Double Dipping

[August1991]

This term, double dipping, seems to be peculiar to Canada - like a double-double.

Double dipping, in Canada, refers to a pensioned employee who returns to work in the same workplace. IOW, the worker has officially retired, receives a pension but then returns to do the same work and receives a salary as a contractual employee.

The employee receives two incomes, or double dips: a pension, and a contract payment for work done. As an official pensioner, the second work income is "lightly taxed" because there are no pension deductions. Pension deductions are a significant payroll tax in Canada.

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Double dipping is a feature of State employment in Canada. Policemen, for example, are often hired at age 20 and work for 20 years. They retire at 40 and then return to work in the same police station as a contractual employee. In their 40s, they receive two incomes: a pension, and a salary (without pension deductions) based on their contractural work.

Is this fair?

Edited June 18, 2011 by August1991

[MiddleClassCentrist]

Double Dipping is just another big F-YOU to the younger generations who will be paying for the retirement of the double dipper their entire lives.

They (the retired) haven't paid enough into their pensions, they are receiving more benefits than they should be getting, and they are taking jobs away from the people who will be paying for the shortfall in the pension plans in the future.

[Topaz]

There's all different reasons why people double-dip today and some HAVE to if their income doesn't cover the bills. For one thing, if a person is over 50 and the closer you get to 65, companies won't hire you because of one's age. Even though its against the labour laws to do so, its still done. Most 55 and older would be lucky to find part time work. The government did change the rule that you can collect CPP and still work. Of course, one has to be careful of the income taxes one may pay. I have no problem with someone double-dipping because for some it better than losing your home, going on welfare etc.

[GostHacked]

If people want to keep working after the so called mandated retirement age, then I really don't see a problem with that.

[msj]

A number of things need to be understood:

1) If one is not receiving CPP then one still pays into CPP regardless of earning any other type of pension income. As long as one is earning wages or self-employment income (contract income) then one is paying into the CPP at the 4.95%/9.9% rates to a maximum of $2,217/$4,434 per year [the self-employed pay both the "employer" portion and the "employee" portion of the CPP whereas an employee only sees the "employee" portion deducted from the paycheque for which the employer matches the same amount and sends it off to Ottawa for the employees benefit).

2) In 2012, even if one takes CPP early one will still pay into CPP until the age of 65. New rules.

3) Contract earnings are not "lightly taxed." They are taxed at the same rates as employment income. The difference being that one may have some deductions against that income which may provide some tax relief.

However, if one is spending a dollar to save 40 cents and that person thinks that's a good deal then I have some marsh land with a bridge to sell you.

4) A police officer is better off earning employment income (and contributing to the RCMP pension plan) for 35 years in order to benefit fully from the pension benefit plan.

This, however, does assume that the officer will live at least an average life span which may not be the case on average (and the surplus in the RCMP plan makes one wonder).

5) Anyone earning "eligible" pension income can only split that income with their spouse upon reaching the age of 55.

So a 45 year old police officer who now is contracting with the Police not only pays tax at regular rates on all his income but, if he were to be receiving a pension benefit, would not be able to split that pension income to possibly save taxes on it until he is 55 years old.

6) To the extent that this kind of thing is done - why not? Presumably there is some arbitrage going on here: the police force now doesn't have to pay the CPP and defined benefit pension contributions for an employee and the police contractor takes on the risk of looking after his own retirement by ensuring that he is making/saving enough of his contract payments for retirement.

7) In the instances I have seen of government employees "retiring" early to then work as contractors there is no doubt that they would have been better off, financially, by being employees.

Better off in terms of overall happiness is another matter.

Sometimes one is happier with less money and a little more freedom in choosing when, where, and how to go to work.

But that is true whether one chooses to be a government employee or a regular employee - self-employment does have many intangible benefits.

[William Ashley]

Is this fair?

Yes.

1. People who work and pay into a pension should be able to initiate it when they are eligible to do so. It is an option. In some cases it is defaultive. For company pensions they are structured in a way that they provide funds for people who work a certain amount of time.

2. If there is no clause stating individuals who opt to start their pension become ineligible for future employment there is absolutely nothing 'wrong' with it.

3. They earned it.

There is absolutely nothing unfair about it.

The thing about being hired back as contract employees -(some employees are hired on a contract basis anyway), means absolutely nothing. Either they start paying into a 'new' pension, or they opt out of the pension if it is an option.

Saying someone can't work for or do business with a company because they get money from it is absurd.

The question that surmounts this discusion is what is a reasonable pension plan - and do peoples contributions really pay for the plan or do younger people get stuck paying for older people.

That is the real problem with public pensions - either they don't have enough contributed or they are poorly managed.

There is no security and other people shouldn't be stuck with the bill for their perks.

[Shady]

If people want to keep working after the so called mandated retirement age

That's the bigger issue. Perhaps there shouldn't be a mandated retirement age. Or at the very least, it should be raised to reflect current life expectancy.

[msj]

That's the bigger issue. Perhaps there shouldn't be a mandated retirement age. Or at the very least, it should be raised to reflect current life expectancy.

Already ahead of you by at least 2 years:

Mandatory retirement fades in Canada

Edited June 18, 2011 by msj

[Bonam]

Already ahead of you by at least 2 years:

Mandatory retirement fades in Canada

Except you're still forced to convert your RRSP to a RIFF and start withdrawing money from it at age 71. You can't keep contributing to your RRSP.

Edited June 18, 2011 by Bonam

[GostHacked]

Except you're still forced to convert your RRSP to a RIFF and start withdrawing money from it at age 71. You can't keep contributing to your RRSP.

Well, at 71, either give some money to your familiy... or ..start spending it and enjoy your life!

[msj]

Except you're still forced to convert your RRSP to a RIFF and start withdrawing money from it at age 71. You can't keep contributing to your RRSP.

Then marry a 20 year old and make all the spousal contributions you want until you die.

[scribblet]

Teachers on a pension can return to work substituting but are limited, if they go over that limit it would affect their pension. BTW, a substitute teacher on a long term contract e.g. maternity leave sub gets about $350.00 per day. On call substitutes get less than that. I'm not allowed to work for the same company I get my pension from but I could work elsewhere.

[msj]

Except you're still forced to convert your RRSP to a RIFF and start withdrawing money from it at age 71. You can't keep contributing to your RRSP.

Forgot to mention that all this does is force one to pay tax on your RRSP/RRIF's.

Where in the constitution does it allow anyone to have infinite tax deferral?

You can work, draw your OAS, CPP, RRIF and still earn employment/self-employment income all you want.

You just have to pay the tax consequences of those decisions (such as OAS claw back and higher marginal tax rates).

[cybercoma]

This term, double dipping, seems to be peculiar to Canada - like a double-double.

Double dipping, in Canada, refers to a pensioned employee who returns to work in the same workplace. IOW, the worker has officially retired, receives a pension but then returns to do the same work and receives a salary as a contractual employee.

The employee receives two incomes, or double dips: a pension, and a contract payment for work done. As an official pensioner, the second work income is "lightly taxed" because there are no pension deductions. Pension deductions are a significant payroll tax in Canada.

----

Double dipping is a feature of State employment in Canada. Policemen, for example, are often hired at age 20 and work for 20 years. They retire at 40 and then return to work in the same police station as a contractual employee. In their 40s, they receive two incomes: a pension, and a salary (without pension deductions) based on their contractural work.

Is this fair?

You're still required to make CPP contributions until you're 65. Their paycheck would be no different than it was when they were working, other than not making their own personal pensions contributions.

[cybercoma]

Looks like msj got it.