# pension reform - what you think?



## riamo

http://www.theglobeandmail.com/news...rivate-sector-retirement-plan/article1840389/

what you think?


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## the-royal-mail

Why don't you get us started by telling us what YOU think?


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## riamo

as someone who is self-employed sounds like a good idea..but need more details....


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## sags

It looks like a cop out to the insurance companies to me.

I think involving the private sector is a bad idea.........period.

There are conflicting concerns here.

The employee has the concern, that their contributions, and the subsequent investment returns, are going to be sufficient to fund their retirement.

The private company (insurance company, bank) has the concern that they are making sufficient profit on the enterprise to make it worth their while.

And the government, has the concern that this strategy works out, so that they are not forced to increase social payments to fund shortfalls of retirement income in the future.

Modest improvements in the CPP are not enough. The CPP should be greatly expanded or twinned, and the CPPIB should administer the plan. 

The private sector shouldn't be involved at all.

Would anyone want an insurance company looking after their future retirement needs? What would they invest in? Their own products?

The CPP is a huge fund, with huge investment opportunities. The size of future private retirement funds would be tiny in comparison and would not have the same investment opportunities.

The article says there will be regulation. We already have pension regulation, which has done nothing to protect people from underfunded pensions.

Scrap the idea, expand the CPP into a full blown pension. Make if self sustaining by increasing contributions from employees and employers.

Perhaps as more detail emerges, some of the concerns will be addressed, but I doubt it.

Judging by the comments on the article, this is a no fly zone for Flaherty. 

Canadians don't trust the private sector anymore.


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## sags

Flaherty's comments that the Provinces won't agree is a load of bunk.

He should develop a new plan, with the able assistance of the CPPIB, and present it to all Canadians. If a Province wants to opt out, let them face an angry electorate at their own peril.

The only reason that some Provinces aren't interested, is because the OAS and GIS, are Federal responsibilities, and increases in the cost of such programs aren't their concern.

Make it their concern, and we will see how fast they change their mind.


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## GeniusBoy27

I'd like to see the proposal first, but I'm a firm believer in the "forced savings" concept of CPP, to lead to less burden on me, in the future. But the devil is always in the details.


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## the-royal-mail

lol. sags you wrote a novel and the op only wrote two sentences and even managed to miss capitalization.


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## atrp2biz

GeniusBoy27 said:


> I'd like to see the proposal first, but I'm a firm believer in the "forced savings" concept of CPP, to lead to less burden on me, in the future. But the devil is always in the details.


***THREAD HIJACK ALERT***

The above post got me thinking. For those that don't like "forced savings" in the form of overpaying taxes and getting a refund w/o accrued interest, don't forget to fill out your T1213 for the 2011 tax year!

***END HIJACK ALERT***


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## andrewf

I'm not overly impressed with this. It's a useful and necessary measure, but it won't really fix anything. I'm more in favour of a opt-out supplementary pension plan administered by one or more large public managers. It would be essentially defined contribution, but could be run with appropriate risk management, annuitization approaching retirement, and low fees.

I'd also accept a small bump in CPP contributions, but not to immediately increase benefits to retirees (aka, theft).


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## sags

the-royal-mail said:


> lol. sags you wrote a novel and the op only wrote two sentences and even managed to miss capitalization.


Haha.....little long winded aren't I......maybe Flaherty reads this.......lol.


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## sags

Here is another story on it, with a few more details.

http://www.financialpost.com/news/Flaherty+urges+provinces+back+pension+plan/3987914/story.html

Voluntary for employers to set up. They aren't required to contribute. Workers can opt out. Insurance companies and banks to administer.

Sounds like opening a savings account with an insurance company.

I am not surprised that business thinks it is a wonderful plan.


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## MoneyGal

andrewf said:


> I'm more in favour of a opt-out supplementary pension plan administered by one or more large public managers. It would be essentially defined contribution, but could be run with appropriate risk management, annuitization approaching retirement, and low fees.


This. I am *strongly* averse to an additional mandatory public program.


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## Four Pillars

I can't see adding a secondary pension system - it will just complicate things. If you are going to "add on", then just increase the existing CPP system - increase premiums and payouts.

The problem with this whole "pension crisis" is that there are too many moving parts and different viewpoints.

For example, some "surveys" I've seen, asked people some version of "how much do you need for retirement and how much will you actually have (or have now)" - and somehow the difference is interpreted into a "pension crisis".

Yes, I would like to have $100k annual retirement income (in today's dollars) - no, that won't happen. Does that mean I have a problem?

Another issue is low-income retirees. I think it's safe to say that a lot of them don't get much CPP to start with, so increasing the CPP payout probably won't help them much. GIS is a whole different issue altogether.


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## andrewf

MoneyGal said:


> This. I am *strongly* averse to an additional mandatory public program.


That's why it's an opt-out program. The distinction arises from behavioural economics. Status quo bias keeps people from saving. So if saving is the status quo, we should expect more saving. I'd expect more sophisticated investors to opt out of such a scheme.

I think it's a much better option that the 'double CPP contributions' suggestion floating in more left-leaning circles.


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## HaroldCrump

sags, you have my vote and full agreement.
We need to significantly expand CPP to support the private sector workers without true DBP pensions.
Those workers that have true DBPs (esp. public sector) are at a substantial advantage in terms of retirement compared to the DIY RRSPers.
The private sector based plan, as outlined in this article, is a terrible, terrible idea.
It will go the way of universal life insurance and high fee mutual funds.
For those that wish to go private with their retirement savings, that option already exists today.
You can always hand over your savings and get an annuity.
I don't see any reason to increase the role of the private sector.


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## OhGreatGuru

riamo said:


> http://www.theglobeandmail.com/news...rivate-sector-retirement-plan/article1840389/
> 
> what you think?


So the friggin' neanderthals running some of our provinces got their way again. Standing on the pedestal of "provincial rights", their heads firmly buried in the sand, and ignoring the elephant in the room. The trouble with provincial politicians is they are so provincial. No will, guts, or vision to attack a national problem. A voluntary plan won't solve anything - we already have that in RRSPs, and Canadians have 100's of billions of dollars of unused RRSP room now.


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## riamo

so why exactly would i trust this companies to invest my money in a defined contribution plan when i can do it myself in an rrsp???

like seriously why??

are you going to give me better net returns?


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## Rysto

Well, I like it better than a mandatory increase in the CPP, but I don't really see what this provides that an RRSP doesn't.


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## slacker

On a selfish note, what would help me is more TFSA and/or RRSP room. This won't help more than 5% of Canadians who max those out, but it would help me.


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## Bupp

This proposal actually makes a lot of sense.

This makes it cost effective and uncomplicated for small businesses and self employed people to set up a pension plan.


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## kcowan

A voluntary plan might make sense. Time will tell by how many companies participate.


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## OhGreatGuru

Bupp said:


> This proposal actually makes a lot of sense.
> 
> This makes it cost effective and uncomplicated for small businesses and self employed people to set up a pension plan.


There is nothing wrong with the proposal per se. It adds one more option to the current retirement savings options.

But as a voluntary option it does not solve the central problem that the First Ministers were supposed to address: that Canadians aren't saving enough for retirement.

I predict there will be very little uptake in this new option - or at least any uptake will be offset by dropping of existing savings plans. Small businesses are typically non-unionized, so there is no effective pressure for employers to provide a pension plan. Socially conscious employers who want to contribute to retirement savings can already contribute to RRSPs or group RRSPs. Some might decide to take this option instead, but it won't increase the overall numbers of employers contributing to retirement savings plans.


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## sags

I doubt insurance companies will offer a much better retirement plan, than their present day offerings.

It would be interesting to see how many of them try to tie some kind of insurance into the retirement plan.

In a private scheme, such as proposed, there would have to be an awful lot of regulation passed to protect the investors.


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## kcowan

I don't see why investors would have to be protected. If it is a big private version of the CPP, it will be subject to profits and various follies of the private companies that sign up to run it.


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## sags

I think concerns will be raised with the idea of having the insurance industry in charge, given this article.

http://www.theglobeandmail.com/repo...nd+Mail+-+Business+News)&utm_content=My+Yahoo

Poor timing for Mr. Flaherty on the release of this article and investigation.


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## the-royal-mail

A previous employer once offered us something like this. I asked if they would be matching my contributions and the answer was 'no'. No one was interested. Why should we give our money to a 3rd party to manage? If people aren't saving enough for retirement (tier 3) then they need to address that issue. Getting big business involved with this doesn't sound like something I would be interested in, and definitely NOT an employer, which can fold anytime a la Nortel and take our pension money with them. No thanks. Unless it's a true pension plan, I'll manage it myself.


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## Eclectic12

HaroldCrump said:


> sags, you have my vote and full agreement.
> We need to significantly expand CPP to support the private sector workers without true DBP pensions.
> Those workers that have true DBPs (esp. public sector) are at a substantial advantage in terms of retirement compared to the DIY RRSPers.
> [ ... ]


Don't you mean those with a fully funded DBP where the employer has deep pockets are at an advantage?

If it's not fully funded, the DBP isn't worth much.

Mind you, if the DIY RRSPer starts early and has a good handle on investing, they have a lot more flexibility than the DBP fund manager does.


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## Eclectic12

OhGreatGuru said:


> [ ... ]
> A voluntary plan won't solve anything - we already have that in RRSPs, and Canadians have 100's of billions of dollars of unused RRSP room now.


Ah yes ... the corporate (i.e. bank/mutual fund/insurance company) hand wringing over all that unused RRSP room.

The assumption seems to be that since it's a big number, lots of people are not using RRSPs. Exactly how much of a $9K salary should go to an RRSP, hmmm?

Some of the unused room is unused for a reason. To me the question is how much of the total is truely useable?


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## Eclectic12

kcowan said:


> I don't see why investors would have to be protected. If it is a big private version of the CPP, it will be subject to profits and various follies of the private companies that sign up to run it.


*grin*

That's what I'm worried about.

In theory, this is to help reduce the burden on CPP. If free reign is granted, how many provider firms will want to maximize profits beyond what's safe?Let's cross our fingers that any failures don't outweigh the gains. 

Worse, there could be plans that make the private companies lots of money but provide the retiree a couple of years before they are out of money.


It reminds me of the "wonderful" offer to convert from DBP to DCP as "it won't reduce your RRSP room as much". If you looked closely, the employer plus employee contributions for the DBP were about six percent while the DCP was two percent. Better still, the investment selection was ... wait for it ... a whopping four mutual funds (Money market, bond, Canadian equity and US equity).

It's a good thing the company and their DCP provider were looking out for the employees.


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## ghostryder

What a great idea. Copying something Saskatchewan did nearly a quarter century ago.


http://www.saskpension.com/


"SPP is a voluntary, money purchase plan designed to provide a pension plan for individuals with little or no access to private pensions or other retirement savings arrangements. The Plan is available to anyone between 18 and 71 years of age. Eligibility is not dependent upon residency, income, employment status, gender or membership in other plans."


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## sags

A lot of good commentary on pension funds, and I think the building of a consensus that people "trust" the CPPIB to make wise investment decisions to secure Canadians future needs, a lot more than private industry.

And why not? They have done a superb job of it, at a very low cost to participants. The fund has attracted some of the top investment managers in the world. They are working for a lot less salary than they could earn in the private sector, and they are happy to do it for their fellow Canadians, and the prestige of managing one of the largest funds in the entire world.

The CPP is out of the reach of the Government or private industry. 

The fund exists for one reason only, and the entire focus is long term stability, increased wealth, and steady streams of investment income. It is continually audited and is transparent to all in both the assets and benefits expected. The mere size of the CPP fund allows them to invest in projects that other pension funds could only dream about.

Mr. Flaherty........talk to the CPPIB and ask them what they could do for Canadians..............They have already said they are willing.


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## HaroldCrump

Eclectic12 said:


> Don't you mean those with a fully funded DBP where the employer has deep pockets are at an advantage?
> 
> If it's not fully funded, the DBP isn't worth much.


Yes, and that's why I said esp. public sector.
The govt. has the ultimate power to fund its own pensions.
They can (and do) simply tax away more money from the working population, print more money, etc.
Quasi public sector pension plans like the teachers', health care, municipals like OMERS, etc. are similarly positioned.


> Mind you, if the DIY RRSPer starts early and has a good handle on investing, they have a lot more flexibility than the DBP fund manager does.


An individual has a harder time ensuring two of the key facts of a DBP - guarantee and longevity protection.
It is possible, but very hard to achieve.


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## kcowan

This is an attempt to reduce demand on GIS and OAS not CPP.


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## MoneyGal

HaroldCrump said:


> An individual has a harder time ensuring two of the key facts of a DBP - guarantee and longevity protection.
> It is possible, but very hard to achieve.


Not hard to achieve: purchase a single-premium immediate or deferred annuity. This isn't a palatable solution for lots of people for several good reasons, but longevity insurance and a guarantee is NOT hard to obtain for individuals.


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## HaroldCrump

MoneyGal said:


> Not hard to achieve: purchase a single-premium immediate or deferred annuity. This isn't a palatable solution for lots of people for several good reasons, but longevity insurance and a guarantee is NOT hard to obtain for individuals.


OK, so how much would a 55 year old looking to retire soon would have to pay today to puchase the deferred annuity that provides the following features of a true DBP:
- approx. 70% of the average of 5 best years of base salary
- Longevity insurance
- Guaranteed payouts
- Inflation protection at the same rate as CPP


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## MoneyGal

I can post annuity rates for sure, and I have done so here and in various public places. 

And I have argued (quite strenuously, if you look at my past posts on this topic) that there's no way that private sector workers on average get *the same level* of pension protection that public sector workers do. 

However, your point was that it is very difficult to get longevity insurance and a guarantee: my counterargument is that obtaining these two things in a private pension - without specifying any numbers w/r/t how much income is being provided, and when, etc. - is, in fact, quite straightforward. 

If private sector workers want pension-like income in retirement, they must purchase or build their own pension plan. Yes, this will cost more than publicly-funded programs (including CPP), for a series of reasons including selection bias (or adverse selection). 

However: them's the breaks. If you want a public-sector-style pension, go and work in the public sector. I don't mean this post to sound overly argumentative or snippy, just straightforward.


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## MoneyGal

Here's a link to recent annuity table (that I prepared) providing guaranteed, longevity-protected income for men and women at age 65: 

http://www.theglobeandmail.com/glob...-more-than-men-for-retirement/article1797078/

The book I co-authored (see to the left of these words) has multiple tables with deferred and immediate annuity quotes for people of various ages, all still valid today (rates have not moved significantly since those tables were prepared in April or so).


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## sags

Here is a link to the basic framework for the Flaherty plan.

It doesn't look good, if left as it stands.

Some highlights (or maybe lowlights)

The employer decides if they will participate. Employers don't have the obligation to contribute, but they would choose which plan to offer their employees. They choose the level of contributions. They may choose to keep the plan, change to another plan, or drop the plan entirely in the future.

The plans will be administered by a third party (financial institution). The plan will be converted to an annuity at retirement. So, the employee gets to pay the management fee for the plan administration and the fee to the company offering the annuity. 

The plan is portable, but only if the new employer offers the same plan. There will evidently, be an assortment of plans offered by different financial institutions, so the likelihood of gaining employment with an employer with the same plan is somewhat remote.

Alberta and Saskatchewan are in favour of the plan. They offer their own Provincial plans and are opposed to increasing CPP contributions. Quebec is in favour of expanding the CPP but not now. The other Provinces are opposed to the plan.

This plan is really starting to look like not much of a plan. 

http://www.scribd.com/doc/45425380/Framework-for-Pooled-Registered-Pension-Plans


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## kcowan

It sounds like a "so what's new" type of plan. Without an employer match or assured portability, it is not much.


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## HaroldCrump

MoneyGal said:


> And I have argued (quite strenuously, if you look at my past posts on this topic) that there's no way that private sector workers on average get *the same level* of pension protection that public sector workers do.


So we agree 



> However, your point was that it is very difficult to get longevity insurance and a guarantee: my counterargument is that obtaining these two things in a private pension - without specifying any numbers w/r/t how much income is being provided, and when, etc. - is, in fact, quite straightforward.


I see how you are reading this, and yes, practically speaking it is "easy" to get those two features in a pension/annuity for individual investors.
My point was not how practically easy it is, but how expensive and unfeasible it might be (unless your liquid net worth ranges in several millions).
Everything is "easy" to get if you can pay for it.
You can get blue diamonds, a private jet, etc.

As your annuity tables show, to get a guaranteed post-retirement pre-tax income of $60K today (which isn't much), you'll need to cough up > $1.2M.
You know numbers and stats better than I do - how many Canadians have $1.2M to pay for a pension?
Even if you have > $1M, chances are that is the only $1M you have.
Most folks will hesitate several times before handing over their entire life savings solely into their pension.
They'll then have to turn around and get a reverse mortgage to pay for their daily expenses, or live on cat food.



> If you want a public-sector-style pension, go and work in the public sector. I don't mean this post to sound overly argumentative or snippy, just straightforward.


Yes, you are factually correct.
But obviously everybody _can't_ work for the public sector (except in an entirely communist country like the ex-USSR).

I think where you and I will disagree is on how to improve the lot of all them puir private sector workers.
My vote is to expand the CPP by mandatory increase of contributions and benefits.


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## MoneyGal

Harold, we are probably MUCH more in agreement than we are in disagreement. In fact, I agree with all of the points you've made in this most recent post - and I've even argued those same points in the past. 

(Although I don't follow your point about once you've bought a pension, you then have to live on cat food...isn't that the point of pensionizing, to avoid that fate in later life?)

I disagree with additional mandatory pensionization(TM - seriously, my company holds the trademark for this term) for a few reasons that have not been discussed in this post, so far:

(1) I am philosophically opposed to overarching government regulation, etc. I personally believe the existing CPP, OAS and GIS system provides sufficient government-backed pension income. All other factors held constant, I am opposed to expanding the CPP for this reason only. 

(2) The reason that CPP is "cheaper" than privately-purchased pension income has to do with adverse selection and risk pooling. If EVERYBODY must participate in a risk-pooling scheme, then about half the people will live a shorter period than average (and they will be the "losers" in this scenario), and half the people (the "winners") will live longer than average. 

All good so far, right? Except that what this means *in practice* is that all males will subsidize all females, because women are longer-lived than men on average, but the CPP contribution rates are the same for men and women. 

In addition, lower-income-earning people will subsidize the CPP payouts for wealthier folks, because income and longevity are strongly correlated. To make a crude comparison: increasing mandatory CPP participation means that janitors must live on less during their working years so that lawyers can receive more in retirement. 

I'm actually really surprised these distinctions have not been made to date in this thread. All you men posting here (the demographic is majority male here, as far as I can tell): are you all really OK with this? 

(3) CPP contributions are a tax on labour, not on capital or equipment. All other factors held constant, this will drive even more jobs offshore, and where processes can be mechanized, this is an additional inducement to do so: to avoid the additional employer contributions into the pool. 

I have to get back to work. I can provide links to back up my arguments, but not right now.


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## HaroldCrump

MoneyGal said:


> (2) The reason that CPP is "cheaper" than privately-purchased pension income has to do with adverse selection and risk pooling. If EVERYBODY must participate in a risk-pooling scheme, then about half the people will live a shorter period than average (and they will be the "losers" in this scenario), and half the people (the "winners") will live longer than average.
> 
> All good so far, right? Except that what this means *in practice* is that all males will subsidize all females, because women are longer-lived than men on average, but the CPP contribution rates are the same for men and women.


But that's true for any kind of group plan - investment or otherwise.
Those kicking the bucket early (or opting out early) "subsidize" the ones remaining.
If we want to get away from adverse selection, then we should not have pooled plans at all - whether managed by the govt. or private.
Even in a private plan (like GM's) the same principle would apply.
That's an argument in favor of 100% private retirement.
Everyone should have their own, self-directed RRSP.
By extension, OAS and GIS benefits will have to be eliminated as well, except disability based benefits.

On the other hand, if we want to retain pooled plans but want to reduce the effect of adverse selection, that will make calculations of contributions and benefits very complicated.
Now your age, sex, race, ethinicity, health and other circumstances would have to determine your contributions.
It'll worse than calculating auto insurance premiums.


> (3) CPP contributions are a tax on labour, not on capital or equipment.


True, and that's a larger philosophical issue.
There are a lot of core things in our society today that are taxes on labor.
Income tax is perhaps the biggest, most visible, and the most debilitating tax on labor.
The reason it is easiest for society to tax labor vs. capital is because of surplus value of labor.
Capital does not produce surplus value - labor does.
Capital only produces "profit", and that is due to the undertaking of risk by the business/firm, not because of any innate quality within capital.
And profit tax can only be increased so much without pissing off capital, leading to a "flight of capital".
Tax on labor vs. capital is a tangent discussion here, but there is no way around taxing labor, unfortunately, in a modern, socio-democratic society.


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## MoneyGal

HaroldCrump said:


> That's an argument in favor of 100% private retirement.
> Everyone should have their own, self-directed RRSP.
> By extension, OAS and GIS benefits will have to be eliminated as well, except disability based benefits.


Just to be clear, I am not making that argument. My argument is that the existing system is sufficient. 

Also to be clear, I was responding to your point suggesting an expanded CPP. The Flaherty plan would be voluntary; I would almost certainly not participate in a voluntary plan if it is as described.


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## MoneyGal

HaroldCrump said:


> Tax on labor vs. capital is a tangent discussion here, but there is no way around taxing labor, unfortunately, in a modern, socio-democratic society.


(Sorry to have two responses here.) 

Proposing an increase to the CPP is an additional tax on labour: this is not a "tangent" to the discussion. 

There may be "no way around taxing labour" but that does not mean we need additional taxes on labour.


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## HaroldCrump

MoneyGal said:


> Proposing an increase to the CPP is an additional tax on labour: this is not a "tangent" to the discussion.
> 
> There may be "no way around taxing labour" but that does not mean we need additional taxes on labour.


I wasn't suggesting _you_ were going on a tangent.
I meant _I_ was, when I said that only labor can be taxed, and not capital because capital is "dead labor".
That is a separate, philosophical discussion.

So, if we do not tax labor explicitly by increasing mandatory contributions _now_, along with all the pitfalls and injustice of adverse selection, we are still taxing _future_ labor via OAS, GIS etc.
That system has a higher adverse selection cofactor, esp. for the "grasshoppers" that made decent sums of money during their working years but did not save (enough) for retirement.
Or have high value assets "hidden away" from income streams (such as high value homes, cars, boats, vacation properties, etc.)

Higher mandatory CPP contributions today will substantially lessen that burden on future labor forces.
For the "ants", it works best because they get the benefits of a central govt. guaranteed pension plan, eliminating the wastefulness of RRSPs (unused contribution rooms, poor market returns, wasteful MF fees, etc.).

No one wants higher taxes, esp. income taxes/deductions.
However, by maintaining status quo, we are ensuring higher income taxes for future generations, as well as for our remaining working years.


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## MoneyGal

OK, thanks for the clarification. 

I guess my rejoinder would be that I do not expect OAS and GIS to survive in their current forms - so in that view you are not trading off taxing present vs. future labour. The future labour tax (via OAS and GIS) is, to my way of thinking, far from certain...


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## Eclectic12

HaroldCrump said:


> Yes, and that's why I said esp. public sector.
> The govt. has the ultimate power to fund its own pensions.
> They can (and do) simply tax away more money from the working population, print more money, etc.
> Quasi public sector pension plans like the teachers', health care, municipals like OMERS, etc. are similarly positioned.
> An individual has a harder time ensuring two of the key facts of a DBP - guarantee and longevity protection.
> It is possible, but very hard to achieve.


Hmmm ... I can see the municipals but I'm not so sure about the teachers' or health care. I know Mike Harris struck the early retirement deal to avoid putting back the $900 million the gov't used to buy Suncor shares, before the shares tanked. If it was a simple as increasing taxes, why was the retirement deal required?

Then too, when my brother-in-law and I compared DB plans, my plan's combined contributions were 5.6% while his were over 10%. So his plan had a lot more cash to invest.


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## andrewf

MG, do you then oppose a mandatory defined contribution plan that allows people to opt out, but enrolls them by default? This is really just a nudge in the right direction for people. It also addresses more of the equity issues you raise regarding relative longevity, since any annuity purchases would be based on the risk profile of the individual.


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## MoneyGal

Well, not that my opposition means anything; but yeah, I like automatic enrollments a la "Save More Tomorrow." 

I don't totally follow the argument that the annuity purchase would be based on the risk profile of the individual. Can you clarify? 

To be clear: I am not in favour of mandatory annuitization. Mandatory saving is much less problematic for me -- it's when you add the longevity insurance that my problems start.


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## osc

Minimum Guaranteed Income: $25k/year for anyone over 18. Progressive tax for high income (over $250k) not just for low income, like today. Tax capital gains and dividends at the same rate as any income. Dismantle CPP, OAS, GIC, RRSP, TFSA, RESP, government/municipal pension plans, etc. and all the bureaucracy associated with these.


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## andrewf

MoneyGal said:


> Well, not that my opposition means anything; but yeah, I like automatic enrollments a la "Save More Tomorrow."
> 
> I don't totally follow the argument that the annuity purchase would be based on the risk profile of the individual. Can you clarify?
> 
> To be clear: I am not in favour of mandatory annuitization. Mandatory saving is much less problematic for me -- it's when you add the longevity insurance that my problems start.


If we're talking about a DC-style voluntary pension, any annuity purchases out of this would be priced based on the individual's risk profile (age, sex, etc). I don't think annuitization should be mandatory, either, but I do believe in smart defaults, based on some simple and easy to understand input from the subscriber. Unless the individual intervenes, a portion of their account should eventually be annuitized based on their goals, desired standard of living in retirement, risk tolerance, etc.


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## ghostryder

osc said:


> Minimum Guaranteed Income: $25k/year for anyone over 18. Progressive tax for high income (over $250k) not just for low income, like today. Tax capital gains and dividends at the same rate as any income. Dismantle CPP, OAS, GIC, RRSP, TFSA, RESP, government/municipal pension plans, etc. and all the bureaucracy associated with these.


--

What a great idea!! Minimum guaranteed income for sitting on your a s s doing nothing.

Higher taxes on the 0.75% of all taxpayers that actually make >$250,000 a year, even though they already pay over 23% of all personal income tax collected.

Tax capital gains and dividends the same as income to discourage people from investing.



PS. where is the sarcasm smiley?


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## MoneyGal

andrewf said:


> ...any annuity purchases out of this would be priced based on the individual's risk profile (age, sex, etc).


OK, I have not heard the phrase "risk profile" used in this way.

We would talk about pricing annuities based on the individual's _mortality factors_ derived from life tables (specifically: the gender- and age-specific average life expectancy for that person, the variation around that average, and the risk of accidental death). 

These 3 factors are used in turn to derive an "annuity factor" which gives you the cost of $1 of annuity income for the rest of the individual's life. Because the individual's lifespan is random and unknown, this is a stochastic present value (as opposed to a PV for a term certain). 

When a lump sum is annuitized, the individual's longevity risk is transferred to the insurance company. We would only talk about an individual's "risk profile" when thinking about annuities from the POV of the insurance company, because that's where the risk has gone.


----------



## MoneyGal

One more thought: 

The process of annuitization is actually the point when an individual's "risk profile" disappears completely through risk-pooling. 

Whether you are risk-averse (from an investing point of view or any other financial risk you might consider, including longevity risk) or not, you are absorbed into a pool of living people of your same gender and born in the same year. That's it: there's no more individual characteristics to be considered.


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## the-royal-mail

ghostryder said:


> --
> 
> What a great idea!! Minimum guaranteed income for sitting on your a s s doing nothing.
> 
> Higher taxes on the 0.75% of all taxpayers that actually make >$250,000 a year, even though they already pay over 23% of all personal income tax collected.
> 
> Tax capital gains and dividends the same as income to discourage people from investing.
> 
> 
> 
> PS. where is the sarcasm smiley?


I agree with you ghost. The attitude that you quoted is what is leading to the financial demise of western countries around the world. The way Canada is going, we're in line for the same thing to happen here if we don't put a lid on the rabid left-wing nonsense that favours minorities at the expense of everyone else. It has gone too far and if all the working middle class were to be taxed for the incessant social programs being invented, there would be no money in the gov't coffers because everyone would be sitting on their a-s waiting for the gov't to take care of them.

If we've paid into these various funds, whether rich or middle class, we have every right to withdraw from these funds. I do not support the attitude that suggests the rich and middle class are perpetually responsible to give the poor a free ride. People can go to school and learn something and then get a good job afterwards. It's what I did. Take responsibility for yourself and stop expecting the gov't to pay your way.


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## andrewf

Sorry MG, I was indeed looking at it from the insurer's POV, and that is why I used the phrase 'risk profile'. I'm not a part of the industry and not familiar with its jargon. I think it's fair to say that pricing annuities based on individual characteristics addresses your equity concerns (where publicly provided annuities are mispriced). Where the risk tolerance enters into things is the extent to which people annuitize their assets.

MG: Maybe IT and other advances will change how insurance is priced. It's hard to believe that year of birth and gender are the only significant, testable variables in determining mortality. I can imagine genetic testing being relevant if people have higher or lower risk of fatal illness such as Alzheimers/dimensia, cancer, etc.

About osc's suggestion: a minimum income (call it a citizen's dividend) is not an inherently bad idea. $25k/year is probably too high. I'd set it at closer to $10k, myself. And a minimum income is not paying people to sit on their ***. That's called welfare. A minimum income lets people work without facing a marginal tax rate of 100%. On the other hand, his suggestion to punitively tax capital gains and dividends are misguided. Better to increase consumption and pollution taxes, if anything.


----------



## HaroldCrump

osc said:


> Minimum Guaranteed Income: $25k/year for anyone over 18. Progressive tax for high income (over $250k) not just for low income, like today. Tax capital gains and dividends at the same rate as any income. Dismantle CPP, OAS, GIC, RRSP, TFSA, RESP, government/municipal pension plans, etc. and all the bureaucracy associated with these.


osc, your position is quite extreme in this regard.
Even more extreme than some libertarians in the US right-wings.
On the other hand, the minimum guaranteed income provision in very welfare-ish.
There are lots of 18 year olds that'd be happy to sit on their back sides all day playing video games, smoking pot and collecting their $25K a year.
It is a receipe for breeding a future generation of bums.


----------



## MoneyGal

andrewf said:


> Sorry MG, I was indeed looking at it from the insurer's POV, and that is why I used the phrase 'risk profile'. I'm not a part of the industry and not familiar with its jargon. I think it's fair to say that pricing annuities based on individual characteristics addresses your equity concerns (where publicly provided annuities are mispriced). Where the risk tolerance enters into things is the extent to which people annuitize their assets.
> 
> MG: Maybe IT and other advances will change how insurance is priced. It's hard to believe that year of birth and gender are the only significant, testable variables in determining mortality. I can imagine genetic testing being relevant if people have higher or lower risk of fatal illness such as Alzheimers/dimensia, cancer, etc.


Good points, and no apology needed. 

I do not think that publicly-provided annuities are mispriced: they are just subject to very different life tables (constraints) than privately-purchased annuities. 

People do not voluntarily annuitize their assets - this is known as the "annuity puzzle." (Actually, the puzzle is that voluntary annuitization remains so low, given the effectiveness and relative low cost of annuities.) Where annuitization is compulsory, you are now using a general population life table to price them, as opposed to the life table applicable to the very small segment of the population that voluntarily annuitizes (all of whom are betting they will outlive the average). 

You can get what are known as "impaired life annuities" which pay out at higher rates than non-impaired annuities. However, the moment that you start to underwrite the product (i.e., test for underlying health conditions), the costs shoot up. 

The basic tontine concept of annuitization - you pool your assets with other people like you, all in a bet to outlive one another and scoop the mortality credits off the table - has stood the test of 500 years of time. 

The issue is NOT that more factors other than age or gender can be tested...it is that there is no economic rationale for doing so. Using life tables which give you median expected lifespan and the dispersion of results around that median is cheap, quick, and effective.


----------



## andrewf

You raised the equity argument for men vs. women in publicly provided pensions. Public pensions are overpriced for men and underpriced for women, which one could perceive as an equity concern. Some see it as justified compensation for other inequities in society. I guess that within a typical marriage, it should average out too (as there is a man and a woman). 

I could see room for niche players to capture some market share if they are able to offer more competitive annuity rates to people with higher risk of mortality than the mean for their age and gender. This of course will lead to more adverse selection in annuity pools that don't select on factors besides age and gender. In a few years, it won't be unusual for everyone to have their complete genome sequenced and available for comparison against markers for common diseases. It is impractical today, but it soon won't be.


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## MoneyGal

andrewf said:


> You raised the equity argument for men vs. women in publicly provided pensions. Public pensions are overpriced for men and underpriced for women, which one could perceive as an equity concern.


Good point. I hadn't thought about this as a mispricing. They use unisex life tables and those tables price annuities correct based on the table values. The decision to use unisex tables has the impact of "overpaying" women relative to men for the same number of dollars contributed, but this is not usually thought of as a pricing issue.


----------



## osc

HaroldCrump said:


> osc, your position is quite extreme in this regard.
> Even more extreme than some libertarians in the US right-wings.
> On the other hand, the minimum guaranteed income provision in very welfare-ish.
> There are lots of 18 year olds that'd be happy to sit on their back sides all day playing video games, smoking pot and collecting their $25K a year.
> It is a receipe for breeding a future generation of bums.


That's funny. You are saying it's right wing, others are saying it's left wing. The truth is it's in the middle. The taxes would go down if all the bureaucratic welfare institutions would be replaced by a single welfare program. Even the lucky ones, making over 250k/year, would pay less, even if their rate would be higher than people making less, as it's normal in a civilized society.
I don't mind if some 18 years old would only play games. The advantage is that they would not break into other people cars or houses or do other criminal activities, with more savings in policing and the prison system. There would still be enough smart people acknowledging that 25k is not enough for a good life. 
And I don't see why we should keep this crazy discrimination against poor people. Everybody knows that the net worth of older people is substantially higher than that of young people. Right now, our welfare state is totally f..d-up. We are taking money from the poor (the young working generation) and giving it to the rich (the old retired generation). The same with the taxes. We tax the rich (people with investments and capital gains) at half the tax rate for the poor (working people). This is just insane, and can be explained only by the apathy of the young generation and the fact that the country is led by old people in bed with the big corporations.


----------



## osc

ghostryder said:


> --
> 
> What a great idea!! Minimum guaranteed income for sitting on your a s s doing nothing.


Then why are we giving that to 65 year old people, some with substantial net worth, unlike the young ones? Why is that more fair?



ghostryder said:


> Higher taxes on the 0.75% of all taxpayers that actually make >$250,000 a year, even though they already pay over 23% of all personal income tax collected.
> 
> Tax capital gains and dividends the same as income to discourage people from investing.


Why is it fair that some working guy making $150k/year would pay a rate 3-4 times higher than someone making $50k/year, but some rich guy with $5M assets and $500k/year in capital gains would pay half the rate of the one making $150k/year.

I don't think I'd be discouraged to invest if my investments would be taxed at the same rate as my working income. As it is now, I'm strongly discouraged to work and to seek early retirement. And, by the way, most investments are just speculation with zero added value to society. Buying a bank stock to live of its dividends or selling covered calls adds nothing to the society and I don't see why it's taxed at half the rate of working income.


----------



## the-royal-mail

osc said:


> Then why are we giving that to 65 year old people, some with substantial net worth, unlike the young ones? Why is that more fair?


Because the 65 year old worked hard his entire life paying various income taxes, sales taxes, GST, PST, HST and numerous other gouging fees that the gov't collected from him. He has earned every penny. The 18 year old has not.

I personally think your opinions are really out to lunch. Instead of complaining about the gov't and trying to devise clever ways to steal from those who have contributed their entire lives, why don't you put that energy into getting a decent education and job? You'll do yourself and society a far bigger service than all the socialist nonsense you are posting here.


----------



## HaroldCrump

osc said:


> That's funny. You are saying it's right wing, others are saying it's left wing. The truth is it's in the middle. The taxes would go down if all the bureaucratic welfare institutions would be replaced by a single welfare program.


I don't think there is anything fundamentally wrong with a govt. sponsored pension plan like CPP.
CPP is self-managed and self-administered.
It is not funded by general taxes.
I'm sure you know this.

If your goal is to reduce taxation on the working generations, look towards reducing other wasteful govt. expeditures.
Let's start by reducing public sector involvement in general.
Getting rid of all federal, provincial, municipal and other levels of public sector pension plans, and integrating everything with CPP will do a lot more to cut wasteful overhead than the things you are suggesting.

That will also level the playing field between public sector workers and private sector workers.
No more "haves" and "have nots".
Those that desire a more luxurious retirement will need to save outside the CPP, into their own self-directed retirement accounts.
You do well at investing, you get an above average retirement.
You don't, then you get the retirement income commensurate with your contributions during working years.

The idea of a socially funded, minimum annual "income" goes against the whole idea of an egalitarian, labor and productivity based, society.
Of course, I'm not including disability and EI benefits in this, which any modern society needs.


----------



## osc

the-royal-mail said:


> Because the 65 year old worked hard his entire life paying various income taxes, sales taxes, GST, PST, HST and numerous other gouging fees that the gov't collected from him. He has earned every penny. The 18 year old has not.
> 
> I personally think your opinions are really out to lunch. Instead of complaining about the gov't and trying to devise clever ways to steal from those who have contributed their entire lives, why don't you put that energy into getting a decent education and job? You'll do yourself and society a far bigger service than all the socialist nonsense you are posting here.


How do you know I don't have a decent education and job? 
Why don't you reply to the actual issues instead of insulting and labeling? If you are a senior, shame on you, you can't have a civilized discussion.


----------



## osc

HaroldCrump said:


> I don't think there is anything fundamentally wrong with a govt. sponsored pension plan like CPP.
> CPP is self-managed and self-administered.
> It is not funded by general taxes.
> I'm sure you know this.


The problem that I have with CPP is that it's a mandatory program and it actually forces me to spend my money in a way the government thinks I should. The return is substantially lower than what I get on my other investments. It's a form of welfare for people who can't invest themselves. I don't see why it should be forced on everybody. The only upside is that the forced contribution amount is quite small and is capped.
I wouldn't have any problem with it if it was optional and the expenses not funded from taxes.

The same problem I have with EI and with public mandatory single-tier health care.
As I see it, a minimum guaranteed income would get rid of all these programs and their bureaucracies and would put more money in my pocket as I would pay less taxes and less money for inefficient government programs. It would also reduce crime and be more fair for the young generations (which, by the way, are in a substantially more difficult position than the older generation was 30-40 years ago, because of the "free" trade with cheap labor countries).


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## the-royal-mail

Actually osc, I did reply to the issue and you chose to ignore my response as it apparently doesn't suit your twisted vision. In case you haven't noticed, you are the only one who feels the gov't owes us an income for doing bugger all. 

In another thread you also argued that we should pay more tax (via the HST) which solidifies your position as a tax and spend radical. The gov't/taxpayer doesn't owe you a single thing! 

You have to work for what you want. People who benefit from CPP and EI are able to collect based on their own contributions to the program. What you call inefficient and unfair is an equitable system of withdrawals based on contributions. Sounds totally fair and efficient to me.

Enjoying your video games?


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## HaroldCrump

osc said:


> The problem that I have with CPP is that it's a mandatory program and it actually forces me to spend my money in a way the government thinks I should. The return is substantially lower than what I get on my other investments.


I think MoneyGal will agree with you on this. 

The return is _not_ lower, let alone substantially lower, once you factor in the gold-solid guarantee, the inflation protection and the longevity insurance.
MG posted annuity tables in a post above.
If you compare against that, you will find that most folks would be better off if CPP were expanded to cover all their pension needs.
That would make private annuities and private pension plans redundant.
It will open up true, full pension protection for all ordinary, working Canadians, not just the oh-so-hard-working public sector and quasi-public sector workers.
Those that want an even more luxurious retirement are more than welcome to save and invest on their own and build fortunes based on their stock market escapades.


> It's a form of welfare for people who can't invest themselves. I don't see why it should be forced on everybody. The only upside is that the forced contribution amount is quite small and is capped.


It is *not* welfare - even you know that.
CPP is funded purely by payroll deduction or contributions from working Canadians.
Welfare, on the other hand, by definition is funded from general taxes and supports the _non-working_ population.
The minimum annual income that you are suggesting is welfare, CPP is not welfare.



> I wouldn't have any problem with it if it was optional and the expenses not funded from taxes.


CPP is not funded by taxes.
You don't contribute, you don't get anything.
I'm sure you know this.
The problem with optional contribution is what MG calls "adverse selection".
Which is why this private pensions proposal will not work effectively if it is entirely optional.


> The same problem I have with EI and with public mandatory single-tier health care.


I'm on the fence with EI.
On the one hand, I support it from a socio-democratic perspective, however, there is too much abuse in the EI system.
But inspite of that, even EI is available only if you have contributed to it.
There is no free lunch.
Your mandatory minimum annual income is a free lunch.



> As I see it, a minimum guaranteed income would get rid of all these programs and their bureaucracies and would put more money in my pocket as I would pay less taxes and less money for inefficient government programs.


It won't.
It will simply increase abuse.
The hard-working will be subsidizing the bums.

You want less taxes? 
Start with reducing govt. involvement in all spheres of society.
Decommission all type of public and quasi-public sector gold plated pension plans and intergate all Canadians under the common umbrella of a central plan like CPP.

I'm already doing my 2 cents for what I believe in.
Supported Mr. Rob Ford for Mayor against the decadent, corrupt and lobby driven administration.
Next, I'm going to vote against the stupid, insipid, corrupt, wasteful administration of McGuinty.
I'm lobbying my MP and provincial MP to vote against the so-called private pension that we are talking about here.
I was sad that the province of Quebec vetoed the proposal to expand CPP earlier this year, but I am persisting by position with my representatives.


----------



## andrewf

Harold, I don't think you understand how a minimum income works. It encourages people who are currently on welfare to work because they won't give up benefits dollar for dollar for each dollar they earn. Under such a scheme, everyone pays tax on every dollar they earn, with no personal exemption, but everyone is given a minimum income. This way, people under a certain threshold pay negative net tax. But they are encouraged to work by being able to keep part of the fruits of their labour. Currently welfare shackles these people into the welfare trap, which is very difficult to escape from.


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## Four Pillars

andrewf said:


> Harold, I don't think you understand how a minimum income works. It encourages people who are currently on welfare to work because they won't give up benefits dollar for dollar for each dollar they earn. Under such a scheme, everyone pays tax on every dollar they earn, with no personal exemption, but everyone is given a minimum income. This way, people under a certain threshold pay negative net tax. But they are encouraged to work by being able to keep part of the fruits of their labour. Currently welfare shackles these people into the welfare trap, which is very difficult to escape from.


I don't understand either.

Can you explain exactly how the min income works? Is it an actual payment or just an exemption from welfare clawbacks (from making money).


----------



## osc

the-royal-mail said:


> In case you haven't noticed, you are the only one who feels the gov't owes us an income for doing bugger all.


You totally misunderstood me. I don't think the government owes anything to anyone. I do think that most government programs are a waste of taxpayer money and I'd prefer a single welfare program to replace all other government programs. I wouldn't benefit from it directly, I am in the highest tax bracket. I would benefit from it because my taxes would go down. I would also benefit from a minimum guaranteed income indirectly because I think it would reduce crime and prison population. 



the-royal-mail said:


> In another thread you also argued that we should pay more tax (via the HST) which solidifies your position as a tax and spend radical.


Yes, I think a sales tax is better than a higher income tax. How is that radical? 



the-royal-mail said:


> Enjoying your video games?


Yes, I am. Do you enjoy watching your Fox News?


----------



## sags

With a 10% reported unemployment rate, and a probable 20-25% unemployment rate among the young, I think there are a lot of capable, willing to work, young people collecting welfare, who would much rather be starting a long term career..........just like we did.

But those careers aren't out there anymore. They are gone. We gave them away. China is the country that has long term manufacturing growth prospects now....not us.

Education is the key?...............I won't argue that is extremely valuable in the long term, but there are an awful lot of University grads toiling away in low paid service jobs, with little hope of gaining employment in their chosen field of endevour for decades to come......if ever.

Some are back in community colleges to learn a skill that will provide a decent job, and others are back in University furthering their education because they can continue to collect OSAP and put off the inevitable repayment of their student loans.

Aside from young people, there are lots of middle aged and older people whose jobs and skills have become redundant. They have no job, no needed skills and no future.

We NEED a simplified guaranteed income for everyone. We can't have a large segment of our population living in extreme poverty........and I will tell you folks that a single male living on 560 dollars a month isn't living a great life. A young couple with a baby gets 1050 a month and 330 baby bonus for a total of 1380 or so. Try enjoying life on that............

It was the baby boomer generation that gave away the store, in the aggregiously unfair Free Trade Agreements we signed, and it is the baby boomers who sit back and rail on about people collecting welfare.

Well, sorry folks.............but we created the mess.

Money is circular if it is given out properly. Poor people spend the money and support local businesses. Rich people stick it in the bank with all their other money. Rich people already hold most of the wealth. Do they want it all?

Poor people have no voice. They don't donate large sums of money to political parties. They aren't invited to policy discussions.

As a rich country, we should be embarrassed by the proliferation of food banks, and payday loan stores. Is that what we want Canada to be?

A secure pension is a good start. The proposed Flaherty plan is a cruel joke, designed to give the insurance companies a pipeline to the cash they are going to desperately need if we experience deflation, as is expected by some.

A guaranteed income is another good idea.

Elimination of the many levels of government, will free up a lot of cash and lower liabilities for future taxpayers that inevitably comes from a bloated bureaucracy.

But..........where is the leadership when we need it....................


----------



## osc

HaroldCrump said:


> If you compare against that, you will find that most folks would be better off if CPP were expanded to cover all their pension needs.


If more folks would be better off with a CPP-kind investment program, then they should be free to join it. I don't like the government to force me into a particular investment program.



HaroldCrump said:


> It is *not* welfare - even you know that.
> CPP is funded purely by payroll deduction or contributions from working Canadians.


It is welfare in the sense that everyone is forced to contribute to it. It probably wouldn't be that successful if it was optional. And I think I would make more money if I invested it myself instead of having the government do it for me. So, I loose potential profit so that other people have their pensions. That's a convoluted form of welfare. 
I prefer welfare to be direct. 



HaroldCrump said:


> But inspite of that, even EI is available only if you have contributed to it.
> There is no free lunch.
> Your mandatory minimum annual income is a free lunch.


Really? I thought there is welfare after EI expires, right now. Also, there is OAS and a "guaranteed income" for people over 65. Is that a free lunch or what? Why (and for whom) is better to have so many convoluted programs, instead of a single simple one. 



HaroldCrump said:


> Start with reducing govt. involvement in all spheres of society.
> Decommission all type of public and quasi-public sector gold plated pension plans and intergate all Canadians under the common umbrella of a central plan like CPP.


I agree with that, but I'd decommission CPP too.


----------



## stardancer

sags said:


> With a ....................


What sags said.... I go for


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## HaroldCrump

osc said:


> If more folks would be better off with a CPP-kind investment program, then they should be free to join it. I don't like the government to force me into a particular investment program.


I think you are not understanding the true nature of risk pooling in a plan like CPP.
Unless it is mandatory, you will not get true risk pooling.
The only folks joining it will those that expect to live longer than the average.
That will be like a two-tier auto insurance system, wherein the state provides insurance as well as private insurance companies.
The less risky drivers will be welcomed by the private insurers, while the state will be stuck with all the risk-prone drivers.

Yes, their is some apparent "injustice" in this type of system, but that's true for any type of pooling based system, such as social health care, EI, etc.

If we extend your line of reasoning, we cannot have _any_ social services, including public transit, highways, street lighting, snow plowing, etc.
Those that don't use public transit should not have to subsidize your use.
Those that don't drive should not have to subsidize your use of the highways.
And so on.



> It is welfare in the sense that everyone is forced to contribute to it. It probably wouldn't be that successful if it was optional. And I think I would make more money if I invested it myself instead of having the government do it for me. So, I loose potential profit so that other people have their pensions. That's a convoluted form of welfare.


No, it is not welfare.
Many people have an over confident view of their own investing skills.
If you indeed are super skilled like the Buffets and the Lynches, then you form less than 1% of the population.
Society cannot be organized and managed to cater to such a small number of people.
It is not just about investing.
By extension, every citizen should have the right to "opt out" of a public program that they do not like, or do not use, or do not support.

I'd tell you to simply move to a country that does not have these types of socialized services, but it is hard to find one.
Even the pinnacle of modern capitalism - the USA - has their fair share of what you call welfare programs.


> I agree with that, but I'd decommission CPP too.


And how do you suppose the other 31.99 million people manage their retirement savings?
Would you like everyone to become skilled investors like yourself that everyone can "beat the market" and ensure a guaranteed, inflation protected, perpetual income stream for themselves?
Surely you realize that is not possible.


----------



## osc

HaroldCrump said:


> And how do you suppose the other 31.99 million people manage their retirement savings?
> Would you like everyone to become skilled investors like yourself that everyone can "beat the market" and ensure a guaranteed, inflation protected, perpetual income stream for themselves?
> Surely you realize that is not possible.


There could be free market funds that anyone could buy and have their pooled assets professionally invested and managed, without government involvement. We could call them "mutual funds". And for slightly more skilled investors, who can spend 1 hour on a forum like this or skilled enough to do a Google search, we could have funds that would be traded at exchanges and have lower fees. We could call those "exchange traded funds".


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## kcowan

I guess you are happy with the status quo, osc, because that is exactly what is being proposed. Anyone with an ounce of investing capacity can opt out of the proposed plan.


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## retiredia

*pension reform*

RRSP Incentives.

Canada needs to incentivize retirement savings by subsidizing contributions to RRSPs.
A $1000 Federal incentive for an annual $5000 contribution to individuals RRSP, would send retirement saving through the roof. Canadians love government programs.
An incentive subsidy of 20% for the first $2500 contributed to the very successful Registered Education Savings Plan is in place and would be simple to duplicate for RRSPs. Tell your MP about this program idea; it would definitely enhance and grow retirement savings.

PS	Conrad Black wants to incentivize savings in Canada.
Mark Carney wants Canadians to expand their personal savings.
The government has money for fighter jets, prisons, veterans, buried power lines in NFL and should be finding money to enhance retirement savings.


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## sags

Years ago, I spent some time on a Union committee and we were negotiating a contract. The employees had no pension plan, and in my youthful exurberance I thought it would be a find idea to start one during my maiden voyage in contract negotiations.

Long story short, we got it done. The company agreed to split the "raises" between per hour cash and contributions to the beginnings of a pension fund.

We took it back to the membership for approval, where we were met with such a hostile reaction, that we ended up taking it back to the company and settling for all cash raises. Nobody was interested in "money down the road". Heck, I even had people complain that we "wasted" money on group life insurance, because they weren't going to benefit from their own death.

That lasting impression has stayed with me, and been proven over the years.

The only way to ensure that most people save is to make it mandatory. All of the other government programs designed to do the job have failed, not because they weren't good ideas, or offered better investment opportunities, but simply because people won't use them.

We can keep butting our heads against the wall, decry the lack of financial understanding and committment, but at the end of the day somebody is going to pay to support those who are without adequate retirement savings, in some form of welfare or another.


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## slacker

@sags: +1 insightful


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## kcowan

sags said:


> ...but at the end of the day _somebody_ is going to pay to support those who are without adequate retirement savings, in some form of welfare or another.


And that somebody is us (as Pogo might say).

OAS/GIS are financed from general revenues and people without pensions get the maximum benefits. Aside from betting on house equity, that is their major potential source. And as long as they continue to live in their houses, they get a free ride.


----------



## olivaw

kcowan said:


> And that somebody is us (as Pogo might say).
> 
> OAS/GIS are financed from general revenues and people without pensions get the maximum benefits. Aside from betting on house equity, that is their major potential source. And as long as they continue to live in their houses, they get a free ride.


I'm personally happy that we have programs that keep seniors out of poverty. We all pay our fair share in taxes and hope that we are not the ones who have to rely on social programs as our only source of retirement income.

As for the pension reform - it is a half baked scheme that accomplishes very little. I'd prefer a mandatory increase in CPP withholdings so long as the funds are used to increase future CPP payments - not current CPP payments for people who are already collecting CPP. Who knows, maybe fewer people will end up needing to rely on the GIS.


----------



## jmalias

kcowan said:


> And that somebody is us (as Pogo might say).
> 
> OAS/GIS are financed from general revenues and people without pensions get the maximum benefits. Aside from betting on house equity, that is their major potential source. And as long as they continue to live in their houses, they get a free ride.


I am not interested in a free ride on the cheap bus, but i am glad there are enough seats incase i need to use public transport


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## kcowan

Don't forget that, as a senior, you get disounts on public transit and a number of other services. And you can use them when they are not full!


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## Eclectic12

sags said:


> [ ... ]
> 
> Education is the key?...............I won't argue that is extremely valuable in the long term, but there are an awful lot of University grads toiling away in low paid service jobs, with little hope of gaining employment in their chosen field of endevour for decades to come......if ever.
> 
> [ ... ]
> 
> It was the baby boomer generation that gave away the store, in the aggregiously unfair Free Trade Agreements we signed, and it is the baby boomers who sit back and rail on about people collecting welfare.
> 
> Well, sorry folks.............but we created the mess.
> 
> Money is circular if it is given out properly. Poor people spend the money and support local businesses. Rich people stick it in the bank with all their other money. Rich people already hold most of the wealth. Do they want it all?
> 
> Poor people have no voice. They don't donate large sums of money to political parties. They aren't invited to policy discussions.
> 
> As a rich country, we should be embarrassed by the proliferation of food banks, and payday loan stores. Is that what we want Canada to be?
> 
> [ ... ]
> 
> Elimination of the many levels of government, will free up a lot of cash and lower liabilities for future taxpayers that inevitably comes from a bloated bureaucracy.
> 
> But..........where is the leadership when we need it....................


As for education and university grads, it is not that simple. Mixed in with those who genuinely have a problem are silly people like my buddy who graduated with a commerce degree but "wouldn't waste his time" with an entry level position as he was "worth more". It's now almost thirty years later where those who wasted their time are now in management and he is still scraping by.

Then too, I've tried to convince a lot of university grads with no hope of a direct job in their field or whose main skills have fallen by the wayside that they can use the same skills in areas that are hiring, with little to no success. The few who listened were hired and have moved on.

So there is being educated and then there is being career smart.


As for "baby boomers" and Free Trade - say what? 

I think you are confusing the corporate CEOs and politicians with boomers in general. The ones I associate with all were against it but the gov't of the day (and following) as well as the corporate types pushed it through.

So yes - it is a created situation but the corporate types had and have a lot more pull with the politicians.



I also think you are being simplistic that reducing government will solve the issue. I hate to tell you but my dad's incentive to save for retirement was the people coming into work *after* retirement to earn more money.

This was *before* all of the gov't programs that you are concerned about so less government/more money is not a guarantee that retirees will be better taken care of.


Cheers


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## ghostryder

Eclectic12 said:


> As for "baby boomers" and Free Trade - say what?
> 
> I think you are confusing the corporate CEOs and politicians with boomers in general. The ones I associate with all were against it but the gov't of the day (and following) as well as the corporate types pushed it through.



 Who do you think elected Mulroney to two majorities? 


Boomers.


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## lost_investor

What about this idea?

http://www.thestar.com/news/canada/...ropose-supplementary-public-pension-plan?bn=1

There's not muct substance in the article but to me it sounds like an optional way to put more into CPP.


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## MoneyGal

If it's discretionary, and provides access to CPP management of retirement savings, I like it. (From what tiny amount I can glean from that news snippet.)


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## MoneyGal

Here's the actual announcement from the Libs:

http://www.liberal.ca/newsroom/news...n-strengthen-public-pensions-support-seniors/


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## andrewf

Yes, this is pretty close to what I was advocating. I wonder about the limit on contributions to the voluntary pension. Why not offer a defined contribution plan administered by the CPPIB?


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## MoneyGal

That's what this is. From the Q&A:

Q: How is the amount I will receive from my Secure Retirement Option calculated?

A: *The Secure Retirement Option is a defined contribution pension plan*. The amount paid out will depend on contributions as well as investment returns.

/quote

I note they are very careful to NOT call this a pension but a "secure retirement option." However, because the announcement is bundled with a parallel announcement about "gradual enhancements" to the CPP, people may understand this as a new public pension. Which it is not. It is a new form of tax-deductible savings plan.


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## andrewf

I read their announcement more closely. The SRO is a DC plan run by the CPPIB--I can see this being very appealing to many employers in terms of regulatory/compliance costs of their DC plans. It also seems they do not necessarily limit contributions to 5-10% as I thought at first. It seems likely to be limited by your RRSP contribution room, much like existing company pensions.


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## MoneyGal

The question I'm left with is whether the proposed solution truly corresponds to the observed problem. 

The Libs have said that what doesn't work about private-sector options (and why Canadians don't save more for retirement) is the "risk, complexity and hidden management fees." 

But is that really the case? To what extent will the proposed Secure Retirement Option provide solutions? (Just wondering aloud.)


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## andrewf

What I'm guessing/hoping is that there is potential for this SRO to be something of a hybrid between DC and DB plans. DB plans are risky for employers because they guarantee investment returns over a very long horizon. So if this SRO is like a DC plan in the accumulation phase and more like a DB plan in the benefit phase with gradual annuitization of the accumulated value of the pension. The saver would absorb the investment return risk during the accumulation phase, but this plan could be better managed than individual investors usually get from the mutual fund sector.

And at least there is some assurance that the pension is funded up front and not administered by biased managers (who might borrow from the fund or invest it in company stock).

A very real problem is certainly management fees. Too many Canadians are parked in retail RRSPs with MERs of over 2%. CPP's admin cost is in the area of 20 bpp. Over thirty years, that spread adds up.

The other remaining problem is status quo bias. This plan opens the door to some behaviour economics-inspired nudges to encourage higher savings, such as asking savers once if they'd like to direct half their pay raise each year to increased savings (used to great effect in the US), and opt-out automatic enrollment.


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## andrewf

I guess what I'm thinking about is a plan that doesn't guarantee 40% real income replacement, but something that allows for a range of outcomes, say, 30-55% real income replacement. 

Hopefully it's also simple to enroll. I think many people suffer some analysis paralysis or make poor asset allocation decisions because they are asked to just fill in percentages. It makes more sense to me to ask about objectives, risk tolerance, etc. and design an asset and product (h/t MG) allocation from that, for people who are intimidated by the jargon.


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## HaroldCrump

IMHO, the only real solution is a govt administered (ideally, CPPIB) defined _benefit_ plan - essentially what CPP is.

A defined _contribution_ plan - private sector administered or govt. administered - is barely a half-hearted attempt to skirt the issue and simply dump all responsibility upon the individual.

Such a plan will pretty soon get lost in all the noise around fees, mutual funds peddling, bickering over contributions, etc.

If this is the best these politicians can come up with, then thanks I'll stick to RRSP.


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## andrewf

Libs have also said they're looking at gradually increasing CPP benefits, but would need provincial agreement to do so.

A voluntary DB pension is challenging because of the adverse selection issues.


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## sags

Given the responses to the new articles, it looks like Canadians are in agreement with the Liberals on this issue. 

It is a real issue, that many Canadians are fanatic about.

Every poll taken has that Canadians overwhelmingly support their social programs, and would prefer to have them enhanced. Entrenchment of the programs just isn't on the table, much to the chagrin of some think tanks and intellectuals.

If Iggy stays with the theme, Harper will have to respond.


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## HaroldCrump

andrewf said:


> Libs have also said they're looking at gradually increasing CPP benefits, but would need provincial agreement to do so.
> 
> A voluntary DB pension is challenging because of the adverse selection issues.


Exactly!
Which is why any purely voluntary system will not work, or at best be of marginal value.
As I've said up-thread, I totally disagree with the current govt's proposal of a private sector driven DCPP and/or annuities.
It is just a guise for higher fees and more mutual fund peddling by the big name insurance companies that are already taking a big piece of the Canadian retirement pie.


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## andrewf

I watched some interviews yesterday, and it sounds like this plan is what I was expecting. It's an auto-enrollment, opt-out plan. So it's not purely voluntary the way an opt-in program is. Empirical studies show that an automatic enrollment program with an opt-out feature has substantially higher participation rates than opt-in programs. Many people, like MG here, are opposed to new mandatory pension schemes. I'm sympathetic to that, and I think that politically this sort of system is the best trade-off for everyone.

I understand your concerns, Harold. I agree that the pooled pension scheme that the government has proposed is unlikely to provide much benefit (but that option should be made available), and will likely remain a high fee choice.

This plan (the SRO part) would be just one large plan which presumably would be low fee, easily ported to a new employer and managed responsibly.


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## fraser

Oh Promise Me.........what is promised in an election is usually very different from what is delivered.

After all, from the politicians perspective, why ruin a good promise by delivering on it?


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## Eclectic12

andrewf said:


> What I'm guessing/hoping is that there is potential for this SRO to be something of a hybrid between DC and DB plans. DB plans are risky for employers because they guarantee investment returns over a very long horizon. So if this SRO is like a DC plan in the accumulation phase and more like a DB plan in the benefit phase with gradual annuitization of the accumulated value of the pension. The saver would absorb the investment return risk during the accumulation phase, but this plan could be better managed than individual investors usually get from the mutual fund sector.
> 
> And at least there is some assurance that the pension is funded up front and not administered by biased managers (who might borrow from the fund or invest it in company stock).
> 
> [ ... ]
> 
> I guess what I'm thinking about is a plan that doesn't guarantee 40% real income replacement, but something that allows for a range of outcomes, say, 30-55% real income replacement.
> 
> Hopefully it's also simple to enroll. I think many people suffer some analysis paralysis or make poor asset allocation decisions because they are asked to just fill in percentages. It makes more sense to me to ask about objectives, risk tolerance, etc. and design an asset and product (h/t MG) allocation from that, for people who are intimidated by the jargon.


I don't see how a hybrid can work. 

If under the DC-like accumulation phase, enough money is accumulated, all
is well. However, where the accumulation falls short say 20% real income
replacement, using your sample range of 30-55% - where is the top-up 
10% money, times however long the person lives coming from?


As well, there are more sources of pension shortfalls than funding up front
or biased pension managers. March 2009 resulted in several DB plans
requiring their first top-up in ten plus years. Part of the issue for employers
is that when business tanked, their sources to provide the topup tanked
as well.


While I agree many suffer analysis paralysis - I'm puzzled by the percentages
bit. 

In my careers, I've now been through five DC presentations - all of 
which asked about objectives, risk tolerance and mapped these to the 
albeit limited range of products available in the plan. In fact, the last 
one spent a fair amount of time explaining that portfolio rebalancing 
and automatic shifting out of equities the closer to retirement were built 
into all plans - unless one explicitly opted out of these features.


Cheers


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## andrewf

Enrolling in my DC plan at work consisted of me picking percentages to allocate between a few MFs. The fund company had a 16 or so page primer on savings and investment, but it was mostly pablum and charts that are trying to be profound but say nothing of use. I wasn't impressed.

Sorry about the confusion on the hybrid thing. Really that interval of outcomes would have to be a 19 times out of 20 type of confidence interval--and I agree that this is fraught with issues about what historical returns and assumptions to use in creating this confidence interval. I doubt this plan will include any form of guarantee (well, short of the percentage that's invested in government of Canada bonds). Again, I think it's okay that this is not a guaranteed payout solution, as there is the base of CPP with its 25% replacement of pensionable earnings, plus OAS.

For that matter, the confidence interval could and would be updated as retirement approaches and investment returns are tallied up and the portfolio becomes more conservative/annuitized. That is, that band should be getting somewhat narrower as assets accumulate and the time horizon shrinks. It allows time for course corrections through adjustments in the contribution rate, too.

It's good that your employers have provided well-explained DC plans. Unfortunately, most Canadians aren't even offered DC plans, much less given the half-hearted effort I received.


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## andrewf

I'm also going to expand on the numbers we're using for illustration. If the confidence interval is 30-55% and the median expected outcome is the midpoint of that range at 37.5%, then an outcome where only 20% is achieved would involve either a catastrophic loss of capital in the latter part of the accumulation phase (which shouldn't happen with responsible portfolio allocation) or a persistent low rate of return over a 20 or 30 year period, which would also be exceptional.


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## Eclectic12

andrewf said:


> Enrolling in my DC plan at work consisted of me picking percentages to allocate between a few MFs. The fund company had a 16 or so page primer on savings and investment, but it was mostly pablum and charts that are trying to be profound but say nothing of use. I wasn't impressed.
> 
> Sorry about the confusion on the hybrid thing. Really that interval of outcomes would have to be a 19 times out of 20 type of confidence interval--and I agree that this is fraught with issues about what historical returns and assumptions to use in creating this confidence interval. I doubt this plan will include any form of guarantee (well, short of the percentage that's invested in government of Canada bonds). Again, I think it's okay that this is not a guaranteed payout solution, as there is the base of CPP with its 25% replacement of pensionable earnings, plus OAS.
> 
> [ ... ]
> 
> It's good that your employers have provided well-explained DC plans. Unfortunately, most Canadians aren't even offered DC plans, much less given the half-hearted effort I received.


Sorry to hear your DC plan administrator isn't good. There are actually some who are in a worse position. I was in a discussion of DC versus DB pensions with the minority who were listening/interested and was floored when the comment was made:


> Glad you can get details, I'm in a DB plan at work and am told to buzz off by the shop steward when I ask for details such as benefits.


As for the hybrid, don't get me wrong - I'd love to have a hybrid work out! I just don't see where any shortages can be made up. If they were, then the plan members are not really taking on the market risk during the accumulation phase. 


For a well-explained DC plan - I know how lucky I am/was butthe tragedy is so few were aware or taking advantage of it.

One woman who was in the DB plan and attended the DB versus DC plan comparison gasped:


> What! I won't get 100% salary at retirement!


The other extreme was the woman whose eyes glazed over at the first formula. Her comment was:


> Too confusing and too much work. If I make the wrong choice, I'll go be a bag lady on Yonge Street.


*sigh*


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## andrewf

It's a tricky policy problem. There are so many people who are floundering in the investing and retirement savings. The best solutions for these people might be an expansion of the rather paternalistic CPP. Unfortunately, it's not the best solution for everyone, and CPP doesn't really work with voluntary enrollment.

I'll be more explicit: there would and should be no backstop for such a hybrid scheme. It will hold some portion of its allocation in government of Canada bonds, and I'm thinking that's going to be the extent of the government's guarantee (but it can't go to zero). You'll profit if it performs well, but suffer if it performs poorly. There can be a range of outcomes, and so the risk will be borne by the investor.


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## MoneyGal

An expanded CPP *does* work with voluntary enrollment. 

But the expanded CPP would pay out at different rates than the existing CPP. 

What you'd get is cheap professional management (by the CPPIB) of retirement savings up to your eligible retirement date, and then annuitization of your savings at the retirement date according to regular annuity mortality tables (which account for adverse selection - just like insurances cos already use for annuities today), not general population mortality tables. 

This is what CPP does now, but it sets contribution amounts and provides payouts set at levels based on general population mortality tables. 

I think the reason there is not more support for a voluntary expanded CPP has already been expressed in this thread: if it is voluntary, like EVERY OTHER retirement savings scheme for those of us without workplace pension plans, there won't be sufficient takeup (as evidenced by our history with RRSPs and plain old savings accounts)...so it won't solve any future retirement income "crisis."


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## andrewf

MoneyGal said:


> An expanded CPP *does* work with voluntary enrollment.
> 
> But the expanded CPP would pay out at different rates than the existing CPP.


Isn't the problem there that it's far too expensive? With adverse selection, the payout rates would be much lower than with a mandatory scheme. Beyond that, I'm not sure I'm comfortable with the government having to backstop an ever larger DB plan. 



> I think the reason there is not more support for a voluntary expanded CPP has already been expressed in this thread: if it is voluntary, like EVERY OTHER retirement savings scheme for those of us without workplace pension plans, there won't be sufficient takeup (as evidenced by our history with RRSPs and plain old savings accounts)...so it won't solve any future retirement income "crisis."


I think it's worth a try. If people are automatically enrolled, there is reason to believe it will make a difference in savings rates.


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## kcowan

I can give an example from 20 years ago. A workmate left with his vested rights from the DB plan (about $80k). I said why did you give up on your pension when you were so close? He said he could not stand it anymore.

Four years later, I got a golden handshake with full pension starting immediately (valued at about $750k). It was the best return for four years of my life.

(The friend did plunk the $80k into a cottage north of Toronto so it is not all that bad.)

(But then I have already received over a million in pension payments and I figure that I have another 20 years to go.)


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## MoneyGal

andrewf said:


> Isn't the problem there that it's far too expensive? With adverse selection, the payout rates would be much lower than with a mandatory scheme.


Define "too expensive" and define "cheap." A non-mandatory plan will use annuity life tables, not general population life tables. These tables produce different payout rates - rates which are actuarially-adjusted for the population purchasing the product (i.e. they are not expensive and not cheap, just appropriately priced for the risk pool). 

A plan which does not cover all of the population will always be "more expensive" than a plan which includes the whole (working) population. But that does not mean a voluntary plan is "too expensive." 

Annuities are a very efficient way to generate retirement income. Public annuities are the cheapest way to provide longevity insurance, but I doubt expanding the CPP will ever gain any real political traction. 

But don't give up on annuities just because you can't find one that your neighbours are all forced to participate in: if you are longevity-risk-averse, an ordinary income annuity is still a very good choice for part of your retirement nest egg. If longevity insurance is really what people need (against their better judgement, apparently; at least if you are among the people who believe we should be forced into an expanded public plan), then there are fine existing options.


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## andrewf

By expensive, I mean low effective rate of return. There's a reason why people don't save for retirement by buying deferred annuities each year. A fully inflation-indexed, guaranteed stream of payments is about as low risk as you can get, and as such would have to have a low yield.

Put another way, is a voluntary DB plan strictly better than a DC plan that annuitizes closer to retirement? It seems to me that the DC plan would tend to outperform most of the time, with some risk of underperformance. Something has to pay for that guarantee.


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## MoneyGal

Again, define "low." 

You may want to check out the implied longevity yield  to see one way of calculating annuity yields. 

Economists normally strip inflation indexing out of these discussions, because it is a totally separate factor. 

Depending your age, annuities are much more efficient at generating income than any other retirement income savings product or portfolio. This means effective yields are higher. (It also means that people should not annuitize too early in retirement - or, put another way, too young.)


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## andrewf

Maybe we're talking past each other. Does it make sense for a 25 year old to be buying deferred annuities as retirement savings, in your opinion? I'm skeptical that annuities make sense when it'll be 20-30 years until you start drawing on it. An insurance company won't be able to offer a high guaranteed rate of return. If I'm not mistaken, such an annuity should offer a return similar to long-term bonds, especially since mortality isn't a huge issue before 60-65. So, maybe something in the 3 percent real return range?


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## MoneyGal

I think probably we are. 

I don't know why you'd buy a deferred annuity at age 25 or 30. (And I'd have to check, but I doubt you can actually buy an annuity that young or with a deferral period of that magnitude.)

I understand that a true DB pension is, in essence, a deferred annuity bought over your career in a way that is unavailable in the private market. 

The best solution for an expanded public pension option might be a DC-style plan with CPPIB management, which provides an option to annuitize starting at, say, 10 years out from an NRA (normal retirement age) of 65. This would provide the things the Liberals say is missing from the current system: a simple set of options, low fees, and longevity insurance. 

As for the rate an insurance company would offer on a deferred annuity with many years of deferral: I don't have a copy of my book handy, but we provided just such a chart in the chapter on annuities, with real-world annuity examples. The yield on a deferred annuity purchased early in life is not necessarily low. (I should dig up a copy here and provide the actual reference points.)


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## andrewf

> The best solution for an expanded public pension option might be a DC-style plan with CPPIB management, which provides an option to annuitize starting at, say, 10 years out from an NRA (normal retirement age) of 65. This would provide the things the Liberals say is missing from the current system: a simple set of options, low fees, and longevity insurance.


Yes, this is what I'm talking about. They haven't mentioned anything about annuitization, but I imagine it would make it into the design of the plan.

They should also allow people to not annuitize this pension, if they want it paid to their estate in the event of their death.


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## HaroldCrump

MoneyGal said:


> The best solution for an expanded public pension option might be a DC-style plan with CPPIB management, which provides an option to annuitize starting at, say, 10 years out from an NRA (normal retirement age) of 65. This would provide the things the Liberals say is missing from the current system: a simple set of options, low fees, and longevity insurance.


If it is a DCP plan, would it have the guarantee, longevity protection and inflation indexation?
Otherwise, it's just like an RRSP managed by CPPIB, isn't it?
Why would it be any different than investing your RRSP with any other large financial services provider like Manulife, Investors Group, etc.
If optional annuitization after a certain age is the only feature, we can do that even with the RRSP, although it is more complicated and less tax efficient before 71.

IMHO, all the political parties are skirting the real issue.
All of them are proposing variations of a DCPP managed either by CPPIB (Liberals) or the private sector (conservatives).
Only the NDP has proposed a true expansion of the CPP, which provides a true DBPP for all working Canadians.
However, given that several provinces are certain to veto that and also the fact that the NDP has no chance of getting elected, it's a moot point.

But even the NDP's plan falls far short of giving private sector employed Canadians access to a pension system even close to what the public sector enjoys.


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## MoneyGal

Well, once you annuitize, you'd get longevity insurance. You'd get the guarantee provided by the issuer and backed by Assuris. And you'd get inflation protection if you bought it. 

How would this be different from an RRSP invested with Manulife or IG or any other provider? It would correct for what the Liberals (for example) say is the current problem with the retirement savings environment: high costs, complexity and the lack of longevity insurance. 

I am not sure why people working outside the public sector should be "given" access to a retirement savings option which is identical to the public sector option. 

Working in the public sector provides a more "bond-like" approach to valuing your human capital, and a more secure employment pension is one aspect of that. 

Working the private sector provides a more "stock-like" approach to human capital - which means you have the potential (but not guarantee) to earn more, and correspondingly you should invest more conservatively and save more than if your human capital was bond-like.


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## andrewf

The Liberals have suggested a 'gradual increase' in CPP. It's been pretty vague, which is sensible as the level would have to be negotiated. This doesn't require unanimous consent of the provinces, just 2/3rds of the provinces with 2/3rds of the population. Thus only Ontario has a veto, and they've made supportive noises. AFAIK, only Alberta and Saskatchewan have opposed increasing the size of CPP benefits.

Even an RRSP-like program administered by CPPIB can have benefits. It'd likely have lower fees, helping with fee drag on returns. It might also be more responsibly managed than DCPPs that allow/leave it to plan participants to select their asset allocation.


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## MoneyGal

If you are interested in CPP reform, this book is a fascinating overview of the most recent round of changes.


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## HaroldCrump

MoneyGal said:


> Well, once you annuitize, you'd get longevity insurance. You'd get the guarantee provided by the issuer and backed by Assuris. And you'd get inflation protection if you bought it.


True, however (and you may already have numbers to support/refute it), but how much "capital" would be required to annuitize an RRSP/DCP vs. a being part of a DBP from the get-go?
Say for a 55 yr. old male (in today's dollars) looking to retire.
Wouldn't it be "cheaper" for this person to have been part of a DBP when he started working at (say, at age 24) rather than attempt to annuitize his RRSP or DCP at age 55.



> I am not sure why people working outside the public sector should be "given" access to a retirement savings option which is identical to the public sector option.


Isn't that what the whole "retirement crisis" is all about i.e. people outside the public sector system not having equivalent (or any) pension plan?
People inside the public sector system do not have a pension crisis - it's the people outside...the haves vis-a-vis the have-nots.

Note that the only reason public sector is able to provide this so-called gold-plated plan is not due to any innate efficiency in the system or the investing prowess of their money managers but simply due to the ultimate revenue generation ability of the sponsor of the plan.



> Working in the public sector provides a more "bond-like" approach to valuing your human capital, and a more secure employment pension is one aspect of that.
> 
> Working the private sector provides a more "stock-like" approach to human capital - which means you have the potential (but not guarantee) to earn more, and correspondingly you should invest more conservatively and save more than if your human capital was bond-like.


True, but the problem of propensity to save is just part of the retirement crisis problem.
A spendthrift is better off in the public sector pension system due to its forced nature.
However, a conscious saver is not better off outside the public sector system.
Also, the potential to earn better outside the public sector system is a thing of the past, at best. I'd contend that it is (and always was) a myth in the first place.
It is applicable only for a miniscule % of the population that are CEOs and executives at large coporations and receive hundreds of thousands in salary and even more millions in bonuses and options.
For the rest of private sector workers, it is a myth.


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## Four Pillars

HaroldCrump said:


> ...[excellent comments]
> 
> Also, the potential to earn better outside the public sector system is a thing of the past, at best. I'd contend that it is (and always was) a myth in the first place.
> It is applicable only for a miniscule % of the population that are CEOs and executives at large coporations and receive hundreds of thousands in salary and even more millions in bonuses and options.
> For the rest of private sector workers, it is a myth.


Exactly - most of us are just doing our version of the assembly line.


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## andrewf

It might be true for a few professional workers, but for the vast majority, public sector total compensation is often much better. For my skill set, it seems to be about 30 or 40% premium to work in the private sector. I have a strong distaste for unionized environments and I'd be worried about hating it, but the extra compensation is tempting.


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## MoneyGal

Meh. I could have and probably should have just said "working in the private sector is a more stock-like approach to valuing your human capital." 

I know that total compensation in the public sector for many, perhaps most public sector workers is almost certainly greater than for their equivalent in the private sector. But just look at the example of our young Mo Bettah thread author for a perfect example of risky, stock-like human capital which far outstrips what his experience could bring in the public sector. 

My larger point though was that the two sectors provide very different approaches to valuing human capital and I do not follow the logic of providing 
"the same" access to pension guarantees in both sectors. In fact, in earlier threads on this topic I seem to recall public sector workers expressing concern about the perceived constraints to which they are subject which aren't present for private sector workers.


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## andrewf

The grass is always greener...


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## MoneyGal

Here's the older thread I was thinking of: 

http://canadianmoneyforum.com/showthread.php?t=1209&page=5

But there are other threads with similar messages as well.


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