Saturday, January 28, 2012

How Paul Martin Really Saved CPP

Lots of banter going on after the PM mentioned in his speech in Davos about pension reform being necessary. Th media is rife with speculation and reaction that the age of eligibility for OAS will be raised from its current threshold of 65 to 67. While the government hasn't announced that change the usual Harper-bashing media are working non-stop with outrage. Fair enough. I guess when the PM opened the door the media decided to barge in without a proper invite, but what's new, right? But what really pisses me off is almost every journalist mentions Paul Martin's CPP reforms as some kind of super-human feat. Really?

This is the effect Paul Martin's so-called reforms have had on me. At the age of 36 in 1996, my maximum payroll contribution to CPP was $893.20. In 1997, Martin increased that amount to $944.78. $50 roughly no big deal, right? in 2011 the maximum contribution was $2,217.60. That's an increase of $1324.40 per year over the last 15 years. Martin's reforms basically amount to me paying roughly an additional $20,000 from 2011 forward, into CPP above the 1996 rate,until I reach 65, matched by my employer for a total of $40,000 in additional premiums. This doesn't take into account my CPP contributions for the previous 19 years nor the 1996 rate of $893.20 until I retire in 2025 (14 years X $893.20=$12504.80.)

To put it into easy terms, Paul Martin's CPP reforms basically amounted to Canadians having their premiums jacked up well above double the previous amounts. So what Martin was basically saying was if you want to collect CPP, you have to pay an amount great enough to cover the costs of benefits. Hmmm, kind of what the PM is hinting about with pension reforms, no?


Frances said...

And don't forget that your employer has to match your contributions, no matter what his profitability and cash flow. It's even worse for the self-employed. Almost 10% of your net income from self-employment has to be paid to cover your CPP contributions from both sides (employee and employer), even if you didn't make enough to have to pay taxes.

Actually, the issue is more that previous governments did NOT do what had to be done. CPP was always envisaged as a pension plan for those workers whose employers did not (or could not) provide a private plan. The idea was good but, unfortunately, premiums were set unreasonably low, so the plan could not be self-sustaining. As well, early retirees received benefits far exceeding their contributions, especially those who lived into their 90's. The books looked great early on, but only because there were few retirees compared to contributors.

Mr Martin did what he had to. Just wish the hard decisions had been taken earlier. Then perhaps we wouldn't have the high premiums we have now.

paulsstuff said...

Agreed. Martin did what he had to do. As does the PM now in addressing OAS going into the future. Just funny how Martin got praised for cutting healthcare spending, etc., and the PM gets lambasted.

oxygentax said...

The sad thing is that only 30% of current premiums are invested for future obligations. The remainder is used to cover current obligations.

The sad thing? If you max out your contributions for the majority of your working life (I started maxing at 28), the CPP only has to earn 3% per year on your contributions to pay out a maximum pension for 20 years after age 65. If you live to 100, it has to only earn 4% per year. I question where the rest of that money is going, or why I can't simply opt out and manage my own money. I guarantee that I'd be able to beat the CPPIB over the remainder of my working life.

maryT said...

Go back a few years when the maximum for an employee was 150.00 and 150.00 for the boss. Self employed paid 300.00.
How many years do you have to receive said cpp to just get back your contributions if you have pd the maximum for 40 yrs or more.
Seniors complaining they might have to wait 2 yrs to get OAS, must remember that most of them have worked for many years, and will have a union pension and cpp. Much different from those of us who were forbidden to work for govt if we were married for many years. And for many years women did not work outside the home, and if she did it was assumed she had a worthless husband. I don't see a lot of people living in poverty is they have to wait to 67. There biggest shock will be that a lot of benefits paid by their boss now fall to them. Then they complain the govt is gouging them.

paulsstuff said...

I started paying max CPP premiums at the age of 22. Still do now at the age of 51. My pension ensures that most of my CPP and OAS will be clawed back when I do start to receive it.

I'm sure the lefties will scream I'm racist but I still find it unfair someone can immigrate to Canada at age 55, pay Canadian taxes for a max of 10 years if they have a job before they arrive into the country, and then draw a greater amount than I can after paying taxes for 47 years.

As far as i'm concerned, the years to qualify should be greater, and the benefit reduced as a percentage of the time someone who pays in for their entire life receives.

And I'm sure it will never dawn on the opposition parties and msm that the population is aging across the entire planet. Watch for an inful of immigrants from countries with no social safety net to Canada around age 55, providing them with income and healthcare for the remainder of their lives.

maryT said...

Should mention survivor benefits. If your spouse dies, at whatever age, you get survivors benefits. And if kids are left behind they also get survivor benefits to age 18. But, what happens if the person dies at a young age after paying in for 20 yrs, and has no survivors. Other than the 3000.00 (about) one time pymt, where does the rest of his contributions go if he has no spouse or kids.
That is one reason ssm became a cause, so there was a spouse to get those pymts.

maryT said...

When Judy LaMarsh was selling this plan, she stressed it would go from employer to employer, when ever you changed jobs. Lots of workers thought they were talking about the company pension plan. Remember there was very little tv back then no internet or fb or twitter. Just got the cbc take on her plan. But she did cut her wardrobe costs by using the same outfit everywhere she went, after she was chided for her outfits.
Some of us do have long memories.

Diet of Worms said...

Please... have an opt=out clause. I'm 51 and would much prefer to NOT contribute to CPP, and forgo the political football known as CPP 'benefit'... let me adjust my affairs to determine how I receive MY money in the future. Chile did this about two decades ago, and whaddya know...almost everyone under 30 opted out.

paulsstuff said...

Good point. A number of retirement financial advisors say that an individual could do much better investing the funds and getting a better return

oxygentax said...

Paul -

Just a couple of corrections - CPP doesn't get clawed back, only OAS.

10 Year immigrants don't get a full OAS pension when they reach 65 - they're prorated based on number of years out of 40. You actually have to be here for 40 years to get a full pension as an immigrant. They may, however be eligible for GIS, which is just welfare for Seniors.

paulsstuff said...

Great info. Thanks. In my case I will lose more CPP as it's taxable and I have a good pension plan already, which will put my CPP into a higher tax bracket.

Your right on the OAS and GIS. The GIS ensures they will get more money if they don't get full OAS.