Personal Finance

Can one opt-out of CPP (Canada Pension Plan) from Taxes?

  • Last Updated:
  • Feb 24th, 2010 7:45 pm
Tags:
None
Member
User avatar
May 15, 2007
479 posts
3 upvotes

Can one opt-out of CPP (Canada Pension Plan) from Taxes?

I noticed on my t4 slips that i have this thing called CPP (Canada Pension Plan). Is there a way to opt-out and get my money that is going into that each month?
46 replies
Deal Addict
Feb 20, 2006
1186 posts
48 upvotes
Vancouver
No, but deductions will cease for the year when you reach the CPP maximum pensionable earnings, which are around 43,000 IIRC.
Deal Addict
User avatar
Oct 27, 2002
2060 posts
853 upvotes
Toronto
Sanchez wrote: No, but deductions will cease for the year when you reach the CPP maximum pensionable earnings, which are around 43,000 IIRC.
How much do you have to be making in order to reach that in a year? $300,000? Wait, more like $800,000?
Deal Addict
Feb 20, 2006
1186 posts
48 upvotes
Vancouver
You have to make 43,000 a year to reach 43,000 in earnings a year.
Banned
Jun 19, 2006
9349 posts
57 upvotes
Unfortunately, no you can't opt out of CPP, which is a pitiful situation for a younger investor who should only expect returns of around 5%/annum from their contributions.
Newbie
Mar 10, 2007
93 posts
Only way to do it is if you can get yourself into a properly set up EPSP (Employee Profit Sharing Plan).
Deal Fanatic
Jul 4, 2004
9467 posts
2643 upvotes
pitz wrote: Unfortunately, no you can't opt out of CPP, which is a pitiful situation for a younger investor who should only expect returns of around 5%/annum from their contributions.
I can see the government's point. If a lot of people were allowed to opt out the CPP plan would collapse. And secondly, most people who would opt out would screw themselves so good with their investing techniques that the CPP would've been the only thing that could helped save them from working till death.
Sr. Member
Dec 10, 2006
603 posts
163 upvotes
This is my understanding of the CPP, and no you can't opt out of it.

1) You put in a certain amount of money every year.
2) There is absolutely no guarantee you will ever see a cent of this money again. The program can be abolished or changed at any point.
3) When you stop working, you have put in $x dollars.
4) You start receiving cheques every month. There is a maximum to these cheques. You will never see the total amount you put into the CPP. It will likely be a small fraction ~30% of the $x dollars, depending on how long you live.

Oh, and once you die your family won't receive anything other than a small cheque.

I can't believe people actually think this program is a good idea. It seems like complete fraud to me, unless I misunderstand how the program works..
Deal Expert
User avatar
Apr 16, 2001
16511 posts
3315 upvotes
CPP (and EI, but I digress) is a joke. However, given that the majority of people are not responsible enough to plan their own retirements, it is an unfortunate necessity.
Blacklisted companies: Roku, Lenovo, Motorola, TP-Link, D-Link, Samsung, HP, LG, Public Mobile
Sr. Member
Aug 4, 2004
534 posts
11 upvotes
bs9999 wrote: I noticed on my t4 slips that i have this thing called CPP (Canada Pension Plan).

Is there a way to opt-out

Yes, do not have any income.

and get my money that is going into that each month?

Yes, there is but you will have to wait until you are sixty at least.

Until then you are going to have to bite the bullet. At least you are only paying the employee half. Try paying both sides and see how much that hurts every 12 months when I pay my taxes.
Deal Addict
Jan 1, 2005
1829 posts
121 upvotes
Calgary
Rocky Mountains wrote: Only way to do it is if you can get yourself into a properly set up EPSP (Employee Profit Sharing Plan).
This option is not available for OP as EPSP is usually used/setup for the benefit of owner/shareholder of the company.
Deal Addict
Jul 28, 2005
3237 posts
27 upvotes
If you run the numbers, the benefits aren't that horrible (although, you do have to fudge the numbers a bit :) ). They're by no means great, but the benefits are not as horrible as some of you seem to think.

Right now the max amount an employee pays is just under $2000/year. Let's pretend it will only go up by the amount of inflation. The max benefit is $860 a month (indexed), or just over $10k/year (I believe this is fully indexed, not partially, but am not positive.)

If we look at a scenario where you invest the money yourself:
  • Real (indexed to inflation) contributions of $2K/year
  • 40 years total
  • Assume Real growth of 5%
  • Grand total: $267K
  • Assume standard Real safe withdrawal rate of 4%
  • This gives you: $10.5K/year
So, if you are only dealing with the standard employee contribution, then the return you are getting in retirement is quite reasonable.


Of course, one of the big pieces of fudging is that I'm totally ignoring the employer contributions. But unless you're self-employed, do many people give a lot of thought to the employer half of the contributions? Seriously, when most people are complaining about how large the CPP deduction is, how many of them are giving even a second of thought to the employer portion (or are even aware of it)?

Now, once you add the employer contributions the returns look quite bad, but the mandate of the CPP doesn't allow it to invest in a way that lets it even come close to a 5% real return.

So, if you could invest both your and your employer contribution and knew what you were doing, you should do better than what the CPP pays. But, much too many people don't have a clue what they're doing, and to preserve some semblance of social order, a plan like the CPP is always going to be required in a modern society.
Banned
Jun 19, 2006
9349 posts
57 upvotes
Frankie3s wrote: I can see the government's point. If a lot of people were allowed to opt out the CPP plan would collapse. And secondly, most people who would opt out would screw themselves so good with their investing techniques that the CPP would've been the only thing that could helped save them from working till death.
CPP isn't a ponzi scheme like the US "social security". CPP is backed with actual investments. CPP could be cancelled tomorrow and could still make all benefit payments that have been accrued to date.

The problems with CPP that I see:

a) It provides excess returns to the current elderly, while providing reduced returns to younger contributors;

b) It has been used as a tool of social welfare, rather than a strict retirement scheme. For example, certain contributors are allowed to subtract more years of no contributions than others.

c) Its not particularly tax efficient and it forces annuitization onto people who might have excess assets. If you live to 100, great, you will do well with CPP, but you're screwed if you die earlier than normal.

d) The actions of its management into getting into 'alternative' investments such as private equity, hedge funds, and real estate are somewhat questionable. For instance, it has been proposed that the CPP buy a part of Bell Canada. If Bell wasn't of much interest to investors in the public markets, why should a public pension fund be investing in it? And why should they be sharing the bounty with a private equity firm?

and

e) CPP contributions might be better used by individuals elsewhere, ie: to reduce very high interest rate credit card debt.
Deal Addict
User avatar
Jun 22, 2004
3048 posts
944 upvotes
Rocky Mountains wrote: Only way to do it is if you can get yourself into a properly set up EPSP (Employee Profit Sharing Plan).
May not come off you cheque, but you pay in the end come tax time. The government gets it's money. And I am pretty sure you pay more because you have to pay the employer's portion also.
Deal Fanatic
Feb 1, 2006
9645 posts
911 upvotes
Muskoka
e909 wrote: This is my understanding of the CPP, and no you can't opt out of it.

1) You put in a certain amount of money every year.
2) There is absolutely no guarantee you will ever see a cent of this money again. The program can be abolished or changed at any point.
3) When you stop working, you have put in $x dollars.
4) You start receiving cheques every month. There is a maximum to these cheques. You will never see the total amount you put into the CPP. It will likely be a small fraction ~30% of the $x dollars, depending on how long you live.

Oh, and once you die your family won't receive anything other than a small cheque.

I can't believe people actually think this program is a good idea. It seems like complete fraud to me, unless I misunderstand how the program works..
You've got it all quite wrong, unfortunately. The CPP is actuarially proven sound for the next 75 years at least, they money does not come from general revenues. You will get back everything you put in, plus your employers contributions, plus growth. Possibly less growth than you may have been able to earn on your own if you were a savvy investor, but for most people it's probably better growth than they'd get on their own. Being a massive entitity, they get preferential rates that individuals could never get, for example. It's highly unlikely it will be cancelled anytime in our lifetimes, and as Pitz said, even if it was, the money is there to pay those who've contributed to it up to that point.
Deal Fanatic
Feb 1, 2006
9645 posts
911 upvotes
Muskoka
As for the OP, the reason you can't opt out is that if you could, most people would. The average joe would rather blow their money on trinkets and shiny things now than save it for tomorrow, even if they'd be better off with the latter option. The CPP, then, is a tool to protect future taxpayers from the burden of these people later in life, when they are no longer able to work, but now have no savings. Society says it's immoral to let these short-sighted folks live on cat food, shivering in the dark, in their elderly years, even if it was their own doing that got them there.
Deal Expert
User avatar
Dec 11, 2005
20123 posts
2949 upvotes
asdfvcx wrote: If you run the numbers, the benefits aren't that horrible (although, you do have to fudge the numbers a bit :) ). They're by no means great, but the benefits are not as horrible as some of you seem to think.

Right now the max amount an employee pays is just under $2000/year. Let's pretend it will only go up by the amount of inflation. The max benefit is $860 a month (indexed), or just over $10k/year (I believe this is fully indexed, not partially, but am not positive.)

If we look at a scenario where you invest the money yourself:
  • Real (indexed to inflation) contributions of $2K/year
  • 40 years total
  • Assume Real growth of 5%
  • Grand total: $267K
  • Assume standard Real safe withdrawal rate of 4%
  • This gives you: $10.5K/year
So, if you are only dealing with the standard employee contribution, then the return you are getting in retirement is quite reasonable.


Of course, one of the big pieces of fudging is that I'm totally ignoring the employer contributions. But unless you're self-employed, do many people give a lot of thought to the employer half of the contributions? Seriously, when most people are complaining about how large the CPP deduction is, how many of them are giving even a second of thought to the employer portion (or are even aware of it)?

Now, once you add the employer contributions the returns look quite bad, but the mandate of the CPP doesn't allow it to invest in a way that lets it even come close to a 5% real return.

So, if you could invest both your and your employer contribution and knew what you were doing, you should do better than what the CPP pays. But, much too many people don't have a clue what they're doing, and to preserve some semblance of social order, a plan like the CPP is always going to be required in a modern society.
IMO there is another benefit here - it's backed by the government.

This is something that is hard to quantify in monetary terms, but if I was an investor, it is a huge comfort to me. In fact I would likely contribute EXTRA to my CPP and forego my RRSP, in return for higher monthly payments when I retire, if such a thing was allowed.

Why would I do that when my rate of return may be lower? Because it is backed by the government. The odds of CPP "being outright cancelled" like some people say in here are extremely low. It would be absolute political suicide for any government in power to do that, especially with the top-heavy population demographics we're in now.

If anything, the opposite would happen. If all investments the CPP were involved in collapsed, or if there was another depression, the government would still have to pay it out. You can't say this about most other investments.
Newbie
Mar 10, 2007
93 posts
engo wrote: This option is not available for OP as EPSP is usually used/setup for the benefit of owner/shareholder of the company.
Exactly my point.
Newbie
Mar 10, 2007
93 posts
knapper wrote: May not come off you cheque, but you pay in the end come tax time. The government gets it's money. And I am pretty sure you pay more because you have to pay the employer's portion also.
Actually, no. These earnings are not CPP-assessable.
Deal Addict
User avatar
Jun 22, 2004
3048 posts
944 upvotes
Rocky Mountains wrote: Actually, no. These earnings are not CPP-assessable.
You don't pay CPP though taxes under an EPSP? Or you don't pay more? I have not been an 'employee' at my firm for a number of years, where may earnings are based on profit sharing, and I can guarantee that I pay CPP on my taxes...

Top