The “hidden agenda” — CPP age 65 reduction to defined pensions

From Teachers Pension News, Winter 2011

From Teachers Pension News, Winter 2011

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 expansionTheir 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.

C/P Jack’s Newswatch and title entered, with my thanks, at newswatchcanada.ca.

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.

36 thoughts on “The “hidden agenda” — CPP age 65 reduction to defined pensions

  1. My understanding is that it is actually worse than that but it may depend on the source of the pension. In my case the reduction amounts to the CPP that I would have gotten at age 65 which is more than the reduced rate I would get at 60.

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  2. My apologies that the comment feature was turned off for this post. It is now on. I heard from someone via my Contact Form that mentioned this policy has been in place a long time. That is true but it is still wrong in my opinion.

    Apparently some people are told, when they retire early, that they will receive a “bridge” amount until OAS kicks in. That is a misnomer. What they receive is their full defined pension. What I received when I turned 65 was a letter actually stating that my “pension” would be reduced by such and such CPP amount the month after I was 65. That amount was not called a bridge when my pension started at age 60. The amount of CPP I collected from age 60 continues to be the same amount I receive after age 65. Only my pension is less. And, as far as I am concerned, the OAS has nothing to do with either.

    The bottom line is that it seems people have become so used to this reduction, they don’t realize it is their own money they are losing. I mean, if your pension at 60 is based on yours and your employers fees, and payment for CPP is quite separate, why the partnership once you become 65.

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  3. I forgot to add…. In any case, bailing out unions is a pretty strong incentive for the Ontario Liberals. One always has to look behind the curtain whenever one them starts talking about “leadership”.

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  4. Potato, exactly what happened to me at age 65. You receive a certain amount from age 60 to your 65th birthday. Then, after that, even with the reduced CPP continuing on, you get $240.00 or more less. It may not sound like a lot but to many it is.

    So, now we have pension fund managers wanting the CPP to increase. You have to know they are not wanting it just for the little guy, but for their own coffers.

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  5. Yes, it is pretty scary to think the current Ontario Liberals are talking about an Ontario public pension solution. There has to be a catch. Will they use the fees they receive to pay down the deficit with the hope that they can eventually deal with the unfunded liability?

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  6. A disclaimer: I am neither an economist nor a pension fund manager, but I am a pensioner and, it is on that basis, that I am commenting.

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  7. Pingback: Sandy: The hidden agenda: CPP age 65 reduction to defined pensions | Jack's Newswatch

  8. my wife will lose far more than the value of the CPP. at 65 her pension, that she paid into for 40 years will be clawed back. even with the addition of the OAS her income will shrink by about 426 dollars a month net.

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  9. It’s called a bridge benefit which was introduced before pensioners were able to access their CPP at age 60. Because pensions plans are not usually stacked and the total amount includes CPP, retiring at 60 resulted in loss of the CPP amount – until age 65 when it kicked in.

    Eventually CPP was available at age 60 but the bridge benefit continued resulting in double dipping for 5 years. The bridge benefit should’ve been done away with years ago, meanwhile the taxpayers continue to fund bigger and better pensions for teachers (and others).

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  10. The calculation for the Bridge benefit used to be called the CPP offset amount and was a fixed amount calculated at time of early retirement. The name was changed later to Bridge Benefit as it was confusing because people believed, and still do that they were losing something they should be able to keep. The offset amount used to be fixed until the Martin Liberals indexed it, thus causing it to increase each year. This would result in a larger offset amount at age 65. I hope I’m clear on this because the bridge benefit is double dipping (until 65) and should be cancelled ASAP.

    Bob Rae agreed to cover a previous teacher pension shortfall of 4.1 billion which ended when Mike Harris became Premier.

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  11. The thing is Roy and Candy, there is no double dipping and that is what has people fooled until it hits them at age 65. All the age 67 will mean is that the offset as they call it will happen later than now. The bottom line is that people who go on pension prior to the legal age definitely DO lose something, often big time. When you apply for a pension at age 60, for example, the money you receive is not extra. It is your pension. Period. The CPP you get at age 60 is less than if you wait until age 65 or 67.

    The maximum CPP benefit right now is a little over $800.00 a month. I’ll simply call it that for simplification. If you apply for a pension at 60 you get a reduced amount. Let’s go back to my $500.00 monthly amount. That is what you will receive forever, regardless of when you turn 65 or 67. At age 65 (or later it will be 67), there is the CPP offset reduction. So, the pension plan deducts the entire $800.00 from your pension. Bang, just like that. You suddenly receive $800.00 a month less on your pension. That is a loss no matter how you describe it. Yet, your CPP still stays at $500.00. So, for the rest of your retirement, you get $300.00 less than you did when you retired at age 60.

    Now, let’s say they would double the CPP. Well, that simply means, you get more taken off your company pension at age 65 or 67.

    That they use words like offset or bridge is pure spin to fool people into thinking they are not getting less than they should.

    So, the only people who will benefit from increases to CPP are the people who don’t have defined pension plans — and the pension plan managers who will get to keep more of your money to offset their future pension unfunded liability.

    Politically, both the Liberals and Conservatives have much to answer to in this regard. I believe the Age 65 CPP reduction/offset was supposed to be temporary. Yea, right, just like taxes.

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  12. Old White Guy — Exactly my point. Until you suddenly lose that amount, it doesn’t seem like a problem. $426.00 a month or $5000.00 plus a year is a lot of money!

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  13. Thanks for your link Paul. We have to talk about this openly. Like Candy and Roy and others, the public genuinely believes they are not losing anything. Well, if you retire at age 65, you likely don’t notice it because its all gobblygook information about offsets and bridges. However, those of us who retire before age 65 know only too well what is really going on. And, like public sector pensions, GM does the same thing!

    My mother retired at age 60 from the federal gov’t and when she hit 65, she lost $700.00 a month and had to move from the retirement home she lived in because she could no longer afford to live there. It’s real folks, believe me.

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  14. Which means Paul, that if the CPP benefit is doubled, the pension fund managers will simply take more of our pension income away to make up for those increases. If we get an increase on our CPP, fine, but many don’t get the maximum (e.g., women who stayed out of the workforce for awhile).

    This age 65 CPP reduction is sneaky and I suspect only those of us who retired prior to that age, or had to go on a disability pension, will feel it.

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  15. for many years it was not termed a bridge benefit in pension statements. only in the last year or two were pensioners informed that this was a bridge. my wife will lose money she never received yet paid for as she has yet to retire.

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  16. Candy — I hesitate to compare what I am talking about and a bridge benefit before someone can apply for CPP at age 60. I am only referring to the differences in a pension at age 60 with the reduced CPP to when they turn 65 and continue receiving the same reduced CPP. It’s their actual pension that drops.

    I am a retired teacher with a reduced pension because I left mid career to do my graduate work and when I taught university, being sessional, they didn’t have to provide pension benefits. However, the teachers plan had paid down some of the age 65 CPP reduction. That meant that the entire $800.00 was not deducted at age 65, but simply $500.00 and a bit. As a result, current retired teachers didn’t lose as much as Old White Guy’s wife. But, lose we did. In my case, around $200.00 a month just when your health care expenses start to rise (e.g., physiotherapy).

    I mean, think about it. You work 30 to 40 years and your pension, according to your payments, is what it is. Then, at age 65 or 67 (later), the pension folks deduct the amount you should be receiving if you applied for the CPP pension at the same time. Like you paid your CPP premiums, just as you paid your pension plan premiums. Why does the government, any government, have the right to deduct the equivalent amount of CPP from your pension? It doesn’t offset anything. It just allows the pension plan managers to keep the amount they deducted from you.

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  17. As long as people don’t see this CPP reduction as a rip-off, the pension managers will continue to hope we believe that, if the gov’t of the day increases the CPP people get at age 65, they won’t realize they are allowing pension funds to keep that increase. Oh sure, we will get the increase. But, we will get less of our own pension. Meaning, no matter how much the CPP goes up, anyone receiving a defined pension will be no further ahead.

    Of course, I would be pleased for those who do not have access to a defined pension plan and I guess that is the way things are going.

    The purpose of this post is not to whine that I don’t get enough pension. I appreciate every penny. I just get fed up with the way the CPP age 65 reduction is explained. If the gov’t of the day really wanted to help pensioners, they would stop allowing pension plan managers to deduct the individual’s CPP benefit — no matter what formula they use.

    And, remember, unlike the CPP, the OAS is not a pension plan. It is a benefit. And, for those who need more income, there is the GAINS. Those programs are quite separate from what I am talking about.

    Imagine if turning 65 simply meant you could apply for the OAS without have several hundred dollars deducted from the pension you were already receiving. In other words, that the OAS would be extra.

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  18. Candy — I suppose some teachers, like principals, will get a gold plated pension, but I do not. Neither does my husband. We appreciate our teacher pensions but mine is considerably reduced because I took a few years off to have kids and then went to grad school and on to teach university — always on annual contracts so that the university didn’t have to give me a pension. Together our pensions are what a single retiree from GM would get. And, any health benefits we pay ourselves. For most school boards, those types of things ended a very long time ago.

    Whatever. I appreciate all that I have. But, my point is that teacher’s pensions for most teachers are average. And, like all defined pension plans, I imagine they will go away eventually as well.

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  19. Old White Guy — I looked up the definition of offset. Balance out. Counteract. Compensates. Like how does deducting money from your pension balance anything out. Yes, it is sometimes equal to what CPP you would receive at age 65. But, that certainly doesn’t offset the equal amount of what they deduct from your pension.

    Bizarre that more people don’t complain. You get your pension statements for years showing what pension you will receive if you retire at age 65. Then, when they send you the specifics just before actual retirement, they come up with this offset and the same amount is the final number but includes the CPP when many assumed the CPP was over and above the employment pension amount.

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  20. I used to be a pension administrator with a large provincial plan and understand that most people seem not to get it. If you retire (anyone in a defined pension plan not stacked) before 65, and assuming you apply for early CPP you should receive two cheques, CPP and your pension. Your company pension should not include the calculated CPP amount at that time but it does. You then apply for your CPP – ergo double dipping. At 65 the company plan reduces by the calculated benefit but because you’ve received both amounts for [5] years it is seen as a reduction.
    The bridge benefit is a temporary benefit,
    Unless you die quite early the majority people always get more out of their plan then they put into it.

    Maybe this will help clarify the bridge benefit. http://www.caw4304.ca/informer/200704/04-OMERS-Part2.htm

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  21. more info
    http://retirehappy.ca/four-reasons-why-you-should-still-take-cpp-early-post-2011-rules/
    Terminology. The CPP Bridge benefit or offset does not get “clawed back”. The benefit is awarded to those with defined benefit CPP integrated pensions who start drawing their pension at an age less than 65. Those people will have been clearly told that it would stop at 65 and there was never any intention to pay that amount beyond that age. It does not get clawed back into your pension plan; It stops and it stops because you never paid to receive it beyond 65.

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  22. Thanks Candy for explaining the technical aspects. I suspect most people wouldn’t mind the enforced savings of paying higher pension premiums on both their CPP and defined employment pension if they could avoid the “offset” reduction at age 65.

    Amazing that the two separate pensions we receive between age 60 and 65 is referred to as double dipping. How is it double dipping? If your pension plan says you have a certain income coming and CPP is arranged at a certain amount, less than if you waited until 65, what you receive is simply what you had coming to you. It’s only less after your 65th birthday.

    My mother told me this argument was fierce when it came info force in 1965 and was called a “pay as you go plan”. Yet, now it seems normal, albeit unfortunate, in the minds of most pensioners. Yet, the whole process could be reformed in a way that would benefit pensioners as opposed to the fund.

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  23. Sorry, I can’t edit my responses so will reply again. I am only referring to people who retire early between 60 and 65 and also apply for their reduced CPP. This results in you receiving CPP plus your pension plan amount, which included the calculated CPP pension – ergo double dipping. If you retire at age 65 you would never know about the offset.

    Just to reiterate, premiums for pension plans are calculated actuarialy. If they did not reduce the pension amount by the CPP off set, all our premiums would have been higher.

    I can’t speak to the teachers pension or ‘paying it down’, speaking for myself my offset amount was calculated at $550.00 when I retired and my pension was reduced by a bit more than that, don’t remember. I fully understood when I took early retirement that this would happen. The OAS made up for the difference. Hope I’m making sense.

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  24. Re the bridge, makes sense.

    In my previous comment I should have said “My mother told me” not “tells me” as she been gone for awhile now. However, I now remember that she did refer to it as the CPP integrated pensions because it allowed payees to make lower premium payments during their working lives. What a descriptor that was. Makes you wonder how integrated they really would be if indeed CPP matching premiums were increased.

    All I know is that, these days, too many of us who retire prior to 65 are getting ripped off in the month after our 65th birthday. And, the fact that the pension fund managers are so eager for a CPP future increase has me doubting their good will. LOL

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  25. Sorry if I’m repeating myself but I was there in 65 and remember the discussion (somewhat :)- ) and thinking, yeah, I’ll get double the (cpp) amount for 5 years assuming I retired early.

    No offense but when you receive TWO amounts, the CPP and a calculated pension amount which also includeds CPP, it sure is double dipping. Technically, the calculated pension amount should be reduced by the CPP, but they never did that, they let it go.

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  26. Candy — When I retired early I was not told that some of my teacher’s pension included CPP. I received two separate deposits monthly and I still receive two deposits, albeit the defined pension is now less than it was. I don’t consider that double dipping. As I said in my last message, when I see union leaders pushing for a bigger CPP so they can’t get their hands on more of our money, I am suspicious.

    Personally, I think you and others are so used to this process that it seems normal. I believe that if we make premiums to CPP and a pension plan, we deserve to have two pensions. If we should pay higher premiums, then so be it. It’s enforced savings.

    It seems obvious, however, that at the end of the day, the only ordinary citizens who would benefit from an increased CPP pension at age 65 are those who do not have defined pension plans — and that is a good thing.

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  27. as far as I am concerned the CPP is a paid for benefit. payments are taken from all workers and employers to cover the costs of this pension. OAS is another matter. that governments have wasted and not invested CPP funds properly for many years is a disgrace.

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  28. I agree 100% old white guy. I appreciate what Candy wrote but she is influenced by what she believed when she was working for a pension plan. The OAS is not an issue here. It is for seniors who have a reduced income.

    Both CPP and a defined pension benefit is paid for by the workers and the amount we get is supposedly based on how much we and our employers invested. For those of us who retire prior to 65, What happens the month after we turn 65 is an amount is taken from our pension. It is not double dipping. It was not a bridge. In my case, it was my pension. End of story. For people who turn 65, the supposed offset is money taken from the amount that was determined to be their full pension. Yet, few complain because the amount they get from both CPP and their employer based pension is what they get. They don’t know any difference.

    Well, many of us do know the difference and it is a rip off. Let people pay the actual cost of their future CPP pensions and then let them keep what they paid into their employment defined pensions.

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  29. Just keep in mind fhl, as should everyone else, that the link provided does not discuss the “age 65 reduction” or “age 65 offset” I am talking about here. That is quite separate and only involves people who will have an employment-based defined pension plan. However, someone could try to figure out what they can receive, not realizing that the most, if not all, they can receive, will be deducted from their defined pension benefit.

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