Disagree with Financial Post writers who recommend taking CPP at Age 70

I agree with the “Retire Happy” website which suggests Canadian retirees should start their CPP pensions sooner rather than later. However, that is not the position in a recent Financial Post column by Lisa Bjornson and Fred Vettese of Morneau Shepell’s Retirement Solutions. Essentially, they recommend deferring a CPP pension benefit to age 70.

As a retiree, I disagree for at least two reasons:

  1. The retiree’s health — The first reason I disagree is that when a person applies for their CPP benefit should be based on their state of health because a retiree’s health is usually better between age 60 and 69 than between 70 and 80.
  2. The retiree’s source of retirement funding —  The second reason I disagree is based on how a retiree is funding his or her own retirement. In their column, Bjornson and Vettese are assuming a self-funded retirement using RRSP savings as opposed to an employee defined pension benefit (such as that received by teachers, nurses, police officers, fire fighters, government workers, auto workers, etc.)

Assuming a self-financed retirement, Bjornson and Vettese suggest that a retiree can receive $72,000 more for a CPP pension started at age 70 rather than age 60 or 65. Sounds good so far. However, if a person waits until age 70, when health problems usually start in earnest, what was the point of waiting for a few dollars more? What puzzles me, however, is that Bjornson and Vettese seem to think that waiting until age 70 means a significantly higher CPP pension.

They estimate, for example, that a person qualifying for a maximum CPP pension (which is $1,092.50 right now) would, allowing for cost of living increases, go up to $2,056.00 a month in ten years. Clearly, that estimated amount is unrealistic. I know of people who have been collecting a maximum CPP pension over ten years and it has only increased between $100.00 and $200.00.

Anyway, at the time I retired I got the opposite advice from what Bjornson and Vettese are giving because of what is known as the age 65 CPP reduction or CPP bridge, for those receiving a defined pension benefit from a former employer.

Specifically, if someone is able to retire at age 60 with a defined pension benefit, he or she can receive their entire employer pension and their entire CPP benefit for 60 months. However, at age 65, the amount (or a similar amount) of their CPP is deducted from their employer’s pension. Using the Bjornson and Vaterre example, $713.00 a month over 60 months amounts to $42,780.00.

It really is a bonus and while it is not $72,000, it is still good deal of money at a time when most retirees are still healthy. For example, if your employee pension is $3,000.00 a month before taxes, and your CPP is $713.00 a month, your retirement income from age 60 to 69 is $3,713.00 a month.

Then, in the month following your 65th birthday, that income is reduced to approximately $2,287.00 (the exact amount of the CPP or a similar amount) plus the ongoing $713.00 a month from CPP for a total retirement income of $3,000.00 a month. Of course, at age 65, retirees also qualify for the Old Age Pension (OAS), currently $578.53 a month (slightly more than the $570.52 stated in the link), can partially make up the difference.

Of course, if someone retires at age 65 with a defined pension and their CPP, they won’t notice anything unusual because the the CPP reduction has already been accounted for and they can have the OAS is they qualify for that benefit.

The crux of the matter is that I disagree strongly with Bjornson and Vettese because I believe retirees should start their CPP pensions at the earliest date possible — when they are the healthiest.

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.