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Pension Solutions



August 02, 2008 – Comments (4)

Financial Armageddon has a post on pensions arguing for an increase in the age.

From my research on pensions what I found was that not only has the age declined, but at one time there was a means test -- you had to prove you couldn't provide for yourself.

I forget all the details of what I found historically, but there was Butan age of 70 as well.  When the age was set to 65 average life expectancy was 63.  I think it is around 84 now.

Back in the 80s I did some lobbying that our pensions were unsustainable and they needed to freeze the age 65 rate and make it so you apply anywhere from 65 to 75.  What seniors can collect now is so grossly unsustainable.  In Canada we have Canada Pension Plan, Old Age Security and Guaranteed Income Supplement.  The latter two aren't funded the way CPP is funded and come right out of the tax payer's pocket.  The income level that they start being clawed back is a dream income for many workers these day.  If a person collects the full amount for everything and lives to the life expectancy age they would collect about a half million in benefits.

The latter two aren't clawed back fully until income is over something like 110k.

But, instead of planning for what is coming and being fair, they lowered the eligible age to 60.

Instead it will be done the hard way, chipping away at it and screwing people's financial planning.  Imagine if it had been fixed in the 80s.  Government debt would be even lower and my friend who is planning to retire at 60 would probably go to 65 instead.  I am still trying to convince her to realise that what she thinks she's getting could change...

4 Comments – Post Your Own

#1) On August 02, 2008 at 9:23 AM, MaskedMan2007 (99.26) wrote:

Very interesting post here. My tought are almost the same, as I live in Quebec. I expect the same kind of problem here, not just about the Canada Pension Plan but few other public pension plans here. I think that one of the main reasons why nothing is done that decisions are made by the majority as we are in a democracy. Politicians have to consider this fact when they take decisions. The problem is that the main group in the population is now the "baby boomers". They have a lot of power because they are the "dominant" part of the population. As the majority of them will retire in the next few years, they will surely not take decisions that are not in their favor. As I feel and fear, as I am 28, is that the baby boomers are taking the opportunity and then send the bill to the others generations as they ever done!

So I think that there will be three differents solutions to the problem. The pension plan could reduce the amount of money they will give to the retired people, a larger part of our pay will go the the pension plan funding, or we have to change the minimal age of egilibility. I think that this is still the best and most realistic solution.

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#2) On August 02, 2008 at 11:29 PM, dwot (29.15) wrote:

I worked on the Census in Canada in 97 and I remember attitudes from people about entitlement because they'd paid for it, and they really believe that.  If today's entitlements were truly paid for there should be no debt what so ever about a trillion dollars in reserves.

I am not so sure that even the Canada Penion is adequately funded.  It is on paper today with an insane expectation of the pension wealth fund.  To make it work they probably need to raise the age by about 3 years on the whole thing, require a means test for OAS and GIS, and get rid of the age exemption on taxes. 

My bet is we see something like this for sure by the time I retire. 

You are younger than I am and so you aren't aware of how many hand outs and programs there were for your age group when baby boomers were in your age group.  I watched all the goodies be taken away just as I was approaching the stage in life.

Even things like post secondary education, it was so cheap for baby boomers.  There were all kinds of youth orientated tax breaks.  There is piss all now.  Instead youth are hit harder with much, much higher tax expectations, paying for CPP being one...

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#3) On August 02, 2008 at 11:32 PM, dwot (29.15) wrote:

And I simply look at it, give youth a break.  They've had no time to get establish, build any wealth to cushion their lifestyle, they need everything in order to set themselves up in life, they get lower wages, so give them the break and quit robbing them of any chance at half the lifestyle that their pockets are being picked to give to the generation that has their whole life to get things in order.  It is truly insane.

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#4) On August 03, 2008 at 1:26 PM, MaskedMan2007 (99.26) wrote:

Well, I can consider myself lucky, as post secondary education is still very cheap in Quebec if I compare the fees with other provinces. One semester fees in a public university is around 1000$. But this come with a "price", as the universities lack funding from the governement, so we see bigger classes, less qualified teachers, then lower quality education. In the long run, I fear that it will affect the research and development, technology, science and engineering sectors. Long term, it could have a very bad impact on productivity! I don't think that this problem is all around Canada at least.

For the pension funds, another problem is that it worked in the past because there were always more people adding money to the fund than people getting money from it (retirees). With the baby boomers this fact is not true anymore. So here we have another problem. Add to the fact that overall, the stock market had a very impressive run up in the 80' and in the 90' and 2000'. Pension funds had incredible returns in these years. This % of return will be hard to sustain over a long term period.

At least, in Quebec, the government created a very good parental insurance plan. Since the creation in 2006, we are having what looks like a little baby boom. Hope this will continue this way, because if not, not only pension funds will have problems in the future, but education and healthcare will have a lot more problems that they have right now, because we will have more people using the service than people that pay for it!

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