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I'm a Canada Pension Plan (CPP) expert. Any questions?

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Dogger1953 wrote: Since you cannot make voluntary CPP contributions on income that isn't subject to CPP, the point is probably moot; but I personally would not normally recommend making such contributions if it were an option.
@CraigB806782 To add to what @Dogger1953 said, it sounds like you're just wanting to voluntarily contribute to a pension plan, perhaps because your employer does not offer one. In that case, you should give the Saskatchewan Pension Plan a look. It's not a defined benefit plan, but they've opened up the number of retirement options available to you such that you can opt for annuity like payments and now opt for a variable retirement benefit (like a RRIF). There are no administrative fees, the management expense ratio is comparable to and even lower than Tangerine's and Simplii's index mutual fund portfolios, and you do benefit from the creditor protections of a pension plan. You do not need to be a Saskatchewan resident to participate.

Cheers,
Doug
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PaliGap wrote: Hi Doug. Has the CPI increase been finalized at 6.5% for 2023?
I have not seen the official News Release yet, but I cannot see how it will be anything other than 6.5%.
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Dogger1953 wrote: I have not seen the official News Release yet, but I cannot see how it will be anything other than 6.5%.
Thank you.
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@CraigB18914 You should also know that the Canada Pension Plan is actually a horrible defined benefit pension plan for single people, or even couples, where one or both pass away within a few years of retirement. Whereas most defined benefit plans provide participants at the least the option to select a guaranteed minimum payout period, the Canada Pension Plan's death benefit is a measuly up to $2,500. The federal government should do the right thing, and provide CPP retirees the option to select a death benefit amount upon their retirement, which could include no death benefit, a minimum five-year guarantee (should be the default), or ten- or twenty-year guarantees. Those minimums, of course, would reduce the annual payments, but the option should be there.

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Doug
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dmehus wrote: @CraigB18914 You should also know that the Canada Pension Plan is actually a horrible defined benefit pension plan for single people, or even couples, where one or both pass away within a few years of retirement. Whereas most defined benefit plans provide participants at the least the option to select a guaranteed minimum payout period, the Canada Pension Plan's death benefit is a measuly up to $2,500. The federal government should do the right thing, and provide CPP retirees the option to select a death benefit amount upon their retirement, which could include no death benefit, a minimum five-year guarantee (should be the default), or ten- or twenty-year guarantees. Those minimums, of course, would reduce the annual payments, but the option should be there.

Cheers,
Doug
I'd prefer the ability to opt out and put mine/my employer's CPP contributions towards a locked in RRSP.

Unfortunately CPP is partially a welfare program where we subsidize the stupid/incompetents in Canada so we need to consider the social benefit.
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asbraich wrote: I'd prefer the ability to opt out and put mine/my employer's CPP contributions towards a locked in RRSP.

Unfortunately CPP is partially a welfare program where we subsidize the stupid/incompetents in Canada so we need to consider the social benefit.
That would be nice, yeah. Ideally, Old Age Security would be a fully funded social welfare program, managed by an investment board like the CPP.

I think the CPP is a generally well managed pension plan, so I'd be fine with keeping it, but they do have to improve the death benefit significantly and they need to consider whether their active management strategy has truly been a good thing over the really long term (i.e., not just 5-15 years). net of investment costs.

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Doug
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dmehus wrote: @CraigB18914 You should also know that the Canada Pension Plan is actually a horrible defined benefit pension plan for single people, or even couples, where one or both pass away within a few years of retirement. Whereas most defined benefit plans provide participants at the least the option to select a guaranteed minimum payout period, the Canada Pension Plan's death benefit is a measuly up to $2,500. The federal government should do the right thing, and provide CPP retirees the option to select a death benefit amount upon their retirement, which could include no death benefit, a minimum five-year guarantee (should be the default), or ten- or twenty-year guarantees. Those minimums, of course, would reduce the annual payments, but the option should be there.
You're forgetting about the CPP survivor benefit.
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adrian2 wrote: You're forgetting about the CPP survivor benefit.
Nope. That doesn't help single retired persons, or for spouses who die within a short time after each other and within five years of the first spouse retiring. In this way, most, at least the fully funded ones, defined benefit pension plans are superior to the CPP in that they provide a minimum payout guarantee. The CPP does not do that. If it did, I'd have a lot more love for it, as I do for my Municipal Pension Plan. :)

Cheers,
Doug
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dmehus wrote: Nope. That doesn't help single retired persons, or for spouses who die within a short time after each other and within five years of the first spouse retiring. In this way, most, at least the fully funded ones, defined benefit pension plans are superior to the CPP in that they provide a minimum payout guarantee. The CPP does not do that. If it did, I'd have a lot more love for it, as I do for my Municipal Pension Plan. :)
The basic function of a defined benefit pension plan is to provide money for as long as you live, no more, no less.

It's not meant to provide for the heirs (and CPP does that, for both the spouse and/or minor children).

In your scenario of allowing to choose a guaranteed period, when would a person be asked to make the choice? If only when starting the pension, it would raise the question why not in advance, in case of an unexpected early demise? If your answer is to mimic other pension plans with a 5 year default, then it would require having the default pay less than the current no minimum period calculation, which would raise a lot of eyebrows "the government has cut the CPP, compared to the pre-existing rates".

Personally, I think the CPP is fine just the way it is; complicating it based on your suggestion would confuse quite a number of people (not including most of the forum audience).
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adrian2 wrote: The basic function of a defined benefit pension plan is to provide money for as long as you live, no more, no less.

It's not meant to provide for the heirs (and CPP does that, for both the spouse and/or minor children).

In your scenario of allowing to choose a guaranteed period, when would a person be asked to make the choice? If only when starting the pension, it would raise the question why not in advance, in case of an unexpected early demise? If your answer is to mimic other pension plans with a 5 year default, then it would require having the default pay less than the current no minimum period calculation, which would raise a lot of eyebrows "the government has cut the CPP, compared to the pre-existing rates".

Personally, I think the CPP is fine just the way it is; complicating it based on your suggestion would confuse quite a number of people (not including most of the forum audience).
Except why should the CPP be any different from literally most, if not all, other defined benefit pension plans? The person would be asked to make the choice when starting a pension. If the CPP contribution rates need to be raised to account for the guarantee period, then so be it, I'd be in favour of that, but only after a full forensic and investment performance audit had been to compare it against various passive investment portfolios, all net of fees, of course. If someone dies before eligible to take a pension, they'd still receive a guaranteed minimum payout (whatever the default is, typically five years).

Right now, a lot of people pay dearly into the CPP and get little, if anything, out of it.

Alternatively, failing that, at least allow people to permanently opt out of the CPP by taking the commuted value of their CPP upon their retirement. Once permanently opted out, they cannot opt back in and their decision would be irreversible. We should not be giving the CPP special treatment over other DB pension plans.

Cheers,
Doug
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dmehus wrote: Alternatively, failing that, at least allow people to permanently opt out of the CPP by taking the commuted value of their CPP upon their retirement.
Great idea!
Individual takes out the commuted value - spends it in short order - and then expects to receive the Guaranteed Income Supplement, ie additional tax payers money.
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dmehus wrote: Except why should the CPP be any different from literally most, if not all, other defined benefit pension plans?
Because CPP is different, its rules are pretty hard to change.

In some ways CPP is better than other DB pensions:
- you cannot opt out (to me it's a feature, not a bug);
- provides a modest death benefit (nada for DB pensions);
- provides disability pensions (IIRC, fully one third of CPP payouts are of this kind) - nada for a DB pension;
- excludes periods of disability from the contributory period (so when one eventually reaches retirement age, no penalty for the time one couldn't work) - good luck doing that with a DB pension;
- provides survivor pension for minor children or until age 25 if enrolled in post secondary (nada for a DB pension).

Again, the basic function of a pension is to provide for as long as you live, not to build an estate; for that you have savings, investments, real estate, you name it.
Right now, a lot of people pay dearly into the CPP and get little, if anything, out of it.
It depends on your definition of "a lot". For the vast majority of people, it works exactly as designed. If it's not broken, don't try to fix it.
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krs wrote: Great idea!
Individual takes out the commuted value - spends it in short order - and then expects to receive the Guaranteed Income Supplement, ie additional tax payers money.
No, they wouldn't be able to do that. They could only transfer the commuted value to a locked-in retirement vehicle. I'd even be fine with limiting the transfer to an annuity like product (i.e., Life Income Fund) payable over the individual's lifetime, but with a minimum guaranteed payment.

Cheers,
Doug
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adrian2 wrote: In some ways CPP is better than other DB pensions:
- you cannot opt out (to me it's a feature, not a bug);
- provides a modest death benefit (nada for DB pensions);
- provides disability pensions (IIRC, fully one third of CPP payouts are of this kind) - nada for a DB pension;
- excludes periods of disability from the contributory period (so when one eventually reaches retirement age, no penalty for the time one couldn't work) - good luck doing that with a DB pension;
- provides survivor pension for minor children or until age 25 if enrolled in post secondary (nada for a DB pension).
Also - Very few DB pension plans provide an increase for inflation - and if they do, they don't cover the full CPI increase but just a fraction of it, like 60%
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adrian2 wrote: Because CPP is different, its rules are pretty hard to change.

In some ways CPP is better than other DB pensions:
Let me reply to your points in-line.
- you cannot opt out (to me it's a feature, not a bug);
That I'm okay with, so long as there's a guaranteed minimum payout.
- provides a modest death benefit (nada for DB pensions);
Not necessarily true, depending on if you consider a guaranteed minimum payout to functionally equivalent to a death benefit. I do. If you do, then most DB pensions have this. Heck, even most high cost segregated funds and life insurance payments offer this. If you look at the death benefit more narrowly, as to help fund funeral costs, then I'd say this could be eliminated and is of marginal benefit. I'd be fine with eliminating the death benefit completely, if it helps fund a guaranteed minimum pension payout
- provides disability pensions (IIRC, fully one third of CPP payouts are of this kind) - nada for a DB pension;
True, and this is likely a high cost feature of the CPP, but I'd also submit that's not really what the CPP should be funding. It's more of an insurance thing. Ideally, I would rather see this rolled into a revamped Employment and Disability Insurance program, with boosted premiums to help pay for it and have it re-segregated from the Consolidated Revenue Fund, perhaps investment managed by an external entity like the CPPIB. It would then be paid out for the individual's lifetime until they're eligibile for a CPP pension, at which point a smaller payment would continue, owing to the fact they would now be receiving a CPP pension to which they contributed. After all, if you become disabled on the job, you're generally eligible to receive a workers' compensation annuity payment for your lifetime. Why shouldn't we have a mandatory government disability insurance program for non-work related disabilities? ;)
- excludes periods of disability from the contributory period (so when one eventually reaches retirement age, no penalty for the time one couldn't work) - good luck doing that with a DB pension;
Moot by my proposal above.
- provides survivor pension for minor children or until age 25 if enrolled in post secondary (nada for a DB pension).
Agree, this is a good feature, but I would argue it's minimally used compared to the CPP disability pension, and would arguably be better rolled into a mandatory government life insurance program as per my proposal above
Again, the basic function of a pension is to provide for as long as you live, not to build an estate; for that you have savings, investments, real estate, you name it.

It depends on your definition of "a lot". For the vast majority of people, it works exactly as designed. If it's not broken, don't try to fix it.
I'm not saying it's to build an estate, but each person should be able to get a reasonable amount out of it, as they would any other pension.

Cheers,
Doug
Last edited by dmehus on Dec 29th, 2022 4:55 pm, edited 1 time in total.
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krs wrote: Also - Very few DB pension plans provide an increase for inflation - and if they do, they don't cover the full CPI increase but just a fraction of it, like 60%
That is a key difference to, and advantage of, the CPP. It's also expensive, but as I say, if we moved things like disability pensions and eliminated the miniscule death benefit, to a separately funded, costed mandatory insurance regime, we could more than cover a guaranteed minimum payout. If you consider the death benefit to be strictly that, to help cover funeral expenses, then it's not a particularly useful nor necessary feature. That is something a deceased's estate should.

Cheers,
Doug
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Your proposals are reasonable, but IMHO have zero chance of materializing by gaining the required provincial consensus.

As someone said long time ago, "the enemy of a good plan is searching for the perfect plan".

To me, CPP is a good plan. Smiling Face With Open Mouth
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Dogger1953 wrote: The Service Canada agent that said this is an idiot!
dazz wrote: Interesting statement... Because today I reached out to a CPP/OAS processing agent I know who also was NAAL (BEA, I am sure you know what that means) and got a response that your information is not correct. According to the response, both December and January will receive the same inflation adjustment (+ the extra month .6 or .7% for jan).
So again I am wondering if your data is based on some kind of old outdated practices. It's cool to call other agents idiots, but when they all state you are not correct, it's something I'd listen to.
dazz wrote: Interesting, so experienced current agents processing these applications and teaching other agents are idiots and only you figured out the truth for 2022.
We'll see in a few months I suppose.
Dogger1953 wrote: There should be no debate here. Anybody who knows anything about CPP calculations, knows that when a benefit is first approved the amount is based on their average lifetime earnings, escalated to a value based on the average YMPE for the 5 years ending with the year that their benefit is approved. From that point forward, it is indexed to price increases as measured by the CPI. This is why there is a difference virtually every year if you compare the escalated maximum for one year to the maximum for the next year. While most Canadians may not be fully aware of those two basic facts, anybody who works for CPP and is not aware of this issue should be embarrassed, and they should definitely not be advising clients when to take their CPP.
dazz wrote: I read the article this morning, thanks.
Did you read it though? Author is clearly stating he received this info from a reader.
I was told January CPP and OAS rates/info is in the system. can you now back up your claims?
I use voice typing, expect mistakes...

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