers need to pare down their fees and expenses, and return more to the owner of the capital........if they want to make them more attractive.

A "guarantee" of monthly income, can be achieved by putting the capital into a high interest savings account and making monthly withdrawals. There is no need to pay high fees........simply to withdraw your own capital on a monthly basis.

A person could run out of money if they live to be 90 or 100.........but who would care at that age?

Likely they would be in a nursing home..........or have very low expenses anyways.

Government benefits would cover that lifestyle.

Billions of dollars in pooled pension funds (that generate administration fees).........just waiting to be turned into annuities (that generate high upfront and ongoing maintenance fees)........are a mouth watering scenario for financial institutions..........and is why their lobby groups are "opposed" to any other retirement plan that would divert the capital to somewhere else.


----------



## james4beach

sags said:


> Maybe that is the reason 40% of young adults are still living at home........waiting for their perfect job to come by.


They're (we... I'm young too) are living at home because there there aren't many well-paying jobs out there. The economy is in rough shape. Plus, the cost of housing is sky high. Rents have gone up tremendously too in the last few years.

Plus, what I'm discovering as a young worker is that there is absolutely no job security anyway. So even when you have a good job you have to assume it can disappear in 2 or 3 years. As soon as the company figures out how to send your job to China or India, you'll be out looking for a new job!

I resent these comments from baby boomers, who say that young workers feel too entitled or just aren't working hard enough... how about you quit your job and then come back to the job market. Try it out and see what it's like! Not to mention the situation all us younger people are stuck in, that real estate is now permanently unaffordable.


----------



## bgc_fan

Kind of a gross generalization regarding why they are staying home. Another factor is culture, as some cultures are used to multigenerational homes. I believe there was an article quoted in another thread about that fact. It is also somewhat traditional to leave the parental home at marriage, to symbolize starting a new life together. It's only the NA culture that tries to kick the kids out of the house as soon as they turn 18.


----------



## kcowan

carverman said:


> Income splitting?


Income splitting affects company pensions but has no effect on the clawback. It is based on your grossed up income before any deductions/adjustments. Just one of the many "gotchas" of OAS. It is after all a form of welfare for the middle class.


----------



## carverman

sags said:


> The expenses for an annuity appear to be very high.
> Annuity providers need to pare down their fees and expenses, and return more to the owner of the capital........if they want to make them more attractive.
> 
> A "guarantee" of monthly income, can be achieved by putting the capital into a high interest savings account and making monthly withdrawals. There is no need to pay high fees........simply to withdraw your own capital on a monthly basis.


This is my thoughts as well. My Nortel DB pension (presently at least 33% underfunded is the process of windup for the last 2 years). From early information, I can only choose a LIF or an annuity.
The annuity option would take a big chunk out of a pension that has been reduced by 33% already, but part of it is supplemented by the Ontario Guaranteed pension fund.
I don't know if the Ontario Guaranteed Pension Fund applies to annuities though, I expect not, so that would be a further reduction in my monthly stipend if I go with an annuity. 



> A person could run out of money if they live to be 90 or 100.........but who would care at that age?
> 
> Likely they would be in a nursing home..........*or have very low expenses anyways.*
> 
> Government benefits would cover that lifestyle.


Lol! For most of us..those very low expenses would mean NO EXPENSES once you get into your "high 80s or 90s".:biggrin:


----------



## HaroldCrump

sags said:


> The expenses for an annuity appear to be very high.
> I calculated it would take 20 years of return of my own capital, with a 0% return on investment, before the annuity provider had to pay a dime.


But, sags, a defined benefit pension works along similar lines.
You (and/or your employer) keep paying into the pension for decades.
So, from that perspective, the monthly payouts that you receive are also a "return of capital".

I agree that an individual annuity purchased on the open market is more expensive for the annuitant than a defined benefit pension with more or less similar features.
There are many reasons for that, such as adverse selection.

But that does not mean there is something magical in defined benefit plans, or govt. run plan management is somehow more cost effective for the tax payer.

Anyhow, the issue here is that defined benefit plans available to govt. workers _appear_ to be low cost, but they are not at all.
The tax payer is paying a huge cost for these benefits, and most of those are off-books, off-balance-sheets, and out of discussion.



> A "guarantee" of monthly income, can be achieved by putting the capital into a high interest savings account and making monthly withdrawals.
> There is no need to pay high fees........simply to withdraw your own capital on a monthly basis.


Awesome...I completely agree.
Can we now dissolve all the defined benefit programs for public sector employees, please.
Every month their "pension" contributions will go into a HISA account at one of the 5 banks of their choice.
Problem solved !



> Billions of dollars in pooled pension funds (that generate administration fees).........just waiting to be turned into annuities (that generate high upfront and ongoing maintenance fees)........are a mouth watering scenario for financial institutions..........and is why their lobby groups are "opposed" to any other retirement plan that would divert the capital to somewhere else.


Of course they will benefit.
Similarly expanding govt. run programs benefit different groups.
As I said above, these are not free programs either, and there is a cost to managing and administering these programs.

The question is - do we want govt. more and more involved in managing people's retirement programs, or do we want individuals to take responsibility for their own finances, and get the govt. out of this business (other than running basic subsistence level welfare programs like GIS).


----------



## fraser

Of course the insurance company needs to make money on annuities. They are in business to make money. If they did not, their shareholders would revolt, the stock would depreciate, and they would loose their ability to raise capital in the marketplace.

They need to be compensated for the actual administration, for some profit to the shareholders, and for assuming RISK. The risk that their actuaries make some errors, risk that their investments go south, etc. etc. 

Paying people to accept risk is par for the course. That is why the HISA rate is 1.9 percent and market returns, annualized, are much higher.

Does anyone expect these companies to have zero profit and expose all their shareholders, some of whom are other financial institutions, to risk with no reward?


----------



## Eclectic12

HaroldCrump said:


> But, sags, a defined benefit pension works along similar lines.
> 
> You (and/or your employer) keep paying into the pension for decades.
> So, from that perspective, the monthly payouts that you receive are also a "return of capital".
> 
> I agree that an individual annuity purchased on the open market is more expensive for the annuitant than a defined benefit pension with more or less similar features.
> There are many reasons for that, such as adverse selection.
> 
> But that does not mean there is something magical in defined benefit plans, or govt. run plan management is somehow more cost effective for the tax payer.
> 
> Anyhow, the issue here is that defined benefit plans available to govt. workers _appear_ to be low cost, but they are not at all.
> The tax payer is paying a huge cost for these benefits, and most of those are off-books, off-balance-sheets, and out of discussion.


Part of what makes it look expensive is that most people are not aware of what the employer is putting in and topping up to the DB pension.

As my reading of the thread is that the comparison is annuity versus db pension - I'm not sure why you are circling around back to the public db pensions when my private employer is having to put in top up payments (something like $4 million in the last few years) - which I am sure a lot of my co-workers would not factor into a comparison of annuity versus the db pension.





HaroldCrump said:


> Awesome...I completely agree.
> 
> Can we now dissolve all the defined benefit programs for public sector employees, please.
> Every month their "pension" contributions will go into a HISA account at one of the 5 banks of their choice.
> Problem solved !.


I'm hoping for a :rolleyes2: or a :upset: ... as at the current interest rates, only those with a long history of good investment growth to end up with a large retirement nest egg have a hope of making this work.

Once the HISA has run out, then the OAS is going to kick back in so there's no complete bypassing of the responsibility.




HaroldCrump said:


> The question is - do we want govt. more and more involved in managing people's retirement programs, or do we want individuals to take responsibility for their own finances, and get the govt. out of this business (other than running basic subsistence level welfare programs like GIS).


From the posts seen here and elsewhere - IMO, this is a naïve set of choices.

It is well documented that those with the capacity to save for their retirement are by and large - not doing so effectively. So unless there is something that moves more people with the resources into saving/managing their retirement, the gov't is going to end up with a host of retirement issues regardless. Not to mention lots more of retirees with time on their hands to pressure the gov't and take time away from other tasks.

Just getting out the business is likely just delaying the issue for a future gov't.


Cheers


----------



## fraser

Absolutely. The company DB plan that I belong to (large, multinational firm), is a small one...only about $75M and fully funded thanks to the advances of the last 24 months and to employer top up payments.

But, since 2005, the company has made top of payments of over $10M in order for it to remain fully funded. That is a very large number given the size of the plan.

The health of the plan, the company's regular payments, their top up payments, were part of the annual pension entitlement report that each member of the plan received.


----------



## HaroldCrump

Eclectic12 said:


> Part of what makes it look expensive is that most people are not aware of what the employer is putting in and topping up to the DB pension.


I agree completely.
Esp. when that "employer" is the tax-payer.



> As my reading of the thread is that the comparison is annuity versus db pension - I'm not sure why you are circling around back to the public db pensions when my private employer is having to put in top up payments (something like $4 million in the last few years) - which I am sure a lot of my co-workers would not factor into a comparison of annuity versus the db pension.


Because the employer in this case is "us" i.e. the tax-payers.

Anyhow, this particular tangent in the discussion started when sags suggested that those analysts/writers/economists that work in the private sector have a vested interest in non got. sources of retirement funding.
I am saying that is not the case.

And if we were to take a cynical view of this, well then, those that vehemently advocate for big govt. expansion in retirement funding also have an exe to grind.
It is easy to see which groups are drumming for large scale govt. expansion - the CARP, the CUPE, the unions, and some of the provincial governments that incidentally happen to be running large deficit budgets.



> Just getting out the business is likely just delaying the issue for a future gov't.


The govt. needs to get out of the business because it is distorting the market for retirement income.
It has created a two tier society - a retirement apartheid.
The status quo obviously works for those that happen to be in the "have" camp, but not so well for those in the "have-not" camp.

Do we have a retirement problem or not?
If we do, then getting more govt. based funding is going to make the situation more polarized, and more distorted.
If we don't, well then, there is nothing to talk about


----------



## fraser

The other side to this is some people actually think that they can get a new or a better retirement plan without paying for it. And they mistakenly believe that if they get the plan today, they will be entitled to the benefits tomorrow.

The reality is that it will cost them upwards of 5 percent just for their employee portion, or more. And if the person is in their 50's, they will see little appreciable increase in their pension. 

I suspect some people think that they can join a plan today, have no extra payroll deductions, and retire on the 'full' amount in 5-10 years. It does not work that way regardless of all the rhetoric.


----------



## Eclectic12

HaroldCrump said:


> ... Because the employer in this case is "us" i.e. the tax-payers....


I'll have to trace the thread back further as I can only recall carverman's reference to the Nortel pension ... which AFAICT is not a tax payer pension.




HaroldCrump said:


> ... Do we have a retirement problem or not? ...


With one in five of the younger generation having access to a pension, regardless of their ability to save money - there would seem to be no worry about an OAS clawback and a big worry about a lot more public money needed for GIS/OAS.

If one adds in the number of people who have the means to fund their retirement today but are choosing not to, then IMO something has to change as I don't see how returning to a "less polarized/distorted" setup is going to make any difference in the public monies that will be needed in the future.


Cheers


----------



## carverman

Eclectic12 said:


> I'll have to trace the thread back further as I can only recall carverman's reference to the Nortel pension ... which AFAICT is not a tax payer pension.


The Nortel pension was a company contributed DB pension, at least it was until about 2000, when Nortel started to get into trouble due to over expansion and changing market
conditions.With the number of RFT employees swelling in the mid 90s when they agressive started to expand and took over Bay Networks, the DB pension plan was not sustainable
even before 2000. After 2000, company contributions to sustain the funding was deferred to later years, when they thought they would return to profitability. Since this was a 
mistake for the Ontario gov't to allow them to defer their contributions (due to losses declared), the plan was severely underfunded by 2007. The economic situation in 2008
and their lack of cash reserves to weather the storm, forced them to shut down.

It is *partially* tax payer funded pension now:
The current DB pension for Ontario workers (since 2011), is partially funded by the Ontario Guaranteed Pensions fund. I'm not sure exactly where that funding comes from, but I suspect
it is from the Ministry of Finance..so in essence they cover a small portion of the pension monthly payouts up to a maximum of $1000. In my case, it's about $300 per month that
I wouldn't be receiving otherwise now, but I'm still down $300 in monthly payments that I used to receive (up to 2011), before the DB plan pension benefits got cut.

https://www.fsco.gov.on.ca/EN/PENSIONS/PBGF/Pages/default.aspx

There are recoveries of funds to this plan from I presume the assets of defunct companies...one of these pending is Nortel's assets which are still in escrow.


----------



## sags

All companies with DB pension plans in Ontario, have to pay premiums into the OPGF.

When the GM pension plan was in trouble, the government at first claimed they weren't going to loan money to GM or the pension plan, but were informed that since GM had paid premiums into the plan for decades...........the GM retirees were legally entitled to collect benefits.

The cost would have overwhelmed the fund, so the Ontario government changed course and agreed to participate in the GM loans with the Federal Government.

I guess they determined it was better (cost/benefit analysis) to "loan" the money to GM and hope for the company to recover (which they did)........than pay out benefits from the OPGF for the next 40 years.


----------



## Addy

The talk of DB plans is interesting to me, I have been trying to understand the logistics behind pensions and it baffles me, I think my brain just isn't wired to understand pensions.

I always have felt that the federal gov't pension plan my husband is a member of (or any pension for that matter) is NOT guaranteed in the sense that nothing in life, or at least not much, is guaranteed. I see many of my husbands coworkers (military) living high on the hog, multiple toys in the yard (boats, atv's, snowmobiles, travel trailers, etc etc), new trucks (plural in a few cases), renting a military house (which is not free nor subsidized), smoking, drinking often, and eating out often. They tell me they don't need to save for retirement because they have a pension - which I believe is almost guaranteed, and you should be able to count on it with a high level of certainty, but not 100%. I also feel those who do live like grasshoppers.

I've heard it mentioned on discussion forums that the fed gov't employee pension will never go under because it would mean the gov't of canada would have to go bankrupt first, but I'm not sure if I believe this, isn't the pension handled outside the federal gov't? At least I hope it is, if it's not then my worry has just increased about it tanking!


----------



## Addy

carverman said:


> https://www.fsco.gov.on.ca/EN/PENSIONS/PBGF/Pages/default.aspx


Reading this now, thanks for posting. Not that I will be able to understand it, but I will try!


----------



## HaroldCrump

Addy said:


> I always have felt that the federal gov't pension plan my husband is a member of (or any pension for that matter) is NOT guaranteed in the sense that nothing in life, or at least not much, is guaranteed. I see many of my husbands coworkers (military) living high on the hog, multiple toys in the yard (boats, atv's, snowmobiles, travel trailers, etc etc), new trucks (plural in a few cases), renting a military house (which is not free nor subsidized), smoking, drinking often, and eating out often. They tell me they don't need to save for retirement because they have a pension - which I believe is almost guaranteed, and you should be able to count on it with a high level of certainty, but not 100%. I also feel those who do live like grasshoppers.


That sounds about right about govt. pensions, esp. federal govt. backed ones.

The benefits (i.e. monthly income, indexation, survivor benefits, etc.) that these individuals are expecting to receive cannot be cut without the GOC essentially defaulting on its sovereign debt (similar to Greece).
Although _theoretically_ nothing is guaranteed 100%, including the sun rising on the east tomorrow morning, this is about as guaranteed as anything can be in these times.


----------



## carverman

Addy said:


> Reading this now, thanks for posting. Not that I will be able to understand it, but I will try!


Yes, you have to take the ONTARIO guaranteed pension fund with a "grain of salt". It is only applicable to pension funds registered in Ontario by companies operating in Ontario and still have
(or had before they became defunct) a DB pension plan. AFAIK, it does NOT apply to Federally funded plans such as the military or gov't employees. In the Nortel case, any employees in
Quebec or Alberta are on their own, since they worked in those respective provinces and paid taxes through their employer in those provinces, so they may also have some relief
as the pension plan dries up.

The Ontario guaranteed pension fund is there to help any ONTARIO pensioners from dropping into poverty (with only their CPP/OAS to depend upon, which isn't very much today and with inflation will buy even less as the years go by), but AFAIK, it only covers any pensionable earnings for the first $1000 per month only if the DB pension plan "dries up". 

Usually, before that happens the trustees of the DB pension plan will through a l-o-n-g process, wind up the DB plan because as more and more RFT employees reach pensionable status, the employer is no longer around to top up any shortfall in investments and growth in the pension plan.


----------



## Eclectic12

carverman said:


> The Nortel pension was a company contributed DB pension, ...


I was meaning that the gov't isn't the employer and routinely on the hook for paying for any shortfalls, which as I understand it - is the way Harold meant it.




carverman said:


> It is *partially* tax payer funded pension now:
> 
> The current DB pension for Ontario workers (since 2011), is partially funded by the Ontario Guaranteed Pensions fund ...


I believe it is a partial contribution based on the "insurance" provided by the Ontario Guaranteed Pensions fund. This would be similar to someone having $600K on deposit at the bank, the bank going under and CDIC paying out the $100K.

Yes there is money being contributed but it isn't the employer fully funding the shortfall - it's an outside fund being triggered in a failure situation.


Cheers


----------



## Eclectic12

Addy said:


> The talk of DB plans is interesting to me, I have been trying to understand the logistics behind pensions and it baffles me, I think my brain just isn't wired to understand pensions.
> 
> I always have felt that the federal gov't pension plan my husband is a member of (or any pension for that matter) is NOT guaranteed in the sense that nothing in life, or at least not much, is guaranteed ...


The trick is to make sure one is discussing apples to apples.

A defined benefit (DB) pension between an employer and the employees collects money from both parties and invests it. At retirement, a set formula determines what the employee is paid and is usually guaranteed for ten years (though it will vary by plan).

If the investments do well, no problem. If they don't, the employer is to make extra contributions to make up for the shortfall.

Using my DB pension as an example, for about six years the investments were doing so well that only employee contributions were being made. Now that the financial crisis has happened, in addition to adjusting the contributions/benefits - the company has put in an extra $4 million to deal with the funding. They have another 2 million planned but so far, it looks the investments are recovering to the point that they will likely not need to make the payment.

In a defined contribution (DC) pension - the rates of contribution are set (ex. 2% by employee, 2% by employer). When the employee retires, they get both contributions plus any investment growth. Once the money is withdrawn and spent - that's the end of it, whether this took two years or twenty five years. 


http://en.wikipedia.org/wiki/Defined_benefit_pension_plan
http://en.wikipedia.org/wiki/Defined_contribution_plan




Addy said:


> I've heard it mentioned on discussion forums that the fed gov't employee pension will never go under because it would mean the gov't of canada would have to go bankrupt first, but I'm not sure if I believe this, isn't the pension handled outside the federal gov't?
> At least I hope it is, if it's not then my worry has just increased about it tanking!


If it's a DB pension, then an actuary has to review the funding on a regular basis (that's how my company found out they'd need to make more contributions).

However - we are talking politicians here. There is also the precedent that the Conservative Ontario gov't "borrowed" something like $600 million from the Ontario teachers pension funds to invest in Suncor shares, which then tanked. The teachers pension gave up trying to get it back and arranged as side deal as an alternative arrangement instead of cash.

At least it's not as bad as some US company DB pensions where the pension funds were used to pay executive pay/bonuses and then the company as well as it's pension was declared bankrupt - which the money didn't need to be paid back. Or worse, companies bought other companies - then laid off all the employees as "surplus" to cap the future benefits to be paid and then drained the now "surplus" pension funds to apply to their bottom line.


Cheers


----------



## HaroldCrump

Eclectic12 said:


> With one in five of the younger generation having access to a pension


That one in five is a public sector employee.
IOW, the pension is tax payer funded & guaranteed.
Since the private sector has had such a resounding, thumping success with defined benefit plans (not !), I don't think more and more public sector plans are the answer.
That will simply make matters worse, and bankrupt the public coffers.



> If one adds in the number of people who have the means to fund their retirement today but are choosing not to, then IMO something has to change


OK, so if someone has a clear _ability_ to do something, but is making a conscious _choice_ not to, the answer is for the govt. to step in and bail them out?
This is clearly a moral hazard, the govt. selectively picking the grasshopper and squashing the ant.
By perpetuating the retirement apartheid, govt. intervention will only make matters worse.


----------



## Eclectic12

You seem so focussed on the public sector DB pensions that you are jumping to conclusions here.

The article said:


> *In Canada’s private sector,* only one person in five has a workplace pension.


So unless you or the article have a different definition of "private" than I do, it doesn't look like any public service employees are being included.

Secondly, the wording is "pension" so it includes DC pensions as well (the 2012 Stats Can numbers has the number of DC pensions close to but behind the number of DB pensions).

http://www.thestar.com/business/2014/04/11/a_pensioncrisis_primer.html


It may not be a pension crisis today but it does not bode well for the future.




HaroldCrump said:


> Since the private sector has had such a resounding, thumping success with defined benefit plans (not !), I don't think more and more public sector plans are the answer. That will simply make matters worse, and bankrupt the public coffers.


Agreed but at the same time, how is ignoring the problem so that many of today's youth end up depending on OAS/GIS going to help the public coffers?




HaroldCrump said:


> OK, so if someone has a clear _ability_ to do something, but is making a conscious _choice_ not to, the answer is for the govt. to step in and bail them out? ...


You are the one arguing that the gov't should reduce their role and let the chips fall where they may. 

I'm not sure why you are putting words in my mouth saying that the gov't role automatically means increasing the number of public DB plans.


My point is that the gov't saying "we know people aren't saving, significant numbers don't have *any* pension and a significant number don't have the ability to save but hey, since there are some who could save, let everyone reap the consequences at retirement" strikes me as being unsustainable.


Cheers


----------



## Addy

Eclectic12 said:


> However - we are talking politicians here. There is also the precedent that the Conservative Ontario gov't "borrowed" something like $600 million from the Ontario teachers pension funds to invest in Suncor shares, which then tanked. The teachers pension gave up trying to get it back and arranged as side deal as an alternative arrangement instead of cash.


This is the part that worries me - I assume the Federal Gov't would be on the hook for any shortfalls with the Fed Gov't DB pension plan... what would prevent the current (or future) federal gov't from changing the rules, and saying "Sorry, we just do not have the money to cover a 2 billion dollar shortfall, so you will all have to make due with what you have" (or something similar to this? 

FYI I highly doubt this would happen, but considering I have been both shocked and appalled by some things the current regime is doing, I don't want to dismiss it entirely.


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## MoneyGal

Fascinating article on the Pension Benefit Guarantee Corp in the U.S.: http://dealbook.nytimes.com/2014/04/12/thought-secure-pooled-pensions-teeter-and-fall/

Excerpt: 

T_he P.B.G.C. is supposed to be self-supporting, financing its operations with premiums paid by companies rather than tax dollars. Its single-employer program has the power to take over company pension funds before they run out of money so the assets can be used to help defray the costs. But the multiemployer program must wait until a failing plan’s investments are exhausted, so it gets nothing but bills. It now has premiums of about $110 million a year to work with. All it would take is the failure of one big plan to wipe out the whole program.

The Central States plan, for example, pays $2.8 billion a year to retirees but takes in only about $700 million from employers. It must rely on investment returns to keep from exhausting its assets, but Thomas C. Nyhan, director of the pension plan, said it would take returns of at least 12 percent a year, every year, to come out even, and that is not realistic. Its modeling suggests it will run out of money in 10 to 15 years — most likely around 2026, if nothing is done.

Labor officials, business groups, members of Congress and others have been quietly discussing a proposal to extend multiemployer plans’ life spans by letting them roll back even retirees’ pensions. Such plans are often found in mature sectors, in which retirees outnumber active workers and cuts affecting only the existing workers do not produce enough of a saving as a result. And once a multiemployer plan gets to that stage, officials have discovered, new companies will not join the pool, because they do not want to be stuck paying for extinct companies’ orphaned retirees.

“Arithmetic is going to trump everything here,” said Mr. Nyhan of the Central States plan, which has about five retirees for every current driver._


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## carverman

MoneyGal said:


> Labor officials, business groups, members of Congress and others have been quietly discussing a proposal to extend multiemployer plans’ life spans by letting them roll back even retirees’ pensions.
> Such plans are often found in mature sectors, in which retirees outnumber active workers.


Interesting that they are discussing this in the US..in Canada, certainly Ontario, rollbacks of retiree's pensions is a reality in any severely underfunded DB plan where the employer is defunct. 
In Nortel's case, the number of retirees that stayed with the old DB plan has (or soon will) outstrip the resources of the current pension plan. Windup is the only option now.


----------



## Addy

MoneyGal said:


> Labor officials, business groups, members of Congress and others have been quietly discussing a proposal to extend multiemployer plans’ life spans by letting them roll back even retirees’ pensions.


Wow that would really suck for the retirees, but understandable, what other choice does the plan have? And there's nothing to say this same thing couldn't happen here in Canada.


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## HaroldCrump

Addy said:


> Wow that would really suck for the retirees, but understandable, what other choice does the plan have? And there's nothing to say this same thing couldn't happen here in Canada.


We don't really have multiemployer defined benefit plans in Canada.
I can't think of any one.
There is OMERS, which covers several regional municipalities, but it is not quite the same thing.


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## peterk

I see nothing but problems for the old age of Gen X and Y. Current retirees had the good fortune of being raised, and then working, through one of the biggest economic expansions ever. And even then, the majority now rely on government aid, CPP, and DB pensions of olde, and the value of their homes to stay afloat.

What is going to happen to the younger generation with: less economic growth, fewer pensions, higher taxes, lower savings rates, longer lives, massive government debts? I don't really think there is an answer or solution. We (young people) just have to make peace with the fact that we'll have a lower standard of living going forward. 

No amount of government twiddling with pension contributions and retirement ages is going to compensate for bad demographics, huge goverment debt, destruction of the nuclear family, globalization, and fewer productivity advances in the next 50 years than the last 50 years.


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## fraser

Some co-ops and unions participate in multi employer pension plans.

As I recall, pensioners at Gai Lea foods in Ontario were forced to take a substantial reduction in pensions because of the state of their multi employer pension plan.

It is an interesting time. I think I read a few days ago that 36 percent of DB plans are now funded in excess of 100 percent and the vast majority are in the plus 90 percentage point range. Attributable to market gains over the past several years. These numbers certainly add credence to the personal investing and the impact of sequence of returns on retirement.


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## MoneyGal

That whole article is an illustration of sequence risk with multiple examples!!


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## Eclectic12

HaroldCrump said:


> We don't really have multiemployer defined benefit plans in Canada.
> 
> I can't think of any one...


With a quick google search, I found a PDF from October 2007 talking about:



> *Ontario multi-employer plans avoid axing benefits *
> More than 700,000 members of 60 Ontario-based multi-employer pension plans (MEPPs) were spared payment reductions and other severe plan adjustments this past September...


Then this for the "Musician's Pension Fund of Canada":


> Our Plan is already recognized as a Multi-Employer Pension Plan (MEPP) under the Pension Benefits Act of Ontario


http://www.mpfcanada.ca/news.php


So it would seem that there are more than I would have thought.


Cheers


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## HaroldCrump

*Forget talk of a pension crisis, Canadians are very well protected in their retirement*

_The first important point is that no crisis exists in Canada’s current retirement system. 
People are living longer, healthier and wealthier lives in retirement, largely the result of their own actions. 
The few pockets of poverty among seniors, such as single or widowed elderly women who have never worked, are best addressed by better targeting government benefits, not by a wholesale expansion of the CPP._


----------



## HaroldCrump

peterk said:


> What is going to happen to the younger generation with: less economic growth, fewer pensions, higher taxes, lower savings rates, longer lives, massive government debts? I don't really think there is an answer or solution. We (young people) just have to make peace with the fact that we'll have a lower standard of living going forward.


Higher taxation and massive govt. debt are two sides of the same coin.
A large reason for the massive govt. debt is the welfare state i.e. the socialist-democratic ideal to provide guaranteed, free jobs, benefits, and pensions via expansion of the public sector.

I don't necessarily see the projected lack of public pensions as a problem.
If anything, it puts the responsibility back on the shoulders of the individual.
There are a variety of non govt. pension mechanisms available for retirement saving, such as the RRSP program, non registered savings, private annuities, etc.

From the article quoted above:

_Canadians show a savvy willingness to adopt new financial strategies. 
One-third opened Tax Free Savings Accounts in the three years since their creation. 
This ignores the trillions stored in the value of their homes, which effectively is an unlimited tax free saving account for the principal residence.
...
This downplays the role of assets people hold in a fourth pillar outside the pension system, which total $8.6-trillion including real estate and various saving and investments, compared with $2.6-trillion held within the pension system._

The point is that we don't need massive govt. sponsored socialized pension systems, which is creating the massive govt. debt to begin with.
It is also horribly distorting the society, creating a two tier system of retirement.
A pension apartheid.


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## sags

I think the HOOPS plan would qualify as a multi-employer plan.

Just listened to the announcement of the "new target" pension scheme.

How would this new "target" plan be any different than the pooled pension plan?

How would the new "target" plan be better for the people of Ontario.........when it doesn't include them?


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## sags

The US study quoted here and used in the government announcement about target pension plans, has already been roundly criticized in the US.

The middle class in Canada has surpassed the American middle class, based almost entirely on inflated home values, which the Americans are convinced are in a bubble similar to their own which brought the US to it's economic knees.


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## sags

A prediction..................

There will be an election in October 2015.

The Harper government have put forth their solution to the pension crisis........which doesn't involve CPP expansion.

With the PCs locked in to a "target" pension plan, the Liberals will put forward an election platform that includes expansion of the CPP, and claim that territory for themselves.

The NDP will put out a bigger expansion of the CPP.

Canadian politics will warm up and become interesting for the next year or so.


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## Eclectic12

HaroldCrump said:


> ... If anything, it puts the responsibility back on the shoulders of the individual.
> There are a variety of non govt. pension mechanisms available for retirement saving, such as the RRSP program, non registered savings, private annuities, etc.


The question is how many have both the means and the will to make sure use of them.

If the Toronto Star article I quoted up thread is accurate, 4/5 of the private sector will need to be making significant use of their RRSP and TFSA as that's all they have beyond CPP/OAS etc.




HaroldCrump said:


> ...
> From the article quoted above:
> 
> _Canadians show a savvy willingness to adopt new financial strategies.
> One-third opened Tax Free Savings Accounts in the three years since their creation ... _


_

I'm am curious as to what this statement is based on.

My experience is that people's eyes glaze over talking about financial matters, never mind pensions or RRSPs or TFSAs.
In fact, when trying to figure out between staying in a DB pension or transferring to a DC pension - there were two shocking
(to me at least) interactions. 

The first was the person sitting beside me gasped when the slide came up saying the the top end pension was something like 60% of current salary (the comment was "you mean I won't get my full salary in retirement?").

The second was from one of my co-workers was in information overload so she stated "This is too confusing ... if I end up with enough in retirement, that's great - otherwise I'll go be a bag lady on Young street".


I'd like to think things have improved but have yet to see indications of improvement on a broad scale.


I notice the article talking about people staying in their jobs longer. I can't imagine that this helping the younger generation get moving in their careers. It is also reminding me of my dad indicating that his incentive to save for retirement was all the pensioners picking up work as they could to try to make ends meet. This to me is an indication of a problem, especially where Canadians are working past the previous mandatory retirement age.


So yes ... there might not be a crisis today but I see problems down the road and I am skeptical of how broadly the Canadians are " ... actively involved in making the myriad of decisions that affect their pensions and their retirement."


I'd rather the pension apartheid *and* educating/enabling retirement savings happened to ensure as that as many as possible end up with a reasonable retirement.


Cheers


*PS*

Out of curiosity - how much are you planning on depending on the "largely undocumented but vital fifth pillar of support to retirees from family and friends"?

Is that likely to be a healthy situation, if used?

It would drive me nuts._


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## fraser

You hit the nail on the head.

As a manager, I tried to get everyone in my area to attend the periodic seminars on DC investment selection. We got, on average, a 50-60 percent turnout on in person meeting and virtual presentations. 

Even worse, I saw the stats about how many employees logged into their DC plans since inception each year to review their investment choices, make changes, view multiyear returns, etc. It was in the mid single didgits! I was shocked at the number.

People need to step up to the plate. A nanny state smothers the economy.


----------



## peterk

HaroldCrump said:


> A large reason for the massive govt. debt is the welfare state i.e. the socialist-democratic ideal to provide guaranteed, free jobs, benefits, and pensions via expansion of the public sector.


Agreed. But at least an increase in pensions would be distributing my tax dollar in a somewhat unbiased way back to all the people of Canada. There are a ton of social and welfare and progressive ideas that I not only don't support, but actively disagree with, and I find it offensive that a massive portion of my taxes are directed to causes or people that I don't want to support. At least a pension payment to all retired people, based on need determined by income, is a non-political cause that is sending my money back to the people, who are spending it in the economy.

Of course I think pensions should be funded by the taxpayer himself in the first place, but if my tax dollars have to go towards something, pensions are pretty high up on the list of worthy causes compared to most other government expenditures.


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## HaroldCrump

peterk said:


> Agreed. But at least an increase in pensions would be distributing my tax dollar in a somewhat unbiased way back to all the people of Canada.


Increase in _which_ pension? CPP?
CPP aint increasing...two powerful provinces are strongly against that and have dug in their heels.
Unless we have an across-the-board, coast-to-coast NDP government at both federal and provincial levels (incl. Alberta & Quebec), CPP aint increasing in any meaningful manner.

Your tax dollars are not going towards CPP...they are going towards the public sector pension programs.
It is perpetuating the pension apartheid.



> At least a pension payment to all retired people, based on need determined by income, is a non-political cause that is sending my money back to the people, who are spending it in the economy.


That sounds like OAS, is that what you meant?
OAS is not a pension, but a welfare payment, albeit means-tested.
There is no hope in Dodge of OAS increasing...even the NDP with a majority govt. cannot push through an increase to the OAS.
In fact, OAS is likely to keep going down.
Eligibility age may be increased (again), clawback income ranges lowered, and other changes can happen.

If you like the ideal of your tax-dollars funding pensions, well, you are getting your wish.
It's just not _your_ pension that's getting funded.


----------



## Eclectic12

fraser said:


> You hit the nail on the head.
> 
> As a manager, I tried to get everyone in my area to attend the periodic seminars on DC investment selection. We got, on average, a 50-60 percent turnout on in person meeting and virtual presentations ...
> People need to step up to the plate. A nanny state smothers the economy.


There has to be creative ways to achieve both ... IMO, part of the problem is with so many special interests such as financial institutions, unions and then with so few pension/financial literate voters - it's a difficult, low reward task for the elected official.

The challenge is that going on as-is is a huge tax liability and taking a "let the chips fall where they may" approach that ignores where the info of the state/capability of the average person seems to point to a mess down the road.

So I am discussing it with whomever I can find interest ... but there needs to be a broader, engaging approach.


Where I can see some tapping into the equity of their home, as mentioned in the article ... I suspect far less will come from inheritances due to the lack of planning, there will be some nice income tax revenue but a smaller amount passed on to heirs.




peterk said:


> ... Of course I think pensions should be funded by the taxpayer himself in the first place, but if my tax dollars have to go towards something, pensions are pretty high up on the list of worthy causes compared to most other government expenditures.


What?

You don't like paying three times for the helicopters that eventually get purchased? 
Or paying for canceled electrical generating plants?
Or spending $2.5 million during the 2013 Stanley Cup Playoffs to advertise a job grants program that might be in place for the 2014 Stanley Cup playoffs?
Or National Defence paying $22.7 million buying cluster bombs that Ottawa want to ban. The destruction cost is estimated at $2million.


Cheers


----------



## fraser

It is unclear to me exactly how this new Target Benefit Pension Plan is going to help those who do not have a pension. This is the pressing issue. It needs to be addressed by something concrete-not by a red herring.

It seems to me that it is designed as a stop gap measure for organizations who want to move away from DB to DC.

I cannot imagine for a minute that any employers who have a DC program would move to this more expensive model. Nor can I see any employer that does not have any pension plan moving to the Target DB instead of a DC plan.

I would call this Phase 2 of the Government's move to change public service pensions. Migrate them slowly from DB to Target DB.


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## Addy

I found it difficult to get accurate information on my pension when I was employed, and since leaving those jobs, no one at the pension office wants to speak to me, a "non-member". It's frustrating, they don't even mail out or have available online updates pension estimates once you are no longer contributing.

I have two small pensions and both are very difficult to get information from.

I'm considering hiring someone who is able possibly to help me but I don't even know what to ask them.

Social program's in Canada should be scrapped, the NDP part of me cringes but after reading and talking to people in Thailand where there are little to no such program's, I feel they are not justified here in Canada.


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## HaroldCrump

fraser said:


> It is unclear to me exactly how this new Target Benefit Pension Plan is going to help those who do not have a pension.


It is not meant for that.



> This is the pressing issue. It needs to be addressed by something concrete-not by a red herring.


Agreed completely.



> It seems to me that it is designed as a stop gap measure for organizations who want to move away from DB to DC.


Yes, this is a sort of "get out of jail free card" for those employers that are hurting under the pain of DBP pensions.
This provides them an opportunity to transfer some of the market risk to employees and lower their pensions liabilities.
This ought to benefit regulated companies that still have defined benefit plans, such as telecom, utilities, railways, etc. that may not be exactly shipshape.



> I cannot imagine for a minute that any employers who have a DC program would move to this more expensive model. Nor can I see any employer that does not have any pension plan moving to the Target DB instead of a DC plan.


Yup, this is only to help employers go from a DBP to a hybrid model.



> I would call this Phase 2 of the Government's move to change public service pensions. Migrate them slowly from DB to Target DB.


No, this does not affect any of the govt. pensions, except crown corps.
The govt. should walk the talk, and practice what they preach.
If these TBPs are truly such a great idea, the first pension plans to be converted to this model should be all the public sector plans, starting with the federal govt. plan.

All these piece-meal changes like TBPs, PRPPs etc. are like the engineers of Titanic fiddling with the fuel guage, while the ship is running into the iceberg.


----------



## sags

One recommendation on the CPP that I thought made sense.........is allowing people to transfer RRSP, LIRA and other retirement capital into the CPP in return for a DB type of monthly benefit.

Kind of like an annuity..........without all the high fees.


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## Eclectic12

I doubt that a transfer for a monthly DB benefit is going to buy as much as you think.

The profit part of the equation is removed so there could be a savings there. 
The main challenge is having an unknown duration to pay an appropriately set monthly payment based on one lump sum.


Cheers


----------



## fraser

There will always be fees associated with investing. Investment advice/financial transactions do not come for free.

One issue is that many Canadians are very lazy, lethargic when it comes to investments. They throw their money into RSP and are too lazy to do any research. That is why the 'nice person' at the bank places their money in funds that have a 2.5 percent MER. I was shocked when I found out just how infrequently people where I worked actually logged into their DC accounts to view results/make changes.

Anyone can do the research. Funds are available from .65 to 3 percent MERs.

The reason that I like Canadian bank stock so much is exactly this reason. Canadians are lemmings when it comes to high bank fees and high mutual fund fees.


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## blueeyetea

fraser said:


> One issue is that many Canadians are very lazy, lethargic when it comes to investments. They throw their money into RSP and are too lazy to do any research. That is why the 'nice person' at the bank places their money in funds that have a 2.5 percent MER.


Calling Canadian lazy is quite strong, because how else are they supposed to know? We're all bombarded by too much, and wrong, information. Is the Government publicizing we can put out money in index funds or EFTs and save money in the long run? What investment show talks about this? What newspaper? The pockets of the financial industry are deep and they have a lot of resources at their disposal to convince Canadians they're the experts. And it's working.


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## HaroldCrump

blueeyetea said:


> Is the Government publicizing we can put out money in index funds or EFTs and save money in the long run?


It is not the government's job to publicize investment products.
Doing so will create huge conflicts of interest.
We need government _less_ involved with retirement investing, not more.



> What investment show talks about this? What newspaper?


There are many now.
There are about 2 - 3 leading financial periodicals that are heavily loaded in favor of index investing, such as the Money Sense and Money Saver.
There are also many online resources, blogs, etc.
What you are saying was perhaps true about 8 - 10 years ago, but not any more.



> The pockets of the financial industry are deep and they have a lot of resources at their disposal to convince Canadians they're the experts. And it's working.


The financial industry will benefit regardless of which products you buy.
Even index ETFs generate fees for them, both from trading as well as fund management.
Yes, the fund management fees are lower than managed mutual funds, but then their costs are lower too.
Even the safest form of investing - GICs - represent a spread for the financial institution between their borrowing costs and lending revenue.


----------



## fraser

Canadians are lazy and lethargic when it comes to investments. That is one reason why we have had, and continue to have, so many funds with high MERS. 

Retirement is important. How many people do a little research, read a book, or subscribe to something like Pape 's mutual fund newsletter in order to understand how and where to invest? The bookstores-in store and on line- have shelves loaded with books on basic investing and investing for retirement. Get a subscription to Moneysense or read it at the library. 

It is only confusing to those who are simply too lazy to spend a little time reading or researching on line.

Instead, they let someone else at the bank do it. The would rather watch some mindless TV program. I bet some people spend more time on researching what car or washing machine to buy, or vacation to take than they do researching where they should invest their RSP, TFSA, or DC funds. Maybe even read the personal finance page of their local newspaper-print or on line. Toronto Star, Globe and Mail, National Post, etc. The only person who is truly interested in your financial well being is YOU. 

I think people need to take responsibility for themselves. If you think your financial person at the bank has you best interest at heart then you are dreaming in Technicolor.

The Government can't do everything for us. This business of blaming others gets tiresome after a while. People need to take responsibility for their own financial well being-no one else will or should do it for us.


----------



## Eclectic12

blueeyetea said:


> Calling Canadian lazy is quite strong, because how else are they supposed to know?


A good start would be to listen instead of running away with their hands in their ears, muttering "it's too complicated, it's too complicated".

I am always amazed at to what lengths my co-workers will go to stay on top of sports (plus their related statistics) or to learn a new skill but finance or investing? 

That's voodoo magic that is best left to the "experts" and don't bother making any practical suggestions or discussions.




blueeyetea said:


> We're all bombarded by too much, and wrong, information.


Yet the same people deal effectively with the bombardment of vacation rip offs or a mechanic feeding them BS about a repair.




blueeyetea said:


> Is the Government publicizing we can put out money in index funds or EFTs and save money in the long run?


The web site as well as gov't ads I saw for the TFSA were clear, there have been lots of articles about the TFSA plus web site articles. Yet *six* years in, people are still making basic mistakes that demonstrate they are not attempting to learn.

Plus I'm not sure it's the role of gov't to recommend particular investment methods.




blueeyetea said:


> What investment show talks about this? What newspaper?


Just off the top of my head ...

I've seen TV shows that covered this on BNN, Global, CBC, CTV going back to around 2002. 

For newspapers, there's the Financial Post, the Globe and Mail, the Toronto Star, the Kitchener-Waterloo Record and the Windsor Star. This goes back to around 1995 that I first noticed - by reading the paper.

For books there's _Investing for Canadian for Dummies_, _Index Investing for Dummies_ (published in 2008), _Exchange Traded Funds Funds for Dummies_, and _The Little Book of Common Sense Investing_ to name a few. The introduction to investing book (I can't remember the name) that I borrowed from the library in 2001 had a chapter about index funds and ETFs.

Did I mention that I was looking at iShares XIC after reading a series of newspaper articles (I can't remember if it was G&M or Financial Post or both) in 2003? Or that said newspapers had articles about Standard & Poor's Depositary Receipts (SPY) in 1998 or so?

Or that another product highlighted in the newspapers were Toronto Index Participation Shares, which tracked the TSE 35 and later the TSE 100 indices and proved to be popular after trading started in 1990?


Then there's the regular articles in MoneySense magazine and the G&M two minute portfolio that goes back to around 2001. 

With the widespread availability of the internet, sites like http://canadiancouchpotato.com/, CMF, Financial webring etc. provide lots of details.


There's been so much information available that has been available for fourteen plus years that it seems clear that a lot of Canadians range from not interested to lazy.




blueeyetea said:


> The pockets of the financial industry are deep and they have a lot of resources at their disposal to convince Canadians they're the experts. And it's working.


Only because the average Canadian is running away from the many sources of information as they either don't want to learn or have already decided it is beyond them.


Cheers


*PS*

Then there's the general interest courses at the high school, the catholic high school and the local college that mention index funds as well as ETFs as part of their course summary.


----------



## Eclectic12

HaroldCrump said:


> blueeyetea said:
> 
> 
> 
> What investment show talks about this? What newspaper?
> 
> 
> 
> What you are saying was perhaps true about 8 - 10 years ago, but not any more.
Click to expand...

I'm not sure why you would think this ... I was reading multiple articles about index funds and ETFs in the early 2000's in the G&M as well as the Financial Post. That's some pretty significant coverage ... unless one is not interested and is not reading the financial section.

Then too, my mom clipped an article from I believe Maclean's around the same time.


Cheers


----------



## Eclectic12

blueeyetea said:


> Calling Canadian lazy is quite strong, ...


If you need an example of what I've experienced ...

"I'm interested in learning about investing, let's go for coffee ... "
"This is too much info ... what do you suggest?"
"Thanks for loaning me your book, _Investing for Canadian for Dummies_ ... I won't get to it right away but I've skimmed enough to like what I see."

"Have I started? ... the hockey playoffs were on, the lawn needed mowing, it was my son's birthday party, there was a .... "


... five years later and counting ... is there any way to not describe this as laziness?


Cheers


----------



## kcowan

Eclectic12 said:


> ... is there any way to not describe this as laziness? Cheers


It could be called lack of interest, lack of knowledge...

(I could never convince my MIL how to do small plumbing and electrical jobs!)


----------



## Eclectic12

True ... though the trend I've noticed is that in all likelihood, your MIL probably spent far more time trying to find someone competent, who would do the same job at a reasonable price etc. than most Canadians seem to apply to their financial situation/learning.


Cheers


----------



## Eclectic12

fraser said:


> Canadians are lazy and lethargic when it comes to investments. That is one reason why we have had, and continue to have, so many funds with high MERS.


I suspect it is widespread but I am aware that there are other reasons as well.




fraser said:


> It is only confusing to those who are simply too lazy to spend a little time reading or researching on line.


For a significant chunk of the population, I can agree. 

However I do know some who did try and they just couldn't handle it. They however were able to handle figuring out how to select someone instead of depending on the clerk at a bank.




fraser said:


> I bet some people spend more time on researching what car or washing machine to buy, or vacation to take than they do researching where they should invest their RSP, TFSA, or DC funds.


When you put it so broadly - there's no contest .. I know many who do this.


Cheers


----------



## fraser

Surprising comments about contributions/matching contributions in DC plans (quote from an article in this weeks FP)

http://business.financialpost.com/2...ng-advantage-of-defined-contribution-pension/


The comments essentially say that 40-50 percent of employees do not take advantage of DC plans and miss out on matching contributions and in some cases much lower admin fees.


----------



## Eclectic12

kcowan said:


> It could be called lack of interest, lack of knowledge...


I missed pointing out in my response that where one is speaking generally, this is certainly a possibility.

For the specific co-worker who wanted to chat about finances and the asked for a recommended beginner's book, there has to be something else going on. 


Cheers


----------



## fraser

I worked for an employer with a DB plan (closed) and a DC plan. The employer was extremely diligent is sending emails, hard copy reminders, etc. to encourage employees to do three things-ensure they joined the DC plan, ensure they contributed to the plan to at least the company match percentage, to attend regular presentations on how to manage their DC pensions. 

It was to no avail. We saw the same 'take ratio' and interest in this as was reported in the Financial Post. Just over half. And the percentage of people who never logged on, let alone made changes to their DC investment choices even once during the year was apparently in the mid-high 80 percent range. 

So I have to wonder if some employers don't throw up their hands and say why bother. The polls continue to say that Canadians are concerned about retirement. Yet many of those who actually have work provided DC plans clearly show no interest whatsoever, leave employer money on the table, or seldom take any appreciable interest in their DC investments.


----------



## BC Eddie

Could it not just be the case that many employees just do not have any spare cash to contribute to the plan thus lack of interest in joining. I am not saying this is not short-sighted but it may be the reality.


----------



## blueeyetea

fraser said:


> The employer was extremely diligent is sending emails, hard copy reminders, etc. to encourage employees to do three things-ensure they joined the DC plan, ensure they contributed to the plan to at least the company match percentage, to attend regular presentations on how to manage their DC pensions.
> 
> So I have to wonder if some employers don't throw up their hands and say why bother.


If it's such a good idea, why don't companies make the plan mandatory, or automatically enroll the employee in the program and force them to opt-out if they're not? Because it saves the company money if employees don't take them up on their offer. 

This problem of failing to save today for retirement is not new. If you know anything about the history of pension plans, the same thing happened in the 1940s when companies wanting to make room for the next generation of workers started offering voluntary retirement savings programs. It didn't work then either. Only when retirement savings became mandatory (and defined benefit for the most part) did the savings rate go up. 

If only employers would set-it up in such a way that employees wouldn't run into the loss aversion factor of saving today for tomorrow, they'd have more success, as explained in this video:


----------



## HaroldCrump

blueeyetea said:


> If only employers would set-it up in such a way that employees wouldn't run into the loss aversion factor of saving today for tomorrow


So you are suggesting that the govt. should make it mandatory for _private_ companies to provide mandatory, defined benefit pension plans for all their employees?
That is a significant over-reach - it cannot be the job of employers to save for the retirement of their employees on their behalf.

It is one thing to make saving/investing _easier_ by providing easy to use enrollment forms online, pre-authorized deductions, automated asset allocators, etc., but it is quite another thing to compel employers using legislation.

Until we have very little consequences for not saving for retirement, behavior will not change.
Esp. when retirement is socialized through the welfare state.

As long as we continue social welfare payments to rich (high income) retirees, there is no motivation to save and invest decades in advance.
The tax system is heavily rigged in favor of relatively well off retirees.
It works as a disincentive to save for retirement.
GIS and OAS clawbacks are a perverse incentive against retirement saving.


----------



## OnlyMyOpinion

*"As long as we continue social welfare payments to rich (high income) retirees, there is no motivation to save and invest decades in advance. The tax system is heavily rigged in favor of relatively well off retirees. It works as a disincentive to save for retirement. GIS and OAS clawbacks are a perverse incentive against retirement saving."* 

I'm afraid we don't follow this one - Rich retirees have saved for retirement whether by incentive or otherwise. And rich retirees have GIS & OAS clawed back because of their high other income. How does that reflect a system rigged in favour of them, and how does that create a disincentive for them to save (which they have done)? And how are the 'not well off' affected by either of these?


----------



## HaroldCrump

OnlyMyOpinion said:


> And rich retirees have GIS & OAS clawed back because of their high other income.


GIS and OAS, by definition, are not personal retirement savings.
It is a collective social welfare program.

OAS clawbacks are a big part of retirement income planning.
The marginal taxes on retirement income are higher than non-retirement income because of its side-effect of clawing back OAS.



> How does that reflect a system rigged in favour of them, and how does that create a disincentive for them to save


Because there is no need to save the capital required to generate an annual income equivalent to GIS + OAS.



> (which they have done)?


They haven't - that's why they qualify for GIS & OAS, right?

Even at income above $100K, retiree still receives some OAS.
It is only at an income levels higher than $112K that OAS becomes 0.

Leaving side the whole age credit thing as well, which creates more favorable tax treatment for retirees.
And pension income splitting.


----------



## Eclectic12

HaroldCrump said:


> ... It is one thing to make saving/investing _easier_ by providing easy to use enrollment forms online, pre-authorized deductions, automated asset allocators, etc., ...


According to the article, free money wasn't enough of an incentive so I can't see how making it "easier" is going to have an impact. 
Then too, with high consumer debt plus under employment - how many are likely to have cash to contribute?





HaroldCrump said:


> ... Until we have very little consequences for not saving for retirement, behavior will not change.
> Esp. when retirement is socialized through the welfare state.


I suspect you mean "more consequences" instead of "little".

Regardless ... the full consequences used to be in place and people *weren't* saving enough, prior to the welfare state including CPP.
So what do you see as the key that's going to make a 2nd round of full consequences a behaviour changer?




OnlyMyOpinion said:


> .... I'm afraid we don't follow this one - Rich retirees have saved for retirement whether by incentive or otherwise.
> And rich retirees have GIS & OAS clawed back because of their high other income.
> 
> How does that reflect a system rigged in favour of them, and how does that create a disincentive for them to save (which they have done)?
> And how are the 'not well off' affected by either of these?


I was wondering as well ....


Cheers


----------



## Eclectic12

HaroldCrump said:


> They haven't [saved for retirement] - that's why they qualify for GIS & OAS, right?


Wow ... you consider single people managing their retirement income (that's CPP, pension, RRSP, EI, Interest/Investments, Capital gains / taxable dividends plus more) to be under $16,728 a year at age 65+ to be " ... rich (high income) retirees" who have "a disincentive to save for retirement" and a tax system "heavily rigged" in their favour?

That seems pretty messed up to me as I can't see anyone with financial smarts trying to work around such a low income to keep such a low benefit.


Cheers


----------



## HaroldCrump

Eclectic12 said:


> Wow ... you consider single people managing their retirement income


I am clearly NOT referring to such folks.
I made it very clear in the following statement that retirees making over $100K are still receiving OAS.
And yes, that is indeed "rich".

There is a rather broad range of retirees between the $16K and the $112K income levels.

You are putting words in my mouth only to refute it.


----------



## fraser

I do not think that you can force an employee to contribute dime one to a DC plan.

But what I find interesting is so many people say that the general population is screaming for better/more pension plans, either Gov't initiated plans or private employer plans.

Yet I have to wonder if those employees who do not avail themselves of an employer sponsored DC plan are representative of the working population in general...ie not enough interest in one to actual enroll/participate let alone monitor their investments.

I was part of a hybrid DB plan. No employee contributions were required -entirely employer paid. But employees could contribute up to 3 percent to a fund that would enhance the DBplan- spousal, inflation protection..whatever. The company matched 50 cents for every employee dollar. It resembled a DC add on to a DB plan right down to the ee selecting investment choices but it could only be used to purchase DB enhancements.

Surprisingly, less than half of the active DB plan members availed themselves of this 'free' money. Go figure.

So I wonder just how serious people are about saving for retirement. The participation rates that I have seen suggest that they really are not that interested. Until they hit their early/late fifties of course and by then it is almost too late. Is the clamour for pensions coming from these folks? The proposed Ontario Pension will not start paying our fully until something like 2053 if it was established today.


----------



## Eclectic12

HaroldCrump said:


> I am clearly NOT referring to such folks.


My understanding that as a single person, I have to be 65+ and have a retirement income in the previous year of less than $16,738 to qualify for GIS.

So looking at your statements from a couple of posts ....


> GIS and OAS clawbacks are a perverse incentive against retirement saving...
> GIS and OAS, by definition, are not personal retirement savings...
> Because there is no need to save the capital required to generate an annual income equivalent to GIS + OAS...
> They haven't - that's why they qualify for GIS & OAS, right?


How can GIS be in the picture without referring to the low income folks?

What am I misunderstanding about the GIS income level requirements?




HaroldCrump said:


> ... There is a rather broad range of retirees between the $16K and the $112K income levels.
> ... You are putting words in my mouth only to refute it.


If I am ... I apologise ... you did say GIS did you not?

Cheers


----------



## blueeyetea

HaroldCrump said:


> So you are suggesting that the govt. should make it mandatory for _private_ companies to provide mandatory, defined benefit pension plans for all their employees?
> That is a significant over-reach - it cannot be the job of employers to save for the retirement of their employees on their behalf.


Go back and reread my post, because that's not at all what I said. I was addressing the lack of compliance from employees who do not participate in defined contribution pension plans sponsored by their employer. Instead of making it voluntary for employees to join the DC pension plan, it should be mandatory to join, with the option to opt-out if they don't want to participate. It's the extra step that keeps people from acting, for whatever reason. 



HaroldCrump said:


> .but it is quite another thing to compel employers using legislation.


Where did I say that?



HaroldCrump said:


> Until we have very little consequences for not saving for retirement, behavior will not change.


Behavior won't change if there's no mechanism in place that makes it easy to change. The gist of the video in my post discusses behavioural economics when it comes to making decision today in contrast to making a decision later. People react differently in both instances. Asking someone to make a decision today on an action that will happen in the future will take away the immediate pain of loss aversion that people experience when faced with giving up something they are used to.

An experiment they conducted at companies in the US made employees decide what will happen with their raises weeks or months in advance of receiving it. If the employees decide to let the company deposit all or part of their raises in a retirement savings account, they don't see it as a loss because they never get it in their pocket to start with. They make do with their take-home pay, without thinking of shaving off a portion to put into savings. With such a simple change that costs very little to the employer, saving rates went from an average of 3% to 12% per employee over a couple of years. 

If we get back to making retirement savings mandatory when someone starts a new job, with the option to opt-out if they wish at a later date, the same mechanism could be at work. They would be more likely to continue if the employee started thinking of the retirement saving as just another deduction on their paycheque.


----------



## blueeyetea

fraser said:


> I do not think that you can force an employee to contribute dime one to a DC plan.
> .


Actually I think you could, just like it's mandatory to pay for health insurance and other co-pay benefit offered by the employer. My view is the reverse: employers don't want to go that route because it's a costs saving to them when employees don't participate.


----------



## HaroldCrump

Eclectic12 said:


> My understanding that as a single person, I have to be 65+ and have a retirement income in the previous year of less than $16,738 to qualify for GIS.


*Not* including OAS, though.
If you include OAS (which does not count towards GIS clawback), the income limit is more like $23K.
A post-retirement social welfare income cut-off limit of $23K is about 50% of the average wage earner of $52K.
More than fair, IMHO.

Also, OAS clawback does not begin until $70K of annual income - that is "rich retiree" by any standards, given that average wage is like $52K.

My point is that the tax system is rigged in favor of retirees, and middle income wage earners are at a significant disadvantage.
There is an implicit inter-generational wealth transfer bias in our tax code.

This bias is partly responsible for the cavalier attitude towards retirement savings.


----------



## sags

Since GIS is designed for low income retirees, it would be natural to believe that those collecting GIS would not be wealthy retirees.

When the Harper government floated the idea of changing the qualifications for GIS to include assets...........the hue and cry from those collecting GIS forced the government to back down.

Who are all these vocal retirees..........who didn't want their assets included in qualifying for GIS ?

From the articles..........people who owned homes, cottages, and cash in some form or another.

I remember one comment from a retiree who complained he used his investment portfolio to take vacations around the world, and if he lost the GIS benefit he would have to cut back on the vacations.

I wondered..........did some people set themselves up so they had low income..........but lots of money, so they could collect GIS benefits.

What about the difference between two people who had a choice of taking the commuted value from a pension or leaving it in the plan.

One guy takes the commuted value and buys an expensive home, cars, appliances, furniture (basically sets himself up for life)........and stuffs the rest of the cash in his mattress,......... then he collects the GIS.

The other guy receives his pension monthly and earns too much to qualify for GIS.

I wouldn't have thought there were enough people in the wealthy category collecting GIS to matter.........but I was wrong.

There are a lot more people collecting GIS than many realize...........and many of them are wealthy in assets.


----------



## Eclectic12

blueeyetea said:


> ... Instead of making it voluntary for employees to join the DC pension plan, it should be mandatory to join, with the option to opt-out if they don't want to participate.
> 
> It's the extra step that keeps people from acting, for whatever reason.


Most articles I've read have referred to this setup as "auto-enrollment" to keep it clear there is the option to opt out is available.

As for the reasons there seems to be many including lack of interest, being intimidated by financial matters, being focused on the present with no consideration of the future ... and laziness.


Cheers


----------



## kcowan

With the OAS clawback starting at $72k, we can infer that an investment of $1800k earning 4% p.a. would be clawback free. So I think there is ample room for the average to save without incurring a clawback.

Now if someone receives a pension of $32k (CPP plus company/government), then they only have $1000k of room.

Add in a working spouse, and the amounts are double.


----------



## fraser

sThe issue of net wealth vs. income implies that there should be some sort of means test.

Keep in mind that there are people who do have significant fixed assets-in the form of real estate. They may have lived in the same house for 50 years and in that period real estate/land prices have increased. Does the notion of a means test imply that we will force a senior who has lived in the same house for decades to move and disrupt their lives for the sake of a GIS payment? Or would we force them into one of those questionable reverse mortgages?

Some municipalities have taken the step to either 'freeze' property taxes for long term residents or allow them to defer paying those taxes until such time as the home is sold. The goal being to allow people to stay in their homes. 

Allowing senior to remain in their homes has been proven to be, from a medical and long term care perspective, the most effective way of keep health care costs down as well as contributing to longevity. 

I think this scenario is far more common than the one where a senior invests money in assets in order to curtail investment income and thus remain eligible for GIS.


----------



## blueeyetea

Eclectic12 said:


> .As for the reasons there seems to be many including lack of interest, being intimidated by financial matters, being focused on the present with no consideration of the future ... and laziness.


I know you keep saying lack of interest and laziness, but you really should read up on behavioural economics, which studies subjects like this, and tries to find solutions. It's not always about lack of interest and laziness, but what influences the decision or not to act, which aren't always rational. Forget about saving for retirement for a minute and ask why do people put expenses on credit cards when it will cost them more in interests? They intellectually know this, but yet, the thrill of the shopping experience is at the front of their mind. It's because the pain of paying the interest and getting out of debt is in the future, and outweighs the benefit of owing the item today. 

Come back to saving for retirement, and it's the same thing, except in reverse. The person isn't thinking rationally when it comes to parting with his money for 30 years. He's feeling the loss of that money today acutely, and nothing for the delayed gain that's 30 years down the line. 

People do this all the time in many situations.


----------



## Eclectic12

blueeyetea said:


> I know you keep saying lack of interest and laziness, but you really should read up on behavioural economics, which studies subjects like this, and tries to find solutions. It's not always about lack of interest and laziness, but what influences the decision or not to act, which aren't always rational.


Please re-read my post ... I said "many reasons" where "lack of interest" and "laziness" are two of four examples listed, with more implied.

As interesting as behavioral economics may be - IMO, it is irrelevant because AFAICT, the disagreement is on how much influence the two reasons you have focused on have. From my perspective, the existence of other reasons has already been stated.




blueeyetea said:


> ... They intellectually know this, but yet, the thrill of the shopping experience is at the front of their mind. It's because the pain of paying the interest and getting out of debt is in the future, and outweighs the benefit of owing the item today.


IMO, this would be example number three that I listed ... "being focused on the present with no consideration of the future".


However, based on people I've had discussions with - there are people out there who do this who also intellectually know a consolidation loan would cut the interest being racked up dramatically but choose not to take this option.

So some people can fit multiple reasons.

Cheers


----------



## RBull

blueeyetea said:


> I know you keep saying lack of interest and laziness, but you really should read up on behavioural economics, which studies subjects like this, and tries to find solutions. It's not always about lack of interest and laziness, but what influences the decision or not to act, which aren't always rational. Forget about saving for retirement for a minute and ask why do people put expenses on credit cards when it will cost them more in interests? They intellectually know this, but yet, the thrill of the shopping experience is at the front of their mind. It's because the pain of paying the interest and getting out of debt is in the future, and outweighs the benefit of owing the item today.
> 
> Come back to saving for retirement, and it's the same thing, except in reverse. The person isn't thinking rationally when it comes to parting with his money for 30 years. He's feeling the loss of that money today acutely, and nothing for the delayed gain that's 30 years down the line.
> 
> People do this all the time in many situations.


"*Some* people" do this "all the time" in "many situations". These type of people will likely always have struggles even if you were to make it mandatory for them to build a retirement nest egg. They would continue to spend beyond their means knowing they had money to blow at the end of the rainbow. They will also do this because they know our generous seniors government plans are there for those who earned less, spent more and saved less. Too many expect immediate gratification and are lulled into debt complacency with low interest rates and retail layaway promotion. They need more "immediate and future pain" to make them stop their foolish ways and costing taxpayers too much. 

Also it all depends on the mindset of the individual- for me the "pain" of paying for debt today (throwing the money out the window every day like governments do with 1/3 of our money) is much greater than the "thrill" of the item I just purchased that I don't really own (borrowed on credit). For me the "thrill" of being debt free and having a good nest egg, lots of future security (FI) is much greater than the "pain" of living beyond your means. I respect that not everyone wants to endure this type of "pain". 

How does this fit with your behavioural studies?

Translation for much of what you're saying = lack of interest, being intimidated by financial matters, laziness *and focused on now vs future*- as per eclectic12

You can't mandate financial common sense.


----------



## Eclectic12

HaroldCrump said:


> *Not* including OAS, though.
> If you include OAS (which does not count towards GIS clawback), the income limit is more like $23K.
> A post-retirement social welfare income cut-off limit of $23K is about 50% of the average wage earner of $52K.


I have to do some checking that I don't have time for at the moment.

This sounds great on paper ... but I can't help wondering how much CPP and company pensions are going to tilt the mix here.




HaroldCrump said:


> My point is that the tax system is rigged in favor of retirees, and middle income wage earners are at a significant disadvantage.
> There is an implicit inter-generational wealth transfer bias in our tax code.
> 
> This bias is partly responsible for the cavalier attitude towards retirement savings.


 ... and quantifying the "partly" with more than a gut feel is what I am interested in.

From the lack of interest in retirement pensions, savings or even just "what are my likely sources of retirement income" that I've seen over the last thirty years, I am having difficulty matching that up with the idea that the average person is aware of, let alone changing their retirement savings behaviour based on the tax system.

If the factors you've mentioned have widely resulted in a lack of savings - I'd expect those in the know on CMF would be saying "don't save" instead of "do what you can to delay clawbacks but if there are clawbacks, it's a good problem to have".



Cheers


----------



## Eclectic12

sags said:


> Since GIS is designed for low income retirees, it would be natural to believe that those collecting GIS would not be wealthy retirees.
> 
> ... Who are all these vocal retirees..........who didn't want their assets included in qualifying for GIS ?
> 
> From the articles... I remember one comment from a retiree who complained he used his investment portfolio to take vacations around the world, and if he lost the GIS benefit he would have to cut back on the vacations...


So should I believe that there's no partisan politics on capital hill because I've read some articles about MPs who were respected across all party lines and praised as being non-partisan?




sags said:


> I wouldn't have thought there were enough people in the wealthy category collecting GIS to matter.........but I was wrong.
> There are a lot more people collecting GIS than many realize...........and many of them are wealthy in assets.


What beyond some anecdotes in articles is telling you this?

Are you saying that something a bit over 1.6 million people collecting GIS in 2012 out of a population over 35 million is a lot (i.e. around 5%)?


Personally, I'd like a better understanding of the numbers before I decide either way. 
The people I know are collecting GIS don't fit this profile ... but that also is an anecdote.


Cheers


----------



## RBull

Eclectic12 said:


> So should I believe that there's no partisan politics on capital hill because I've read some articles about MPs who were respected across all party lines and praised as being non-partisan?
> 
> 
> 
> 
> What beyond some anecdotes in articles is telling you this?
> 
> *Are you saying that something a bit over 1.6 million people collecting GIS in 2012 out of a population over 35 million is a lot (i.e. around 5%)?
> *
> 
> Personally, I'd like a better understanding of the numbers before I decide either way.
> The people I know are collecting GIS don't fit this profile ... but that also is an anecdote.
> 
> 
> Cheers


What is the percentage of retirees collecting GIS? Seem like it might be a good question.


----------



## Eclectic12

RBull said:


> ... They would continue to spend beyond their means knowing they had money to blow at the end of the rainbow.
> They will also do this because they know our generous seniors government plans are there for those who earned less, spent more and saved less ...


With the general lack of knowledge of what the gov't plans will pay, what company pensions will pay and financial skills in general, I have difficulty believing that most people are spending with the thought "it's okay, the gov't will bail me out".


RBull said:


> ... Too many expect immediate gratification and are lulled into debt complacency with low interest rates and retail layaway promotion.


This on the other hand ... applies to consumer debt, retirement savings and investing across the board.




RBull said:


> ... They need more "immediate and future pain" to make them stop their foolish ways and costing taxpayers too much.


I can see the immediate pain but the issue with future pain is that it will come into play far to late to make a different. 
As I pointed out up thread - Canada used to have little or nothing for seniors where the history seems to say that most struggled in retirement.
So unless there's something that's changed the situation - repeating the same situation is far more likely to repeat the same challenges versus motivate people.

That's where while I recognise that financial education isn't a cure-all, I suspect it would be far more effective.




RBull said:


> ... Also it all depends on the mindset of the individual ...
> You can't mandate financial common sense.


Agreed ... but at the same time, according to one co-worker - the difference between his motivation to save/invest was his belief that he wasn't making enough to be effective. Once he had a job that in his mind "paid enough", he started saving/investing where the results quickly demonstrated that he had been foolish.




RBull said:


> What is the percentage of retirees collecting GIS?
> ... Seem like it might be a good question.


I need to do more searching ... but for a rough estimate, this article says that in 2011 those 65 and over represented 14.5% of the population.
With a population of over 35 million in 2012, this would mean something over 5 million total, which would put the those receiving GIS at about 31%.

http://www.torontosun.com/2012/05/29/record-number-of-seniors-in-canada-census


As I understand it, this would include those collecting full GIS as well as those collecting partial GIS.


Cheers


----------



## MoneyGal

5 million people over the age of 65 in Canada (and over-65 is the largest and fastest-growing population cohort in Canada): http://www12.statcan.ca/census-recensement/2011/as-sa/98-311-x/98-311-x2011001-eng.cfm

1.6 M of 5 M = 31%


----------



## MoneyGal

(or I could have just read to the end of Eclectic's post):apathy:


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## Eclectic12

MoneyGal said:


> (or I could have just read to the end of Eclectic's post):apathy:


I am shocked and hurt you didn't read such pearls of wisdom as I was able to find ... :biggrin:

Now worries ... I have done similar.




MoneyGal said:


> 5 million people over the age of 65 in Canada (and over-65 is the largest and fastest-growing population cohort in Canada) ...


Which raises the question of whether with so many boomers retiring, of the new retirees - how many will still qualify for GIS versus how many with have significant CPP/Pension/Investment Income so that they end up being ineligible for GIS.


Cheers


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## MoneyGal

The percentage of Canadians aged 65+ with investment income has increased each year from 2008-2012 (latest year for which data is available) and the total dollars of investment income received by that group (defined as tax filers reporting income on lines 120 and/or 121) has also increased each year. See http://www5.statcan.gc.ca/cansim/a05

(You can add/remove lines from that table to generate your own detailed tables, which is what I did)


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## sags

The Benefits Canada website had an article with some percentages regarding GIS.

_"Pensions also help reduce the number of Canadians who have to rely on government assistance programs such as GIS. *According to Boston Consulting Group, 10% to 15% of retirees with a DB plan collect GIS, while 45% to 50% of non-DB retirees collect GIS*.

With millions lacking adequate pension coverage, Keohane said the costs will fall on government and ultimately cost taxpayers. He added that they’ll also have to make decisions that they’re not equipped to make._

http://www.benefitscanada.com/pensions/db/the-benefits-of-pension-plans-50650


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## sags

In this complicated world, a person not only has to have basic financial literacy, but also an understanding of complex government rules for benefits and complicated tax rules that few savvy investors would fully understand.

All these efforts to avoid DB pension plans as a standard for retirement, are making retirement way more complicated than it needs to be, especially when it confronts older people who are developing less capacity for understanding complex matters as they age.


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## fraser

One issue is that some people do not want DB plans, they prefer DC plans. And have made this known to their employers. It is a portability issue.

The reason is very straightforward. Many employees no longer stay with the same employer for years. They want portability. Most especially knowledge workers.

Leaving a DB plan in your younger years, or for that matter after 3 or 4 years of service, can be much less financially advantageous than leaving with your DC plan. In the industry where I worked it was not unusual for people in some areas to change employers every 2-4 years. These employees did not view a DB plan as a great benefit.

It very much depends on your perspective and to some degree on your vocation. For many workers today, perhaps even the majority, the probability of only working for one or two employers over their working life is extremely low.


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## MoneyGal

DB pension plans are not the only source of longevity-guaranteed income. If people are worried about outliving their money, and/or outliving their capacity to make complex financial decisions, there are other choices.


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## Eclectic12

sags said:


> In this complicated world, a person not only has to have basic financial literacy, but also an understanding of complex government rules for benefits and complicated tax rules that few savvy investors would fully understand...


Yes ... and with how people's eyes glaze over on these or similar topics, it makes me question how valid the idea that people are basing their decision to save or not save for retirement on what the current gov't pension benefits are.

A lot of people seem to be dealing with other priorities and then considering retirement when they are ten or fifteen years away.


Cheers


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## RBull

Eclectic12 said:


> With the general lack of knowledge of what the gov't plans will pay, what company pensions will pay and financial skills in general, I have difficulty believing that most people are spending with the thought "it's okay, the gov't will bail me out".



For me this is precisely the reason why these people will think government will bail them out and don't worry about spending now. They don't have a clue what they have, what they will need and just figure most others are making out okay so they will too, and will think about it closer to retirement....or not. 



> This on the other hand ... applies to consumer debt, retirement savings and investing across the board.


Yes, agreed, overall financial complacency. 



> I can see the immediate pain but the issue with future pain is that it will come into play far to late to make a different.
> As I pointed out up thread - Canada used to have little or nothing for seniors where the history seems to say that most struggled in retirement.
> So unless there's something that's changed the situation - repeating the same situation is far more likely to repeat the same challenges versus motivate people.
> 
> That's where while I recognise that financial education isn't a cure-all, I suspect it would be far more effective.


I would be very happy to see more immediate pain along with financial education. For the long term pain what is on my mind is a change in government handouts- less for those who do not nothing along the way to help themselves- yet may end up as well off as others who sacrificed more along the way. 
I wish I could be more optimistic on the education part. Seems a lot like the poor health of many Canadians- 70% overweight or obese. Lots of education around about proper diet, exercise etc. but is it getting better or worse? Easy answer. 



> Agreed ... but at the same time, according to one co-worker - the difference between his motivation to save/invest was his belief that he wasn't making enough to be effective. Once he had a job that in his mind "paid enough", he started saving/investing where the results quickly demonstrated that he had been foolish.


 No doubt that's the mindset of many people. I suspect many folks that address their financial weaknesses late have some feeling of foolishness after they get going and on track. That's not a bad thing if a lesson is learned. Not everything I did financially was perfect. LOL



> I need to do more searching ... but for a rough estimate, this article says that in 2011 those 65 and over represented 14.5% of the population.
> With a population of over 35 million in 2012, this would mean something over 5 million total, which would put the those receiving GIS at about 31%.
> 
> http://www.torontosun.com/2012/05/29/record-number-of-seniors-in-canada-census
> 
> 
> As I understand it, this would include those collecting full GIS as well as those collecting partial GIS.


That's a lot of seniors now, with even more baby boomers retiring.


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## livewell

MoneyGal said:


> DB pension plans are not the only source of longevity-guaranteed income. If people are worried about outliving their money, and/or outliving their capacity to make complex financial decisions, there are other choices.


 I assume you are thinking of annuities (If not then I apologize in advance). From my perspective the annuities industry in Canada is woefully underserving the Canadian public. For instance, show me where I can look up competitive quotes on a CPI indexed annuity? Do they even exist in Canada?, compare this to the UK where such tables are readily available and the ability to shop for competitive annuities exists. Couple the uncompetitive nature with the low interest scenario we have today and annuities are not at all an attractive option (relative to a DB pension). IMHO the annuities industry is an area where I would like to see government involvement to enable better offerings.


----------



## sags

fraser said:


> One issue is that some people do not want DB plans, they prefer DC plans. And have made this known to their employers. It is a portability issue.
> 
> The reason is very straightforward. Many employees no longer stay with the same employer for years. They want portability. Most especially knowledge workers.
> 
> Leaving a DB plan in your younger years, or for that matter after 3 or 4 years of service, can be much less financially advantageous than leaving with your DC plan. In the industry where I worked it was not unusual for people in some areas to change employers every 2-4 years. These employees did not view a DB plan as a great benefit.
> 
> It very much depends on your perspective and to some degree on your vocation. For many workers today, perhaps even the majority, the probability of only working for one or two employers over their working life is extremely low.


DC plans aren't portable either though. If the next employer offers a plan, it will quite likely be different than past employer plans. So a person would end up with several different small plans to manage.

I understand your point though, although the fact still remains that shepherding all the different DC plans into a retirement package, with due consideration to taxation and government benefits.........still requires more knowledge than most people are going to have.

As pointed out......annuities are an option, as is hiring a financial planner to sort it all out......but both of those have inherent costs attached to them.


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## Eclectic12

RBull said:


> For me this is precisely the reason why these people will think government will bail them out and don't worry about spending now. They don't have a clue what they have, what they will need and just figure most others are making out okay so they will too, and will think about it closer to retirement....or not.


So when my co-worker said "it's too complicated for me - if I end up with too little money in retirement, I'll go be a bag lady on Yonge Street" - where is the expectation the gov't would bail her out? 




RBull said:


> ... Yes, agreed, overall financial complacency.


I would call it incompetency ... but that's semantics.




RBull said:


> ... I would be very happy to see more immediate pain along with financial education.


I noted earlier in the thread that Canada used to be in a maximum pain situation before things like CPP, OAS etc. were implemented. All accounts I've read say that the majority of people weren't saving for retirement then either.

So what in your mind has changed so that a re-introduction of the pain is going to make a difference?




RBull said:


> ... I wish I could be more optimistic on the education part.
> Seems a lot like the poor health of many Canadians- 70% overweight or obese. Lots of education around about proper diet, exercise etc. but is it getting better or worse? Easy answer.


I am pessimistic that it's going to be widely effective, out of the box but I am nowhere near as much as you sound.

As for diet/exercise ... has the school curriculum changed?

I recall little being taught to me about these subjects compared to what my family taught me or I learned on my own. In fact, I recall more eduction about financial skills than this.

Then I look at families where the parents are a bad role model in this respect or the parents let the kids do as they please, including weekends in the basement playing video games and I'm not really surprised there is an issue.

Part of the challenge for both issues is to go beyond expecting a presentation of the basic info somehow be a cure all.




RBull said:


> ... I suspect many folks that address their financial weaknesses late have some feeling of foolishness after they get going and on track. That's not a bad thing if a lesson is learned.


My co-worker was probably around 32 so he likely had decades ahead of him. Where people are finding out in retirement - IMO, that's way too late to help either them or the tax payer.




RBull said:


> ... That's a lot of seniors now, with even more baby boomers retiring.


The baby boomers retiring in the near future are far more likely to have a decent pension so it would not surprise me if the percentage drops. 

Far more concerning to me is to read that no only is the historical problem of people not saving for retirement still there - the current stats are that four of five private sector workers *have no access to a pension*. The minute the discussion is about a DB or DC pension then it is really about one person.

Cheers


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## fraser

I do not think that it is very difficult to gain a basic understand of these issues. All it takes is a visit to the library or to the book store. There are many, many, good books out there that provide easy to read explanations/strategies. Some financial institutions also offer soft and hard copy explanations. 

It is simply a matter of moving forward and doing something about one's lack of knowledge. It is a question of sitting around and waiting for life happen to you versus going out and making the best of your life. I have a few relatives who will not have much in retirement, or life for that matter, because they sat around on their duffs and were not in the least bit proactive about anything in their lives. Then, all of a sudden, it is too late. The sand has already dropped.


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## MoneyGal

livewell said:


> I assume you are thinking of annuities (If not then I apologize in advance). From my perspective the annuities industry in Canada is woefully underserving the Canadian public. For instance, show me where I can look up competitive quotes on a CPI indexed annuity? Do they even exist in Canada?, compare this to the UK where such tables are readily available and the ability to shop for competitive annuities exists. Couple the uncompetitive nature with the low interest scenario we have today and annuities are not at all an attractive option (relative to a DB pension). IMHO the annuities industry is an area where I would like to see government involvement to enable better offerings.


Content you may find interesting: http://annuityoutlookmagazine.com/2014/05/creating-an-annuity-benchmark-for-the-retirement-industry/


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## RBull

Eclectic12;257049[QUOTE said:


> So when my co-worker said "it's too complicated for me - if I end up with too little money in retirement, I'll go be a bag lady on Yonge Street" - where is the expectation the gov't would bail her out?


I think it's implicit with the tongue in cheek answer. 





> I would call it incompetency ... but that's semantics.


 Yes, it is. 






> I noted earlier in the thread that Canada used to be in a maximum pain situation before things like CPP, OAS etc. were implemented. All accounts I've read say that the majority of people weren't saving for retirement then either.
> 
> So what in your mind has changed so that a re-introduction of the pain is going to make a difference?


 I didn't say my mind had changed on that. Reintroduction of pain might level the playing field, as I explained in the part of the post you didn't quote. 





> I am pessimistic that it's going to be widely effective, out of the box but I am nowhere near as much as you sound.


I'm not really following the first part of this statement, but good that you're more optimistic on this than I am. I hope you are right. 



> As for diet/exercise ... has the school curriculum changed? I recall little being taught to me about these subjects compared to what my family taught me or I learned on my own. In fact, I recall more eduction about financial skills than this.
> 
> Then I look at families where the parents are a bad role model in this respect or the parents let the kids do as they please, including weekends in the basement playing video games and I'm not really surprised there is an issue.
> 
> Part of the challenge for both issues is to go beyond expecting a presentation of the basic info somehow be a cure all.


I'm not a student or a teacher so can't help you on the first question. 

Yes, poor parenting is a reason for both bad financial and health habits for children that start them off with a handicap. That's not a valid reason for the child as an adult to carry on the same but sure doesn't help. Both of these need little education to carry out the basics and then move on from there. Eat a little less and walk around the block. Don't get into a lot of debt and save a little of your paycheck. 





> My co-worker was probably around 32 so he likely had decades ahead of him. Where people are finding out in retirement - IMO, that's way too late to help either them or the tax payer.


 100% agree. Your coworker was fortunate to make the discovery now. Good for him.




> The baby boomers retiring in the near future are far more likely to have a decent pension so it would not surprise me if the percentage drops.
> 
> Far more concerning to me is to read that no only is the historical problem of people not saving for retirement still there - the current stats are that four of five private sector workers *have no access to a pension*. The minute the discussion is about a DB or DC pension then it is really about one person.
> 
> Cheers


I don't have any information on whether soon to be retired boomers will be any better off then those now retired and on GIS so I can't say. I am a recently retired boomer and we are good shape that way however. I agree wholeheartedly about the huge number folks with no access to a pension. I think I read something like 60% of Canadians. This is very alarming and really has to increase likelihood of needing lots of government support and/or catfood.


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## Eclectic12

RBull said:


> ... I think it's implicit with the tongue in cheek answer.


From working with this person for three years ... I don't believe there was anything tongue in cheek.



Yes, it is. 





RBull said:


> ... I didn't say my mind had changed on that.


While changes in thinking is interesting - it was not my question.

My question was why repeating a past situation where people didn't save was retirement is expected to change people's behaviour when it is re-introduced.





RBull said:


> ... Reintroduction of pain might level the playing field, as I explained in the part of the post you didn't quote.


The post I was replying to said


> They need more "immediate and future pain" to make them stop their foolish ways and costing taxpayers too much.


"Making them stop" is far more than "might".

My point is that the idea is the same actions are going to have a different result, does not seem realistic. In order for the same actions to work, there has to be something different ... otherwise, it seems doomed failure, to me.




RBull said:


> Eclectic12 said:
> 
> 
> 
> I am pessimistic that it's going to be widely effective, out of the box but I am nowhere near as much as you sound.
> 
> 
> 
> I'm not really following the first part of this statement, but good that you're more optimistic on this than I am. I hope you are right.
Click to expand...

The first part is that education won't be 100% effective at changing everyone's behaviour.

You seem to be looking at the obesity problem getting worse as well as the education available and concluding the eduction has little effect (maybe 30% effective?). With that sort of effective rate - perhaps it's time to save the tax payer millions by shutting down the educational system.




RBull said:


> ... I'm not a student or a teacher so can't help you on the first question.


I'll ask around ... but part of my point is that I suspect this is an area like financial skills that is neglected.




RBull said:


> ... Yes, poor parenting is a reason for both bad financial and health habits for children that start them off with a handicap. That's not a valid reason for the child as an adult to carry on the same but sure doesn't help.
> 
> Both of these need little education to carry out the basics and then move on from there...


I'm sure a few will but expect it won't be many.

Look at what you are expecting of the young adult. They have had years of doing the status quo of eating badly, no exercising and likely playing video games. Now they have to start valuing something they were never taught to value, find the information they need and apply it despite all of the distractions and challenge of breaking their habits.

Now add in that many *with the education* struggle with the actions required (ex. go for walks, go to gym).


Isn't it a bit simplistic to expect "they are an adult now - it should take care of itself" or that education isn't effective?




RBull said:


> ... 100% agree. Your coworker was fortunate to make the discovery now. Good for him.


The question is how to address those who won't make the discovery at all or too late ... otherwise, the tax payer is still going to be holding the bag.




RBull said:


> ... I don't have any information on whether soon to be retired boomers will be any better off then those now retired and on GIS so I can't say.


I wasn't thinking of "retired now" versus "soon to retire" but this group versus the current young folks, especially if OAS is slashed with the idea of encouraging more to save for retirement.

The "soon to retire" were working when there were more pensions (both DB and DC) available that were forcing a certain level of retirement savings. I expect this group to likely cost the tax payer roughly the same as the current retirees.

The second group, particularly in the private sector, won't have much in terms of company pension and the gov't pension would be at whatever lower level. For them - the discipline to save for retirement would be critical, where underemployment or a lack of action may mean that the percentages on GIS go through the roof.

This is why, IMO it's silly to talk about "let's get rid of the cushy pension and people will start saving for their retirement" as this will save the tax payer money. Without something proactive in addition - this seems to be a recipe for big problems.





RBull said:


> ... I agree wholeheartedly about the huge number folks with no access to a pension. I think I read something like 60% of Canadians. This is very alarming and really has to increase likelihood of needing lots of government support and/or catfood.


 ... which is why I think that more than just adjusting OAS etc. is needed to truly reduce the load on the tax payer.


Cheers


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## MoneyGal

There is an assertion here that the decline in DB pensions correlates with a decline in wealth/realized income in retirement. I realize, looking at the stats on the takeup of RSP room (if people do not have registered pensions, where are they saving for retirement other than in RSPs?) that this assumption may be valid- however, it is probably worth pointing out that the absence of a DB pension does not necessarily imply lower wealth/income in retirement. 

From the Vanier Institute of the Family's most recent report on Family Finances (fall 2013): 

*Stock market investments were the greatest creator of household wealth since 1990*

Several long-term trends have been taking place from 1990 to 4Q2012. Total assets per household increased by 96.8% to $578,537, debt grew by a larger 116.9% to $113,470 and as such net worth advanced by 92.5% to $465,067. The debt-to-disposable income ratio rose to 164.8%, up from
88.9% in 1990 (see Appendix C).

On the surface, it may seem counterintuitive that net worth (assets minus debts) increased given that debt grew substantially more than assets. The reason is that the average household has more assets ($578,537) than it has debt ($113,470). Even if the debt increases faster in percentage terms, it increases more slowly in dollar terms than the asset base does. What is intuitive is that the fact the fast percentage growth in debt causes the net worth to increase more slowly (92.5%) than the growth in assets (96.8%).
*
The largest increase in assets was among equity/investment fund shares (+641.2%). These volatile assets now comprise 24% of net worth, compared with only 6.2% in 1990. *This was followed by increases in the real value of real estate (+108.9%). Real estate is now responsible for over half of all net worth.

Advances in the value of life insurance and pensions also grew rapidly (+99.1%). The biggest decline was for investments in debt securities (-53%), due to low interest rates.

http://www.vanierinstitute.ca/modules/news/newsitem.php?ItemId=543


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## Eclectic12

MoneyGal said:


> There is an assertion here that the decline in DB pensions correlates with a decline in wealth/realized income in retirement.


I was thinking that the "not enough is being saved for retirement" evaluation included taxable as well as registered accounts ... but maybe not.

Regardless - the lack of a DB pension resulting in less income seems reasonable as someone posted upthread that those with a DB pension collect GIS in significantly smaller percentages.

It does bear looking into more closely.




MoneyGal said:


> ... I realize, looking at the stats on the takeup of RSP room (if people do not have registered pensions, where are they saving for retirement other than in RSPs?) that this assumption may be valid- however, it is probably worth pointing out that the absence of a DB pension does not necessarily imply lower wealth/income in retirement.


There is also the TFSA but it is underused, in addition to having other uses than strictly retirement.

The latest survey indicated that half of Canadians have opened a TFSA, where the reported average contribution was planned to be something like $3600 of the yearly $5500. As well, only half of those with TFSAs indicated they were using it for retirement savings.




MoneyGal said:


> *Stock market investments were the greatest creator of household wealth since 1990*
> 
> Several long-term trends have been taking place from 1990 to 4Q2012. Total assets per household increased by 96.8% to $578,537, debt grew by a larger 116.9% to $113,470 and as such net worth advanced by 92.5% to $465,067. The debt-to-disposable income ratio rose to 164.8%, up from 88.9% in 1990 (see Appendix C).


Thanks for the link ... I will look at it more closely.


A quick glance through resulted in a couple of things that jumped out at me.

The first being that while compared to the recent past, the household annual savings is higher at $3775, it is well down from the 1990-1993 period when it was $6750.

The second is that based on the respondents estimates of expected length of retirement as well as annual income needed, $920K would be needed where on average, $385K was saved, with 59% at $250K and 38% at less than $100K. This is not including home or other property so it bears looking at more closely.

The third is that were the average family to decide to retire their debt, it would wipe out their investments but would leave pensions etc. intact.

The fourth is that percentage making RRSP contributions has dropped from 29.1% to 24%. At the same time, the median contribution has dropped about $600 to $2820.


Interestingly ... those reporting "no wealth" is 29% which is pretty much in line with the % receiving GIS from the earlier post.


Cheers


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## MoneyGal

I have a TFSA but do not use it for retirement savings, it is for emergency savings in our household. 

FWIW full CPP has a present value of about $250K at age 65. (I can dig up the published reference to that stat.) Full OAS adds another $250K. Low-income Canadians - presumably those reporting "no wealth" - do not have to save much, if anything, to replace their income in retirement.


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## Eclectic12

Re: Low-income Canadians do not have to save.

Yes ... and they appear to be saving something as opposed to the idea presented up thread that they are aware of this and have are not saving in order to take advantage of the gov't programs at the tax payers expense.


Cheers


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## MoneyGal

The question I am always left with in these kinds of threads is, who is it I am supposed to be worrying about? Low-income Canadians have *no* need to save for retirement, as with high-income Canadians (whether either cohort does or does not need to save is a separate question of whether they should be provided for by the state, an expanded CPP, etc.) 

Looking at the numbers I posted upthread (and I spent a lot of time manipulating the data in the StatsCan survey on household finances, all of which is available at no cost on the StatsCan site), I see dramatic increases in household net worth and in debt, which includes mortgages - but the value of RE is up over 100% over the period surveyed. 

More and more, I'm thinking like Malcolm Hamilton: http://www.advisor.ca/news/industry-news/retirement-crisis-overblown-hamilton-16277


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## fraser

Your comments mirror what I have read in several books about retirement in Canada. Including the last one that I read....The Real Retirement. The arguments, and fact presented have changed my perspective on a number of retirement issues.

For us, it was more about preparing financially for the life that we wanted to enjoy after retirement.


----------



## RBull

Eclectic12 said:


> From working with this person for three years ... I don't believe there was anything tongue in cheek.
> 
> 
> 
> Yes, it is.
> 
> 
> 
> 
> 
> While changes in thinking is interesting - it was not my question.
> 
> My question was why repeating a past situation where people didn't save was retirement is expected to change people's behaviour when it is re-introduced.
> 
> 
> 
> 
> 
> The post I was replying to said
> 
> "Making them stop" is far more than "might".
> 
> My point is that the idea is the same actions are going to have a different result, does not seem realistic. In order for the same actions to work, there has to be something different ... otherwise, it seems doomed failure, to me.
> 
> 
> 
> 
> The first part is that education won't be 100% effective at changing everyone's behaviour.
> 
> You seem to be looking at the obesity problem getting worse as well as the education available and concluding the eduction has little effect (maybe 30% effective?). With that sort of effective rate - perhaps it's time to save the tax payer millions by shutting down the educational system.
> 
> 
> 
> 
> I'll ask around ... but part of my point is that I suspect this is an area like financial skills that is neglected.
> 
> 
> 
> 
> I'm sure a few will but expect it won't be many.
> 
> Look at what you are expecting of the young adult. They have had years of doing the status quo of eating badly, no exercising and likely playing video games. Now they have to start valuing something they were never taught to value, find the information they need and apply it despite all of the distractions and challenge of breaking their habits.
> 
> Now add in that many *with the education* struggle with the actions required (ex. go for walks, go to gym).
> 
> 
> Isn't it a bit simplistic to expect "they are an adult now - it should take care of itself" or that education isn't effective?
> 
> 
> 
> 
> The question is how to address those who won't make the discovery at all or too late ... otherwise, the tax payer is still going to be holding the bag.
> 
> 
> 
> 
> I wasn't thinking of "retired now" versus "soon to retire" but this group versus the current young folks, especially if OAS is slashed with the idea of encouraging more to save for retirement.
> 
> The "soon to retire" were working when there were more pensions (both DB and DC) available that were forcing a certain level of retirement savings. I expect this group to likely cost the tax payer roughly the same as the current retirees.
> 
> The second group, particularly in the private sector, won't have much in terms of company pension and the gov't pension would be at whatever lower level. For them - the discipline to save for retirement would be critical, where underemployment or a lack of action may mean that the percentages on GIS go through the roof.
> 
> This is why, IMO it's silly to talk about "let's get rid of the cushy pension and people will start saving for their retirement" as this will save the tax payer money. Without something proactive in addition - this seems to be a recipe for big problems.
> 
> 
> 
> 
> 
> ... which is why I think that more than just adjusting OAS etc. is needed to truly reduce the load on the tax payer.
> 
> 
> Cheers


I appreciate all the time you spent replying to everything. At this point I think it's more efficient to say I agree with some of what you're saying and don't agree with some other things, and leave it at that.


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## Eclectic12

^^^

If it's efficiency you are after ... perhaps skipping to quote everything in a big block would help ... :biggrin:


What raises questions in my mind in these types of threads is when a complex situation is reduced to a blanket statement (ex. sharing the pain = people starting to save for retirement), especially where there are indications that there is likely more going on that one thing.


Cheers


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## fraser

I recently read a thread, incorrect, that CPP was not stable and would not be there.

My brother in law, during the late 70's/early 80's read that CPP was not stable and would not be 'there' for him. It was the impetus that he needed to start maximizing his RRSP savings. He did this for his working life. It became a habit. He has been retired for a few years. He has no pension but his RRSP savings afford him a very comfortable retirement. He was not wealthy. He had to make choices but RRSP-even if he had to take a short term loan to fund it-was a choice that he always made. 

And for many, saving for retirement is a choice. It is like the pay me now or pay me later commercial.


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## kcowan

Good for BIL! Many people consider CPP contributions to be very effective in addition to RRSPs. RRSP withdrawals can contribute to OAS clawback which is 15%. That is in addition to regular income tax rates.


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