Question on CPP

[Topaz]

The rules for collecting CPP are that you either have to stop working or make less than the benefit, which is 884.58 monthly the two months before you start to collect. ON the other hand, ONCE you start to collect, you can make as much money as you want but you can't contribute to any future earnings from working. Since jobs aren't that easy to find for some people why can't a person just keep their job and still collect CPP? Comments?

[August1991]

The rules for collecting CPP are that you either have to stop working or make less than the benefit, which is 884.58 monthly the two months before you start to collect. ON the other hand, ONCE you start to collect, you can make as much money as you want but you can't contribute to any future earnings from working. Since jobs aren't that easy to find for some people why can't a person just keep their job and still collect CPP? Comments?

I think that rule only applies to people aged between 60 and 64. Once you turn 65, you can apply for the CPP regardless of your employment situation.

-----

Frankly, this is all very political and it is easy to imagine a future regime where CPP benefits will altered or reduced. As it is, there is the OAS and GAINS which are subject to arbitrary rules. Survivor benefits have arbitrary limits too.

The CPP website presents this fiction:

How is the Canada Pension Plan financed?

The CPP is a "contributory" plan. This means that all costs are covered by the financial contributions paid by employees, employers and self-employed workers, and from revenue earned on CPP investments. The CPP is not funded through general tax revenues.

CPP FAQ

CPP contributions are a tax in all but name and the CPP is a transfer scheme. The government arbitrarily change these taxes/transfers subject to the political process. IMV, the government should not have an investment fund and government bureaucrats should not try to pick winners because they can't.

Governments should invest in the public-sector infrastructure of a country and leave private investment decisions to private individuals.

[/end of rant]

[msj]

The rules for collecting CPP are that you either have to stop working or make less than the benefit, which is 884.58 monthly the two months before you start to collect. ON the other hand, ONCE you start to collect, you can make as much money as you want but you can't contribute to any future earnings from working. Since jobs aren't that easy to find for some people why can't a person just keep their job and still collect CPP? Comments?

A person generally can make arrangements to collect CPP and continue working.

Some people just "stop" working for the month before and the month of the first CPP payment. I say "stop" because they either make arrangements with their employer or they are self-employed so it's not like the government really knows anyway.

It probably comes down to how honest the person is when they fill out the application form.

So, yes, many people start to collect CPP and continue to work.

One thing most people don't know is that a person can choose to pay into CPP up to the age of 70. There are some specific reasons why a person would continue to pay into CPP until that age but I can't remember them now. I did an analysis several years ago for a client and the math worked out (although she was expected to live longer than usual).

[August1991]

A person generally can make arrangements to collect CPP and continue working.

Some people just "stop" working for the month before and the month of the first CPP payment. I say "stop" because they either make arrangements with their employer or they are self-employed so it's not like the government really knows anyway.

It probably comes down to how honest the person is when they fill out the application form.

Is age a factor in this? At what age can this happen?

And msj, be careful what you post on Internet sites. I think that you may be counselling fraud.

Edited September 6, 2008 by August1991

[msj]

Frankly, this is all very political and it is easy to imagine a future regime where CPP benefits will altered or reduced. As it is, there is the OAS and GAINS which are subject to arbitrary rules. Survivor benefits have arbitrary limits too.

The CPP website presents this fiction:CPP FAQ

CPP contributions are a tax in all but name and the CPP is a transfer scheme. The government arbitrarily change these taxes/transfers subject to the political process. IMV, the government should not have an investment fund and government bureaucrats should not try to pick winners because they can't.

Governments should invest in the public-sector infrastructure of a country and leave private investment decisions to private individuals.

[/end of rant]

1) What is "Gains?" Do you mean the GIS (guaranteed income supplement)?

2) The rules haven't changed all that much recently for CPP. Sure, the Liberals made changes in the early to mid 90's and implemented them over the course of the late 90's (which really just increased the CPP rate gradually over time to the current 4.95%/9.9% rate which was set as the final rate back in the 1990's and hasn't changed in years, agreed to increase the CPP maximum contribution according to changes in the inflation rate [like what happens to tax brackets each year], implemented the policy to have excess contributions and invest them for higher investment returns, and changes related to same-sex common-law/marriages). Some other changes around 1998 regarding death benefits (which was 10 years ago) and that really is about it.

Given that the CPC hasn't changed any of these rules and that actuaries continue to state that the CPP is financially sound under the current rules until 2075 it is more likely that the only reason there would be any "arbitrary" changes to CPP would be due to political reasons.

I highly doubt the CPP is an issue that would sway voters one way or the other so it is doubtful that we are going to see any more changes to the rules for decades.

The point of making the CPP a separate tax and actually putting it into a separate fund (rather than general tax revenues) is to reduce its politicization.

Of course, nothing helps reduce the politicization of a process more than making it difficult to make changes to the system which is why it helps that any federal government who wanted to implement arbitrary changes to CPP would need 2/3 of the provinces with 2/3 of the population before being able to implement the changes.

As for bureaucrats choosing investments, well, that's easy to solve - set up a system that allows for the private sector while maintaining public accountability.

3) OAS and GIS, however, do come out of general tax revenues. While they haven't really changed much for many years they are more likely to end up being changed if/when general tax revenues come under pressure. As such, they will be subject to politicial whims.

[August1991]

I highly doubt the CPP is an issue that would sway voters one way or the other so it is doubtful that we are going to see any more changes to the rules for decades.

I'm going to earmark that quote. What a doozy.

[msj]

Is age a factor in this? At what age can this happen?

And msj, be careful what you post on Internet sites. I think that you may be counselling fraud.

I think at age 65 it doesn't matter. Between 60-64 it is a factor.

As for counselling fraud - I never stated one should be doing this.

I simply stated that people do do this which is no different than stating what reality is.

The fact is, people can and do make arrangements with their employers to fit in within the rules on the application form.

That is not fraud.

The reality, however, is that some people are more likely to push things than others which depends on just how honest they are.

I highly doubt that some dishonest fraudster seeing my post is going to feel vindicated when I discuss the reality that some people are honest while other people are dishonest.

[msj]

I'm going to earmark that quote. What a doozy.

Oh, I'm sure you will keep it.

Out of context, of course, but I wouldn't expect any more from you anyway.

[August1991]

As for bureaucrats choosing investments, well, that's easy to solve - set up a system that allows for the private sector while maintaining public accountability.

This is one of the critical points I'm making.

The CPPIB are government bureaucrats and in the business of picking winners. Government is notoriously bad at this task. (eg. the Soviet Union.)

Government bureaucrats should not invest our savings on our behalf. Governments should merely get involved in transferring money between different people in society.

For example, I think governments should take money from young people and give it to old people. I also think governments should take money from healthy people and give it to people with disabilities. For such transfers, we don't need an investment fund. Society and the State itself is the guarantee.

msj, I think you really misunderstand what financial paper is.

Edited September 6, 2008 by August1991

[msj]

This is one of the critical points I'm making.

The CPPIB are government bureaucrats and in the business of picking winners. Government is notoriously bad at this task. (eg. the Soviet Union.)

Did you even bother reading the link? The CPP investment board is setup to be arms length from government.

We are not talking about some government hired bureaucrat making investment decisions - the people investing CPP funds have worked/ do work for international investment banks (ok, fair enough, this is more damning than if they were simply government employees if looking at Bear Stearns and Lehman brothers is any indicator).

Government bureaucrats should not invest our savings on our behalf. Governments should merely get involved in transferring money between different people in society.

For example, I think governments should take money from young people and give it to old people. I also think governments should take money from healthy people and give it to people with disabilities. For such transfers, we don't need an investment fund. Society and the State itself is the guarantee.

msj, I think you really misunderstand what financial paper is.

Allowing the government to simply "take" money from young people and transfer it to old people would lead to way more arbitrary changes year in and year out as the government deals with demographic changes and/or economic changes (recessions/booms).

The advantage of setting up the CPP as a separate fund administered by professional investors and actuaries (and making it difficult for the government to change the rules) is that it is like implementing a strategic plan - the rules are put into place, the actuaries figure out the numbers and then everyone knows what the rules are going forward.

Sure, the investors could screw up. Or demographics could change things (say a once in 500 years flu bug wipes out a bunch of old fogies) but at least there is a plan in place as opposed to the government planning to transfer money based upon the current years'/estimated next years' budget.

Edited September 6, 2008 by msj

[August1991]

Did you even bother reading the link? The CPP investment board is setup to be arms length from government.

And you believe that? Do you know what has happened to the Caisse in Quebec?

But ignore the political shenanigans - these bureaucrats take our money and invest it. msj, do you have any control over who these people are and what they do? Would you invest your own savings the same way? More broadly, do you think a society should let bureaucrats decide where to put resources? Should a bureaucrat decide where you work? Who should decide where a truck goes? The Soviets organized society that way.

I happen to think that ordinary people are best placed to decide these questions. To them, it matters. If so-called government experts decide, the system will be gamed and we'll all lose.

IMV, the CPPIB and Caisse should be abolished. The State should have no savings. Bureaucrats should not try to pick winners. They can't.

The State should have only debt, as a clear indication of citizens' confidence in the State's legitimacy. The National Debt is an indication of our belief in the State and ourselves. Why? The National Debt can be eliminated tomorrow through higher taxes. A country that accepts a government debt is like a country that pays its taxes - it implicitly shows that it trusts its State.

I know that practical, Calvinist, Presbyterian accountants find this hard to understand (Debt? Interest? Pay it down!) but it's a question of moving to the bigger picture.

Edited September 6, 2008 by August1991

[Topaz]

MY point was at 60-65, you either had to reduce your income for 2 months OR take a leave of absence for 2 months BEFORE you are entitled to recieve it, THEN you can make ALL the money you want! To me its stupid idea because today world jobs aren't that easy to find JOBS for someone 60-65. IF a person has a job but needs extra money, as we all could use, why not let that person keep working? The gov`t would probably get it back with income taxes and after all, it is our money.

[msj]

And you believe that? Do you know what has happened to the Caisse in Quebec?

But ignore the political shenanigans - these bureaucrats take our money and invest it. msj, do you have any control over who these people are and what they do? Would you invest your own savings the same way? More broadly, do you think a society should let bureaucrats decide where to put resources? Should a bureaucrat decide where you work? Who should decide where a truck goes? The Soviets organized society that way.

I happen to think that ordinary people are best placed to decide these questions. To them, it matters. If so-called government experts decide, the system will be gamed and we'll all lose.

IMV, the CPPIB and Caisse should be abolished. The State should have no savings. Bureaucrats should not try to pick winners. They can't.

The State should have only debt, as a clear indication of citizens' confidence in the State's legitimacy. The National Debt is an indication of our belief in the State and ourselves. Why? The National Debt can be eliminated tomorrow through higher taxes. A country that accepts a government debt is like a country that pays its taxes - it implicitly shows that it trusts its State.

I know that practical, Calvinist, Presbyterian accountants find this hard to understand (Debt? Interest? Pay it down!) but it's a question of moving to the bigger picture.

I would have no problem with turning my investment portfolio over to the CPP investment board. I have seen their results and they look pretty good.

As to the Caisse - well, it appears that their investment returns have been in the first decile so yeah, I don't mind returns like that. Even their five year return within the top 5 deciles (i.e. average) is still pretty good.

As long as the CPP IB is kept safe from meddling politicians (and given that it would take 2/3 of provinces to meddle I think it is safe) I can't say that I'm worried about the CPP.

Our CPP system is a model for the world as time will continue to show.

As to your private savings scheme - once again I do not see Canadians crying out about the CPP as a political issue.

The CPP system is set up nicely because it acts like a pension scheme is supposed to act - people pay into the system under a set of rules. Capital within the fund is invested to earn investment returns to help keep the CPP rate lower and/or keep benefits higher. It is all professionally managed, just like any pension fund, to keep it financially sound under the set of rules so that politicians don't get to play political football with a $120+ billion and growing fund.

Of course, if you don't want to pay into CPP then arrange your life so you don't have to pay into the system. It is not all that hard to do as I have explained before.

This is why Canadians don't have CPP on their radar - unless one has your political ideology (for which few Canadians share to the degree that you have) then the CPP is a non-issue.

As to government allocating resources - they have been spending about 40-50% of or economy for the past 50 years so they have been and continue to do this and it is up to voters to decide how effective they have been at it since I don't see any politician coming out and trying to reduce our taxes to support government spending that would be any less than what we have now.

I also do not have any problem with the government carrying debt contrary to your ignorant prejudices.

The government must/should carry some debt and it is only a matter of degree to how much but that is neither here nor there....

[msj]

MY point was at 60-65, you either had to reduce your income for 2 months OR take a leave of absence for 2 months BEFORE you are entitled to recieve it, THEN you can make ALL the money you want! To me its stupid idea because today world jobs aren't that easy to find JOBS for someone 60-65. IF a person has a job but needs extra money, as we all could use, why not let that person keep working? The gov`t would probably get it back with income taxes and after all, it is our money.

I agree that it is ridiculous.

I'm not sure how long the rules have been like this but I suspect it has been like this for a very long time and has not been much of an issue until now due to demographic reasons.

More and more people are applying for CPP now so more people know about the rules and face these type of hurdles.

I do think the government would be able to change this rule without needing the 2/3 of provinces to agree to it, but who knows?

[August1991]

I would have no problem with turning my investment portfolio over to the CPP investment board. I have seen their results and they look pretty good.

As to the Caisse - well, it appears that their investment returns have been in the first decile so yeah, I don't mind returns like that. Even their five year return within the top 5 deciles (i.e. average) is still pretty good.

Chuckle. (Some have predicted that the Caisse lost 30% of its value but no one really knows - since neither the Caisse nor Charest is talking. The G&M apparently knows more than people in Quebec. That reminds me of the Soviet Union where foreigners knew more than Russians. As to the CPPIB, this is a distant headline on the Toronto media's radar.)

As long as the CPP IB is kept safe from meddling politicians (and given that it would take 2/3 of provinces to meddle I think it is safe) I can't say that I'm worried about the CPP.

As if politicians will ever leave something alone.

Of course, if you don't want to pay into CPP then arrange your life so you don't have to pay into the system. It is not all that hard to do as I have explained before.

And there are many legal ways to avoid taxes too.

This is why Canadians don't have CPP on their radar - unless one has your political ideology (for which few Canadians share to the degree that you have) then the CPP is a non-issue.

Did you follow the past Quebec election? I suspect English Canadian voters would not be so sanguine.

As to government allocating resources - they have been spending about 40-50% of or economy for the past 50 years so they have been and continue to do this and it is up to voters to decide how effective they have been at it since I don't see any politician coming out and trying to reduce our taxes to support government spending that would be any less than what we have now.

For the past 50 years or so, politicians have on average transferred about 25% of our income between ourselves and then spent the other 25% for stuff they think we want.

We are only now (past 10 years or so) embarking on the phase where government bureaucrats try to make choices about how to choose winners. The experience is less than laudatory. The Caisse has been such a disaster that it provoked secrecy and a Quebec election. Teacher's is already under scrutiny and the CPPIB will be next. These are not auto bailouts. The State (ie. the taxpayer) is directly responsible.

For politicians, these pension funds amount to a new source of power and an industrial strategy beyond most socialists' dreams.

MY point was at 60-65, you either had to reduce your income for 2 months OR take a leave of absence for 2 months BEFORE you are entitled to recieve it, THEN you can make ALL the money you want! To me its stupid idea because today world jobs aren't that easy to find JOBS for someone 60-65. IF a person has a job but needs extra money, as we all could use, why not let that person keep working? The gov`t would probably get it back with income taxes and after all, it is our money.

Topaz, the rules are arbitrary for those between 60-64. Before 60, you pay into the system. After 65, you must claim a pension. For those between 60-64, any working income affects a pension benefit and what you contribute. Dems de rules. Edited December 12, 2008 by August1991

[Topaz]

After looking into this alot closer , if you are 60, you can start to get CPP BUT, for short time you can't make any money before getting it and after you start to get it BEFORE 65, you LOSE 30% of your pension. That is, at 60, it keeps going down forever but they will let you work and make as much as yiou want.

[msj]

Chuckle. (Some have predicted that the Caisse lost 30% of its value but no one really knows - since neither the Caisse nor Charest is talking. The G&M apparently knows more than people in Quebec. That reminds me of the Soviet Union where foreigners knew more than Russians. As to the CPPIB, this is a distant headline on the Toronto media's radar.)

Are you going to put up some hard data or a link or do you expect me to just accept your word on this? Remember, given our past history, I do not find you a credible source.

Given that the markets are down 35-40% then to be down 30% looks reasonable. But I admit that is as good a guess as any rather than some kind of anonymous rumour.

How it will impact the pension fund given the various rules is a technical question that goes beyond my understanding of pensions, though.

As if politicians will ever leave something alone.

All the more reason to put in rules to make it difficult for them to tinker. Rules like needing 2/3 or provinces to agree, for example.

And there are many legal ways to avoid taxes too.

So?

Did you follow the past Quebec election? I suspect English Canadian voters would not be so sanguine.

Didn't bother following it.

For the past 50 years or so, politicians have on average transferred about 25% of our income between ourselves and then spent the other 25% for stuff they think we want.

We are only now (past 10 years or so) embarking on the phase where government bureaucrats try to make choices about how to choose winners. The experience is less than laudatory. The Caisse has been such a disaster that it provoked secrecy and a Quebec election. Teacher's is already under scrutiny and the CPPIB will be next. These are not auto bailouts. The State (ie. the taxpayer) is directly responsible.

This is nonsense - the government has always picked winners and losers. You obviously have not seen their policies in the fishing industry or forest industry over the past few decades. Not to mention farming and other industries where the government plays with tax rules and EI rules to ensure eligibility for various programs, funding, tax breaks, licence "buy back" programs etc...

One has to only look to the US to really see what it's like when the government directly picks winners and losers, though. And to think, the US takes in less tax revenue (relative to GDP) than Canada.

I wonder how many Americans like going into debt to buy up GM or AIG?

I also wonder what would have happened if the US bothered to scrutinize their investment banks before they went boobs up? All hypothetical of course....

And, once again, the CPP IB is an arm's length board.

Of course, if the government set up a pension system where the people got to invest their own funds then I'm sure the government would be hearing from the voters to bailout this pension system every time the markets crashed.

For politicians, these pension funds amount to a new source of power and an industrial strategy beyond most socialists' dreams.

Which is why rules are in place to safe guard pension assets from such things. That's why it takes 2/3 provinces to make changes to the CPP.

I haven't heard Harper or anyone else trying to wrestle CPP funds for a made in Canada stimulus package, for example.

But even if they did, all the more reason to ensure safeguards are in place to prevent this in the first place.

Doesn't the US put its social security "surpluses" into general revenue?

If Canada did that (like the EI fund for example) then it would have been squandered just like the budget surplus has been over the past year or so....

[bush_cheney2004]

...One has to only look to the US to really see what it's like when the government directly picks winners and losers, though. And to think, the US takes in less tax revenue (relative to GDP) than Canada.

I wonder how many Americans like going into debt to buy up GM or AIG?

I also wonder what would have happened if the US bothered to scrutinize their investment banks before they went boobs up? All hypothetical of course....

Wondering is free...as are wild ass guesses.

[msj]

Wondering is free...as are wild ass guesses.

Yes, but pretending you're a "capitalist" society while taxpayers buy up companies is... priceless.

[msj]

Back on December 12, 2008 I wrote:

Of course, if the government set up a pension system where the people got to invest their own funds then I'm sure the government would be hearing from the voters to bailout this pension system every time the markets crashed.

I suppose we need not wonder anymore:

Italian Pensions Sapped by Private Funds Bush Backed

The global market meltdown has created losses for those who agreed to shift their contributions from a government severance payment plan to private funds meant to yield higher returns. Anger is rising both at the state, which promoted the change, and money managers such as UniCredit SpA and Arca Previdenza, which stood to profit.

Prime Minister Silvio Berlusconi’s administration is now considering ways to compensate as many as 1.2 million people who made the switch, giving up a fixed return for private plans linked to financial markets. It’s also letting people delay redemptions on retirement funds to avoid losses after Italy’s benchmark stock index fell 50 percent in 2008, destroying 300 billion euros ($423 billion) in wealth.

“The reform didn’t help anyone,” said Gabriele Fava, who heads the Fava & Associati law firm in Milan and writes about labor law. “Not the government, which was hoping everyone would make the switch to take the strain off its coffers, nor the workers who have not resolved the problem of needing a supplement to their social security pensions.”

------------------------------

While I'm at it, also found this story about the CPP:

No cracks in Canada's nest egg

[Progressive Tory]

There was some grumbling a few years back ( a couple of decades now at least), because since the requirement to collect CP was just 7 years of continuous employment, and the seniors then collecting it, often drew pensions far past the years they contributed; the concern was that they would bleed it dry.

In other words, those who paid the least, collected the most.

Young people were genuinely concerned that by the time they were ready to retire, CP funds would be depleted, despite the fact that they would pay into it all their working lives. I believe some provinces even wanted to opt out.

It eventually straightened itself out though and the fears proved to be unjust. However, many protest groups got a lot of mileage out of it.

I've never heard any concerns recently.

[August1991]

I suppose we need not wonder anymore:

Italian Pensions Sapped by Private Funds Bush Backed

Is that story any better than this:

Jan. 8 (Bloomberg) -- The Quebec government plans to appoint new directors to the Caisse de Depot et Placement du Quebec as the pension fund is expected to post “huge” losses, the Globe and Mail reported, citing unidentified people.

The mandates for at least half the existing 14 board members at Canada’s biggest pension fund are set to expire, a spokesman for Quebec Premier Jean Charest told the newspaper.

The board of the Caisse has been in a dispute with the provincial government since last year, when it clashed over a successor to former Chief Executive Officer Henri-Paul Rousseau, the Globe reported.

Link

Or this?

Finance Minister Monique Jérôme-Forget pushed her own candidate, Christiane Bergevin, president of SNC-Lavalin CapitaI Inc. The board battled back, insisting on Richard Guay, Rousseau's No. 2 man.

Not to belabour the point, but while this wheeling and dealing was going on, the financial markets were in full meltdown. Couldn't the board have bent its mind to the urgency of the situation?

Link

Quebec, like Iceland, is a small civilized society in the western world. What happens here in Quebec matters little in the broader world. Unless the broader world attempts the same.

While I'm at it, also found this story about the CPP:

No cracks in Canada's nest egg

And guess who has the money to pay for that PR story.

----

It is dangerous if the federal Canada or more particularly the US federal government places the savings decisions of hundreds of millions in the hands of government bureaucrats. Bureaucrats cannot pick winners. The Soviet Union is eloquent proof.

msj, this is the question: who should decide? Experts or ordinary people? Who ultimately should hold power?

I fear the idea of government/teacher pension plans. Too often, people don't receive what they expect to receive. Aside from revolutions, modern governments (in Canada in particular) have a reputation for changing the rules.

Anyone who expects a future payment from a Canadian government would be advised to trust rather a foreigner. Canadian governments change the rules.

Edited January 10, 2009 by August1991

[msj]

The point is very simple: whether they are run by the government (arms length or non-arms length is irrelevant), "private" pension plans like the Italian scheme, or pensions like the US automakers, the government will always be asked to bail them out.

Since that's the case, the government may as well set up some common sense rules, take their hands off the controls (like the CPP) and let the pension system play out - that is the entire point of a "safety net" and this is why the CPP is better than the OAS which comes out of general revenue.

The government will do no worse than the private sector or the average individual investor who, when their plans fail, just ask the government for a bail out anyways.

[August1991]

The point is very simple: whether they are run by the government (arms length or non-arms length is irrelevant), "private" pension plans like the Italian scheme...

Like the Italian scheme? How about the Soviet scheme?

Forget about votes. Who should decide where savings go?

[msj]

Like the Italian scheme? How about the Soviet scheme?

Forget about votes. Who should decide where savings go?

The question should be: what will protect the taxpayers?

A system that invests prudently under clear government rules with an arms length investment board? (You know, like the CPP)

Or a system where the government "gives" each Canadian $X to invest however they like?

To me the answer is clearly the CPPIB where professionals won't panic at every market move, they can consider the long term funding needs of the plan, and they are far enough away from the politicians grasp.

The Italians are learning a painful lesson - better to set up a system like the CPP rather than a system subject to political interference (and this goes for many other government pensions for which politicians meddle when they should be barred - which, once again, the CPP does well in keeping politicians at bay).