December 18, 2013: If ever there was a non-partisan issue it is pension reform. And, on that subject a lot has been said in recent days about doubling CPP deductions so that Canadians can have a better retirement income, particularly those who don’t have access to what is becoming a disappearing option, the “defined pension.”
Of course, I am in favour of Canadians having access to increased CPP pension benefits, as long as employer matched fees are enacted slowly and don’t have a negative impact on the economy.
However, there is an aspect to the CPP pension that many do not know about and it is commonly referred to as the “CPP reduction” (per an Ontario Teachers Fund Newsletter). No, I am not talking about the reduction that happens when you start collecting CPP somewhere between your 60th and 65th birthday.
Rather, I am talking about the CPP reduction that happens to pensioners the month after they turn 65! As Terence Corcoran reminds us in this Financial Post column:
“The Canadian Union of Public Employees, the Canadian Labour Congress, the heads of the Ontario Teachers Pension Plan and the Ontario Municipal Employees Retirement System (OMERS), aggressively fought for CPP expansion. Their underlying objective has been to expand CPP benefits to help bail the public sector pension plans out of massive unfunded liability crises.” [My highlighting.]
In other words, it is a pensioner funded rip-off that helps pay for any future pension shortfalls and having experienced this reduction myself in recent years, here is how it works:
Let’s say you retire at age 60 and for discussion purposes, you receive a reduced CPP of $500.00 a month. Let’s also assume you have a net defined pension benefit of $2000.00 a month. So, between age 60 and the month you turn 65, you receive a total pension income each and every month of $2,500.00.
However, a month after you turn age 65, your defined pension benefit automatically drops by the $500.00 CPP, meaning your defined pension is now $1,500 a month, not $2,000.00. Of course, your CPP continues at $500.00. Meaning, you now receive $2,000.00 a month instead of the $2500.00.
Yes, I would bet that the majority of Canadians qualify for Old Age Security (even if partially clawed back), which may make up for the loss of the $500.00 a month. But, how much better would it be if pensioners were allowed to keep their pre-65 defined pension benefits, along with their CPP and OAS.
Having pensioners unknowingly contribute to pension shortfalls and future pensions is definitely, in my opinion, a hidden agenda by pension fund managers, be they private or public sector or unions.
Update Thursday, Dec. 19th: A discussion is ongoing on this thread about the age 65 CPP reduction as being an offset. Offset for what? If the full amount of our CPP pension (or a lesser amount when a formula is used) is deducted from our employment pension at age 65, that is not an offset, that is a deduction. Since you paid into both plans all our working lives, why do they deduct one from the other?
I don’t know how readers feel but if pension premiums during our working years are less to account for this offset, I would rather be allowed to pay the higher premiums so that I did not lose pension income at age 65 just when I need it the most. I mean, how much good is doubling the CPP benefit if it simply means having more deducted, or offset as some would have us believe, from our regular pension?
And, keep in mind, for pensioners who retire at age 60, that offset or doubling of the CPP that is deducted from our employment pension at age 65, doesn’t disappear. It stays in the hands of the pension managers to invest and save for future pensions.
I still think there is something wrong with this picture and obviously a lot of other people do as well. I checked Google and this link indicates that there are some 14,700,000 entries on this topic.