Keep Expanded CPP on the Table. David Dodge

[chuckChuck]

As the federal government forges ahead with a plan to provide industry-administered pooled pensions to Canadians without a workplace plan, one of the former governors of the Bank of Canada urged the country to keep talking about an expanded Canada Pension Plan to fill retirement savings gaps.

“I think that is an issue we should continue to think about despite the decisions … governments have made,” David Dodge said during a speech in Toronto on Tuesday.

He floated the idea of an expanded CPP that would raise the percentage of income returned to as much as 40%, with the potential for voluntary contributions to top up future income for higher earners.

CPP currently replaces up to one-quarter of income, but hits a ceiling based on average income.
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Mr. Dodge, who made his remarks in a speech at a conference on pension sustainability in Toronto, said CPP has “a very sound design.” He added that it is already national and portable — a key objective of Ottawa’s proposed pooled registered pension plans.
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What’s more, Mr. Dodge said, an expanded plan could be administered by a system already in place — the Canada Pension Plan Investment Board.

Following his speech, Mr. Dodge said he is not enamoured of the federal government plan to roll out a new industry-administered pooled pension option for people who aren’t covered by workplace plans.

Referring to a term coined by another speaker who called pooled registered pension plans “jumped-up RRSPs,” Mr. Dodge said, “I guess I would be closer to that.”

He questioned how PRPPs would remain low-cost while maintaining choice, particularly when there is no mechanism in place to spread a pensioner’s payout over a retirement that could last many years.

Outside a very large pension fund, “you can’t get anybody to annuitize the benefits at a reasonable cost,” Mr. Dodge said.

Quebec has endorsed the PRPP plan and Alberta’s government is continuing to work toward possible companion legislation, but Ontario is understood to be reluctant to move forward.

Ted Menzies, the federal minister in charge of PRPPs, told the Financial Post last week that Ottawa is counting on companion legislation in all provinces so the plans will be portable for workers who move.

He expanded on that message Tuesday.

“Obviously we expect all provinces to adopt their own PRPP legislation, but we recognize that this may not happen simultaneously,” Mr Menzies said.

“As this process moves forward, I would expect to hear from citizens in provinces whose governments have not yet put forward PRPP legislation,” he added, saying these governments could find themselves facing criticism for not making the option available.

Industry sources expect the topic of retirement savings to be the subject of many private discussions in the lead-up to a meeting of federal and provincial finance ministers next month.

[chuckChuck]

How many people out there are fed up with poor or negative returns in RRSPs? Lots. The only people making money are the financial service industry who often take excessive management fees. The Tories are caving to the Banks again. Dodge has a common sense solution that still allows flexibility.

[SASKFARMER3]

RRSP'S are useless, pay your tax now. Banks
love them "why"?

[SASKFARMER3]

RRSP'S are useless, pay your tax now. Banks
love them "why"?

[liberty]

The last thing I want is for the government to nationalize even more of my retirement savings than they already do. Why not just make the CPP voluntary? The government's traditional track record of investing largely consists of a litany of money-losing boondoggles. The CPP is no different. Why can't people just accept that they need to be responsible for their own retirement instead of always looking for some Santa Claus figure to take all the risk out of living?

[liberty]

The notion of an expanded but voluntary CPP is just a red herring. Voluntary will become mandatory just as soon as the payouts exceed contributions.

[cottonpicken]

Thanks for posting that.

Rrsp's are not a specific investment,they are made up
of any and everything and not all are losing
money(like the physical gold ones which is
annualizing like 20% a year for a decade) but i agree
they are useless,the tfsa is not,but people really need
to know what they are specifically invested in.

[cottonpicken]

I have heard(not sure if its true)that the saskatchewan
teachers pension plan is rock solid,i wonder what
would happen if it was pooled with say an ontario or
quebec one that was having major short falls,would
anybody care?

[chuckChuck]

FAQs from CPP
What rate of return is necessary to maintain the sustainability of the Canada Pension Plan for generations to come?

The CPP, which was successfully reformed in 1996–1997, is sustainable.

According to the Chief Actuary in his most recent triennial report released in November 2010, the CPP Fund needs a real rate of return – that’s return after inflation – of 4.0 per cent, over the 75-year projection period in his report, to help sustain the plan at the current contribution rate.
Our nominal 10-year return of 6.7% is now above the 4.0% after-inflation return currently used by the Chief Actuary of Canada in confirming the sustainability of the Canada Pension Plan.

These returns should be viewed in the context of the overall performance of major global financial markets. Our 10-year returns took place during the worst decade of equity performance in the more than 200 years of recorded capital market history.

Given our long-term view, we remain confident that we will meet and exceed the 4.0% rate of return over the 75-year period of the Chief Actuary’s projection.

[chuckChuck]

Dodge said voluntary. You can still invest in whatever you choose. I would prefer an expanded CPP to a private advisor anytime. Private advisors steer consumers to investments that often pay the advisor more fees. If it wasn't for the current CPP many retirees would have no retirement savings at all. The current system is obviously inadequate for many but a completely free market approach would fail.

[oneoff]

"I have heard(not sure if its true)that the saskatchewan
teachers pension plan is rock solid,i wonder what
would happen if it was pooled with say an ontario or
quebec one that was having major short falls,would
anybody care?"


FYI the Sask Teachers Pension fund is actuarily unsound. Its in the order of 15% /- that is witheld and supervised by Sask Superintendency of Pensions; until 2013; when it will be reviewed. Until it becomes sound; annuity pensions are being capped at much less than 100% allowable withdrawals. So much for rock solid.

Over the course of the last 30 years (with the exception of the last few years they have done very well. It has been suggested that the pension funds are invested in the very same stock markets as any other investor has available.

They just managed money better or worse than any other investor.

[cottonpicken]

Thanks for that oneoff,yet another set of numbers to
run down,getting to the point where i don't want to
look around curtain and see how the trick works.

[rockpile]

Saskfarmer, Cottonpicken and others are dead on. If
you are self employed and especially if you farm
and own large amounts of farm assets don't let the
upfront appeal of reduced taxes now sway your
judgement by maximizing RRSP contributions. Get a
good accountant and financial advisor to look at
your situation when you turn 69. Most of you like
me will likely have a pretty good income after
retirement or worse yet, you'll still be farming at 69
and your mandatory RRSP withdrawals will push
your tax rate to the highest level possible. That will
more than null the positive impact RRSP deductions
allow when first used. Don't forget, the Govt
devised this scheme and they made damn sure it
would be to their benefit. Maximize your TFSA's and
set up your own non RRSP investment accounts -
think growth and long term. Now if you take off
your farmer cap for just a moment and look around
your community, you'll see a whole lot of wage
earners doing necessary work like delivering your
fuel, putting new rubber on your equipment,
loading grain cars at your delivery points - for these
people CPP is the only retirement insurance they
will ever afford. We're a pretty lucky bunch - don't
crap on those who never had the opportunities or
the ability and the smarts to create the
opportunities we have had and made the best of.

[rockpile]

I don;t feel there is anything wrong with RRSP's. Where the problem lies is where the media, investment people and narrow minded accountants try and "sell you" on the tax savings.

Its only a deferral and too often people at talked into a focus that doesn't make good business sense.

There is nothing wrong with putting a reasonable amount into RRSP's each year or when is makes sense.

The problems lies when you buy them but really cannot afford to.

No matter what the tax amount is, it is always your cheapest alternative to pay it verses finding deductions that may cost you 3 to 4 times the tax amount itself.