Author Topic: Canadian announcement Re:CPP contributions  (Read 5925 times)

Le Poisson

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Canadian announcement Re:CPP contributions
« on: May 29, 2015, 05:52:25 AM »
http://www.cbc.ca/news/business/cpp-plan-won-t-help-savers-or-stop-the-pension-crisis-don-pittis-1.3089335

So what is everyone on here thinking about this announcement? I see three possibilities.

1. I don't give a damn - I'm going to be FI anyways and the CPP won't affect me. I'll continue to pay what I have to an no more.
2. Its a bad investment - back end taxes suck, I'll keep putting cash in my TFSA until its maxed out, then hit the RRSP, and leave this as a last resort investment, actually, no, I'll just invest on my own since this has no shelter, and I'm confident in my abilities.
3. Gimme-Gimme - I'm not going to hit FI and anything I can do is a help.

#3 seems to be mostly folks who haven't drank the MMM Kool-Ade. Seems most of us won't be affected by this decision at all. Or am I missing something? On the upside, at least this is a voluntary tax/contribution that isn't being forced on everyone.

powersuitrecall

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Re: Canadian announcement Re:CPP contributions
« Reply #1 on: May 29, 2015, 07:35:00 AM »
1. It's probably not going to impact me but I'll reserve judgment until it happens :)

sleepyguy

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Re: Canadian announcement Re:CPP contributions
« Reply #2 on: May 29, 2015, 07:53:56 AM »
Yup pretty much #2 for us, we don't even put CPP as part of our retirement income, lol.  Then again if we retire early we haven't even come close to contributing the "max -M" amount.

GuitarStv

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Re: Canadian announcement Re:CPP contributions
« Reply #3 on: May 29, 2015, 08:22:19 AM »
If people aren't already taking advantage of TFSAs and RRSPs, I'm not really seeing how this change will provide real help to anybody.

fb132

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Re: Canadian announcement Re:CPP contributions
« Reply #4 on: May 29, 2015, 08:31:23 AM »
People should start realizing that they shouldn't rely on the goverment, period....especially when it comes to retirement.

RichMoose

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Re: Canadian announcement Re:CPP contributions
« Reply #5 on: May 29, 2015, 10:38:51 AM »
An expanded CPP program (ie. one that covers about 40% of AMPE rather than 25% of AMPE) would likely benefit the vast majority of Canadians over the long run. Most Canadians are stuck in high-cost funds provided by our major insurance firms. Generally all the workplace DC plans and most popular private "financial advisors" work for these companies. This means the only people making money are the investors in those firms and the "advisors" that work for them.

As for me and most Mustachians, obviously expanded CPP won't do us any favours.

A voluntary expanded CPP is a joke and the Cons know it. It is just a pre-election ploy because they don't want CPP to become a major election issue, especially when NDP and Libs are pushing hard for an expanded program.

nobodyspecial

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Re: Canadian announcement Re:CPP contributions
« Reply #6 on: May 29, 2015, 09:05:22 PM »
It could possibly make sense for mustachians.
You don't contribute many years to CCP because you retire early, so you don't 'invest' your $2700 in the government for life.
Then when you reach "pension age - 1year" buy up a bunch of years of contribution with the profits on YOUR investment.
Works like a cheap annuity policy

(They haven't announced all the details yet, and if you can simply buy unlimited years at current contribution price etc)
     

Kashmani

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Re: Canadian announcement Re:CPP contributions
« Reply #7 on: May 31, 2015, 07:00:18 AM »
Let me be the designated contrarian once more:

I like the idea. As an essentially self-employed person living in a government town, I have always somewhat jealously eyed defined-benefit government pensions and wondered why it was not possible to have voluntary CPP top-ups. From what I can tell, the people that rely on a government pension obsess about money a lot less than I and most people on this forum do ]. I always pay myself a salary to the CPP limit, despite the fact that I have to make both employer and employee contributions, for the simple reason that it is nice to have someone else to the worrying for me for a portion of my funds.

Will a voluntary CPP to-up save people who are currently not saving? No. Will it allow us private-sector shmucks to annuitize part of our retirement savings more cheaply than purchasing an annuity from an insurance company? Absolutely.

I seem to be becoming a conservative in my mid-thirties, despite Winston Churchill's prediction that this usually only happens at 40...


RichMoose

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Re: Canadian announcement Re:CPP contributions
« Reply #8 on: May 31, 2015, 10:52:51 PM »
Let me be the designated contrarian once more:

I like the idea. As an essentially self-employed person living in a government town, I have always somewhat jealously eyed defined-benefit government pensions and wondered why it was not possible to have voluntary CPP top-ups. From what I can tell, the people that rely on a government pension obsess about money a lot less than I and most people on this forum do ]. I always pay myself a salary to the CPP limit, despite the fact that I have to make both employer and employee contributions, for the simple reason that it is nice to have someone else to the worrying for me for a portion of my funds.

Will a voluntary CPP to-up save people who are currently not saving? No. Will it allow us private-sector shmucks to annuitize part of our retirement savings more cheaply than purchasing an annuity from an insurance company? Absolutely.

I seem to be becoming a conservative in my mid-thirties, despite Winston Churchill's prediction that this usually only happens at 40...

What's your feelings about a mandatory expanded CPP?

I'm a government worker and I think our pensions are ridiculous. But I believe a mandatory expanded CPP (increased from 25 to 40% of average monthly pensionable earnings & and increasing the max AMPE to $5000+) would actually fix the problem of lucrative DB pensions. It would be much easier to move to a DC program, or blend of some sort if employees and unions knew CPP would actually provide meaningful guaranteed income in retirement.

Problem is it would decimate our life insurance and financial advisor industry. They would lobby viciously against it.

martin

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Re: Canadian announcement Re:CPP contributions
« Reply #9 on: June 01, 2015, 06:53:17 AM »
DB schemes are a disaster. They encourage people to sit in bad jobs until they hit some magic number of years service + age requirement.
And they only work for people that retire from that job.

I have 3 years of government pension from my first university job in the 90s. But it is based on my tiny post doc salary their at the time. Having the same money in an RRSP all these years would have been much more valuable than knowing I will recieve 1/60 of that $24,000 salary in 20 years time.


Retire-Canada

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Re: Canadian announcement Re:CPP contributions
« Reply #10 on: June 01, 2015, 08:31:20 AM »
http://www.cbc.ca/news/business/cpp-plan-won-t-help-savers-or-stop-the-pension-crisis-don-pittis-1.3089335

So what is everyone on here thinking about this announcement? I see three possibilities.

1. I don't give a damn - I'm going to be FI anyways and the CPP won't affect me. I'll continue to pay what I have to an no more.

The voluntary CPP change won't affect me. I'm not giving the Gov't any more $$ than I have to. Historic CPP returns are no better than what I can do myself and giving the Gov't my $$ means I have less control of how it is invested and when I can get it out. All CPP payments count as interest so I can't take advantage of any of the tax optimization strategies I can with investments I manage.

From a personal perspective it means nothing to me.

As a CDN citizen I think a mandatory CPP contribution increase to a level that people could retire comfortably on the payouts would be a good thing for most people who are crap at saving/investing. I'd be willing to take a hit on my CPP contributions for the rest of my working years to support this plan even if it doesn't really help me. Despite the fact as a self-employed consultant I pay double the CPP [employee + employer] of a working CDN.

cjottawa

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Re: Canadian announcement Re:CPP contributions
« Reply #11 on: June 01, 2015, 08:38:38 AM »
Andrew Coyne: Whether voluntary or mandatory, there is no need to expand the CPP

http://news.nationalpost.com/full-comment/andrew-coyne-whether-voluntary-or-mandatory-there-is-no-need-to-expand-the-cpp

I agree with Coyne's take on the issues.

We have enough of a social safety net in place to prevent elderly Canadians from having to eat dog food or be homeless in their retirement.

That said, I would cite a Mr. Money Mustache article here:
http://www.mrmoneymustache.com/2013/10/07/how-big-is-your-circle-of-control/

This is completely out of your control; stop thinking about it.

Go outside.

Enjoy the fresh air.

Life's good, and will continue to be, regardless of what happens to CPP.

Tanor85

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Re: Canadian announcement Re:CPP contributions
« Reply #12 on: June 01, 2015, 09:15:27 AM »
Would the employer's contribution increase along with the employee's contribution?

lostamonkey

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Re: Canadian announcement Re:CPP contributions
« Reply #13 on: June 01, 2015, 09:27:14 AM »
If there is a forced employer match to voluntary contributions then I will probably contribute. If not, then I probably won't contribute. CPP kinda sucks because you can't collect on it till you are old and it is tax inefficient (fully taxable on withdrawl and you only get a tax credit when you contribute). But unlike American Social Security, I think CPP is actually sustainable for the long term.
« Last Edit: June 01, 2015, 09:28:47 AM by lostamonkey »

Al1961

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Re: Canadian announcement Re:CPP contributions
« Reply #14 on: June 01, 2015, 09:51:58 AM »
Would the employer's contribution increase along with the employee's contribution?

No. There was no proposal to do that. Because....

In conservative speak, that would make it a JOB KILLING TAX!

Al

daverobev

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Re: Canadian announcement Re:CPP contributions
« Reply #15 on: June 01, 2015, 02:53:04 PM »
Andrew Coyne: Whether voluntary or mandatory, there is no need to expand the CPP

http://news.nationalpost.com/full-comment/andrew-coyne-whether-voluntary-or-mandatory-there-is-no-need-to-expand-the-cpp

I agree with Coyne's take on the issues.

We have enough of a social safety net in place to prevent elderly Canadians from having to eat dog food or be homeless in their retirement.

That said, I would cite a Mr. Money Mustache article here:
http://www.mrmoneymustache.com/2013/10/07/how-big-is-your-circle-of-control/

This is completely out of your control; stop thinking about it.

Go outside.

Enjoy the fresh air.

Life's good, and will continue to be, regardless of what happens to CPP.

Totally agree. CPP contribs and benefits are linked to inflation; if they are enough now, they will be enough always. No need to keep on tinkering with everything.

Now, if they want to cut OAS and GIS, it's a different story. Guaranteed Min Income must be the future, somehow, because so many people are unable to get consistent work... I mean, if you're not earning, you're not paying in to CPP, right?

Kashmani

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Re: Canadian announcement Re:CPP contributions
« Reply #16 on: June 01, 2015, 04:49:43 PM »
DB schemes are a disaster. They encourage people to sit in bad jobs until they hit some magic number of years service + age requirement.
And they only work for people that retire from that job.

I have 3 years of government pension from my first university job in the 90s. But it is based on my tiny post doc salary their at the time. Having the same money in an RRSP all these years would have been much more valuable than knowing I will recieve 1/60 of that $24,000 salary in 20 years time.

I disagree - DB schemes are the only ones that make sense. If statistically, an actuarially sound DB system can assume that everyone dies at 78, a 100% private system would have everyone assuming that they live to at least 90. That is an additional 12 years of income for every single recipient. Considering that the average age of death will still be 78, half of that 12-year surplus will make its way back to government by way of taxes. The result? On average, everybody has to work longer and the only winner is government which collects more tax revenue.

Then there is the benefit of not having to learn about investing. While a competent Mustachian can likely get a good return, how many hundreds, if not thousands, of hours did you invest over the years to become good at it and learn what to do? Let's face it, it's not like one can google "best investment strategy" and get the universal truth. The government employees I know spent that time knitting or playing Dungeons & Dragons, which sounds like a lot more fun than reading about investment returns, MERs, diversification, P/E ratios, etc.
 

lostamonkey

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Re: Canadian announcement Re:CPP contributions
« Reply #17 on: June 01, 2015, 06:36:11 PM »
DB schemes are a disaster. They encourage people to sit in bad jobs until they hit some magic number of years service + age requirement.
And they only work for people that retire from that job.

I have 3 years of government pension from my first university job in the 90s. But it is based on my tiny post doc salary their at the time. Having the same money in an RRSP all these years would have been much more valuable than knowing I will recieve 1/60 of that $24,000 salary in 20 years time.

I disagree - DB schemes are the only ones that make sense. If statistically, an actuarially sound DB system can assume that everyone dies at 78, a 100% private system would have everyone assuming that they live to at least 90. That is an additional 12 years of income for every single recipient. Considering that the average age of death will still be 78, half of that 12-year surplus will make its way back to government by way of taxes. The result? On average, everybody has to work longer and the only winner is government which collects more tax revenue.

Then there is the benefit of not having to learn about investing. While a competent Mustachian can likely get a good return, how many hundreds, if not thousands, of hours did you invest over the years to become good at it and learn what to do? Let's face it, it's not like one can google "best investment strategy" and get the universal truth. The government employees I know spent that time knitting or playing Dungeons & Dragons, which sounds like a lot more fun than reading about investment returns, MERs, diversification, P/E ratios, etc.

Defined Benefit Pension Plans are great for people who take a standard baby-boomer approach to life. These people graduate college, stay at the same job till they are 60, contribute a small amount to their pension plan every year, retire and live well off the pensions. Defined benefit pension plans don't work well for people like myself who are only going to be in the labor market for 10 years and job hopp in order to maximize income.

sky_northern

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Re: Canadian announcement Re:CPP contributions
« Reply #18 on: June 02, 2015, 05:27:25 PM »
DB schemes are a disaster. They encourage people to sit in bad jobs until they hit some magic number of years service + age requirement.
And they only work for people that retire from that job.

I have 3 years of government pension from my first university job in the 90s. But it is based on my tiny post doc salary their at the time. Having the same money in an RRSP all these years would have been much more valuable than knowing I will recieve 1/60 of that $24,000 salary in 20 years time.

I disagree - DB schemes are the only ones that make sense. If statistically, an actuarially sound DB system can assume that everyone dies at 78, a 100% private system would have everyone assuming that they live to at least 90. That is an additional 12 years of income for every single recipient. Considering that the average age of death will still be 78, half of that 12-year surplus will make its way back to government by way of taxes. The result? On average, everybody has to work longer and the only winner is government which collects more tax revenue.

Then there is the benefit of not having to learn about investing. While a competent Mustachian can likely get a good return, how many hundreds, if not thousands, of hours did you invest over the years to become good at it and learn what to do? Let's face it, it's not like one can google "best investment strategy" and get the universal truth. The government employees I know spent that time knitting or playing Dungeons & Dragons, which sounds like a lot more fun than reading about investment returns, MERs, diversification, P/E ratios, etc.

Defined Benefit Pension Plans are great for people who take a standard baby-boomer approach to life. These people graduate college, stay at the same job till they are 60, contribute a small amount to their pension plan every year, retire and live well off the pensions. Defined benefit pension plans don't work well for people like myself who are only going to be in the labor market for 10 years and job hopp in order to maximize income.

I have a love - hate relationship with the DB pension. When I started working I thought it was great - I could work 30 year and retire at 55 - freedom 55, baby! No need to save anything on my own, blow all the money from the paycheck!! Then wake up in 10 years, realize that there are things you really don't like about the job but you feel trapped, with no savings.

Now I'm actually paying attention to my money so I don't feel trapped, have savings and can retire sooner than 55.

SK Joyous

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Re: Canadian announcement Re:CPP contributions
« Reply #19 on: June 03, 2015, 04:47:23 PM »

The voluntary CPP change won't affect me. I'm not giving the Gov't any more $$ than I have to. Historic CPP returns are no better than what I can do myself and giving the Gov't my $$ means I have less control of how it is invested and when I can get it out. All CPP payments count as interest so I can't take advantage of any of the tax optimization strategies I can with investments I manage.

From a personal perspective it means nothing to me.

As a CDN citizen I think a mandatory CPP contribution increase to a level that people could retire comfortably on the payouts would be a good thing for most people who are crap at saving/investing. I'd be willing to take a hit on my CPP contributions for the rest of my working years to support this plan even if it doesn't really help me. Despite the fact as a self-employed consultant I pay double the CPP [employee + employer] of a working CDN.

+1 on not personally contributing, but in favour of it as a citizen to help others maintain a basic standard of living in old age.  The other reason I am in favour is because there are many people that are not very capable (for a number of reasons) of becoming good DIY investors, and the MERs for bank or credit union mutual funds are outrageous to the point of theft.  I would prefer for those people to be able to put a bit more money into CPP with a 'guaranteed' return and not a bunch of fees eating it away to nothing.

Just because something doesn't benefit us personally doesn't mean we don't care :)

nobodyspecial

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Re: Canadian announcement Re:CPP contributions
« Reply #20 on: June 03, 2015, 05:40:32 PM »
+1 on not personally contributing, but in favour of it as a citizen to help others maintain a basic standard of living in old age. 
But CPP is a direct purchase scheme? You get back an amount based on the number of years YOU contribute, so other than the government raiding the piggy bank to pay for other programs I don't see how it benefits others


lostamonkey

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Re: Canadian announcement Re:CPP contributions
« Reply #21 on: June 03, 2015, 07:14:52 PM »
+1 on not personally contributing, but in favour of it as a citizen to help others maintain a basic standard of living in old age. 
But CPP is a direct purchase scheme? You get back an amount based on the number of years YOU contribute, so other than the government raiding the piggy bank to pay for other programs I don't see how it benefits others

CPP is kind of progressive so you don't get exactly what you put in. There is a fairly large provision for child care years without wages, survivor benefits, and child of deceased benefits. None of these will benefit a single person who didn't have kids. A person with a large family whose spouse dies first will benefit a lot.