pension max to jump up, lower incomes already

http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/canadians-will-see-less-take-home-pay-starting-jan-1/article2285163/

Workers are seeing their EI premiums rise by five cents per $100 of insurable earnings to $1.83 on Jan. 1, while the maximum insurable pay increases to $45,900 from $44,200. In addition, the maximum pensionable earnings rise to $50,100 from $48,300.

“Between the employer and employee, you have $6,630 of payroll taxes. That’s the price of hiring a Canadian.”

A spokesman for federal Finance Minister Jim Flaherty said the government has ushered in significant tax relief since 2006 and that the tax burden of Canadians is now the lowest in 50 years.

“There will (also) be absolutely no increase to the CPP contribution rate,” added Chisholm Pothier, Mr. Flaherty's director of communications. “What is being adjusted is the maximum CPP contribution room only, something that happens every year to account for inflation.”

He noted that the maximum CPP benefit increases by $320 to $11,840 in 2012.

( In addition, the maximum pensionable earnings rise to $50,100 from $48,300. )

-----------------
D - a few points.

Payroll taxes discourage employers from hiring new workers. In theory, flexible hire 'n fire policies would still encourage hiring new workers instead of maxing out overtime for existing ones (also an expense). But such policies would leave workers with no steady source of long-term income, and they would stop buying luxury goods, as well as obtaining house mortgages. A GAI (guaranteed income) program could mitigate this, and still reap the benefits of a flexible labour force. Unlikely to happen though.

So that is a 3.7%

Whereas the increase in CPP-able earnings is more like 1%.

D - I guess the future favours a low-inflation, German-style approach to monetary policy. Otherwise the pensioners either find their effective income decreased by inflation, or the CPP fund rapidly becomes unsupportable due to adjustment-to-inflation and huge strain on a small worker base.


D - then there is concern about what happens to the stock market when Boomers start to cash out.

http://www.arbitragemagazine.com/features/boomers-capital-markets-crash/

If baby boomers retire and sell off their assets, this will drive down stock prices causing a fall in the markets worldwide. The basis of this argument is that the baby boomer generation represents a large cohort with their retirement savings tied up in the financial markets. When they try to sell all their assets to prepare for retirement, they will be selling to a younger and much smaller cohort who will simply not have the demand to meet the supply. Economics 101 tells us that when supply is greater than demand, prices must fall.

----------------------------

D - one need not talk about sensational crashes. If stock market returns remain stagnant or low for a few decades, then the CPP fund may become untenable to support intergenerationally.
Do you suppose retired Boomers will accept pay cuts? From c. 2/3? When CARP -their lobby group - if pushing for a shift to more like 3/4 income payout?
Do you really suppose a CUT instead, to, say, 1/2 or 3/5, would be politically tenable? Financially necessary, maybe, but that's not the same thing.
The CPP fund, after paupering the GenXYZ (particularly the Z gen, which will pay the largest share of their working career income from beginning to end), would need inevitably succumb to these forces. It would, after gen XYZ has paid in at dear cost, not be able to continue past the death of the last Boomers. GenX shares some qualities with 'Baby Boomers', and might gain some use of high CPP payout rates, particularly Freedom-55 GenXers who would be able to function on par with age-then-65 Baby Boomers. In other words, the richest of the Xers.

Not a very cheery scenario, huh?
I just read today about the Italian gov't debt sales not going as well as hoped. And the Americans are bleeding jobs again. We're not out of the woods yet.
This year's end, the future is not so bright that I need to wear shades, as the song goes.
This year, I need low-light amplicifation Starlight goggles to see a silver lining on all those dark clouds.

coming OAS crunch. CARP adds gasoline to fire

http://www.theglobeandmail.com/news/politics/old-age-security-for-baby-boomers-heads-toward-100-billion-a-year/article2280064/

“By 2030, the number of beneficiaries of the basic OAS pension is expected to double with expenditures projected to reach $108-billion,” states the June, 2011, briefing note, marketed “secret” and obtained under access to information legislation. The number of Canadians receiving OAS – a program that pays a monthly pension of up to $527 to virtually all seniors in Canada – is expected to climb from 4.7 million in 2010 to 9.3 million by 2030, before falling back.

...

A spokeswoman for Prime Minister Stephen Harper, Sara McIntyre, responded cryptically when asked whether the government is planning policy changes to the OAS to limit its cost.

“All seniors will continue receiving their benefits. Our country faces demographic challenges,” she wrote in an e-mail. “We will ensure our retirement security system remains strong and sustainable for generations to come.”

----------------------
So the gov't, in the face of crashed stock markets (permanently depressed as the Boomers cash out) plans to stay the course in the face of austerity measures.

Now let's talk about a group called CARP on retired persons.

http://en.wikipedia.org/wiki/CARP_(Canada)

The original mandate of CARP was to represent retired persons specifically, but for various reasons it has since expanded to cover the rights of all persons over fifty.
...
In early 2008, Moses Znaimer became executive director of CARP, and a Znaimer-controlled company now known as ZoomerMedia assumed responsibility for most of the organization's marketing and membership services.[1] ZoomerMedia also publishes Zoomer Magazine, previously titled CARP Magazine.

D - a Zoomer is anybody older than a Boomer. Meaning Gen XYZ are excluded.
That's OK - that IS the (fairly) natural fault line between generations.
In terms of math variables, we ARE X, Y and Z respectively. (Z cannot vote yet.)
That makes Boomers W. And the Great Generation (and I mean that) the V generation.
Z IS the end of the line. Why? They will inherit the equivalent of fiscal smoking ruins.

But surely, you say, Harper has a handle on things... right?
Not if everybody else can help it. I'd like to say now that I by and large despise the man and his party. But on this issue, his is the only party willing to 'hold the line'.

I think there is presently about 300,000 members in CARP - c. 1% of the population.

http://www.carp.ca/category/news/top-stories/

D- let's look at 1 of their top news stories.

CARP Open Letter calls on Finance Ministers to enhance CPP, cap PRPP fees and fund Home Care

D - "Enhance" CPP? What does that mean? Glad you asked.

"The CPP has successfully provided an affordable and reliable source of retirement security for the broadest reach of Canadians. However, the level of CPP benefits alone is inadequate and CARP has called for increasing CPP coverage and benefits.

To counter the criticism that increasing CPP premiums to pay for increased CPP benefits would be “job killers”, CARP offers a rough calculation [attached] of the dollar amounts that would be required to increase CPP benefits by a modest 10 percent. Subject to verification by finance officials, CARP estimates that employers and employees would each pay $45 more per month..."

D - About 50 per month. To bump up the payout of CPP from c. 2/3 to c. 3/4.
And why? Cuz some Boomers, spending like there is no tomorrow both at the public trough and in their private budgets, much like Aesop's grasshoppper, failed to save for retirement. Somehow, they view it as an affront to their dignity that they must then experience some loss in their standard of living.

D - and all this at a time when we have Gen XYZ saddled with (relatively late in Boomer careers) sudden spikes in CPP payout, a world economic meltdown, and pressure from credit rating companies for fiscal austerity from gov'ts.

D - CARP concluded that letting by saying the above policy would not be a "job killer". Funny, there'd be a hue 'n cry if we hiked income tax by $50/month. Why? Cuz the Boomers have felt entitled their entire lives. Entitled in youth to suddenly public universities with massive tax subsidies. Entitled to no-strings-attached student loans - which they then revoked after abusing so Gen X would carry their debt for up to ten years before default.
Then, as Boomers entered the workplace, entitled to low CPP premiums far past the point they realized the program had been rendered unsustainable demographically. After its reform, entitled to reduced income taxes, even though by then everybody knew they would be straining the social program funding with their 'Boomer Bulge'.
Entitled to GST and HST cuts (look up who voted for that), even though we desperately needed to demolish the debt before Boomers retired, instead of just passing the buck down the chain of gov't levels so that consolidated gov't debt levels, particularly when 'infrastructure deficit' is considered, changed not at all.
And now - lo and behold - (I hope you are sitting right now) the Boomers, as they reach age 55 and begin to retire, ... still feel ENTITLED.
I cannot say that I am surpised.

And how have the various political parties reacted to this CARP overture?

http://www.liberal.ca/issues/retirement-security/

"We will support a gradual increase of the defined benefits under the core CPP to enhance the retirement security of all Canadians."

D - they go on about how many private sector employees lack a pension plan through the workplace. And I DO sympathize. But notice how they support the CARP proposal, though using the incremental "boiled frog" approach so popular in politics. More like "death of 1000 cuts", IMHO.

http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20110404/layton-pensions-110404?s_name=election2011

To remedy this issue, Layton said an elected NDP government would immediately work with the provinces to double CPP and QPP benefits. But he would allow Canadians to "prop up" their CPP savings with their personal income.
"This would be a low-cost, guaranteed alternative to Canadians fed up with the high mutual management fees and who want a more stable option when it comes to retirement investment," Layton said.
The NDP believes that doubling CPP and QPP benefits could require a 2.5 per cent increase in payroll deductions.
Layton also pledged to add $700 million to the Guaranteed Income Supplement (GIS) to help out seniors in the lowest income brackets.
The move would help "lift every Canadian senior out of poverty," he said.

D - so he is basically for the immediate implementation of CARP pension proposal.
Note the reasoning - as an anti-poverty measure.

D - just how bad is senior poverty, anyway? Not very, says this insurance association.

http://www.creditcards.ca/credit-card-news/how-much-retirement-income-do-canadians-really-need-1278.php

"Canada has a strong retirement income system. Alain Néemeh, Canadian Life and Health Insurance Association (CLHIA) chairperson, stated in a recent speech that Canada's retirement savings system has helped reduce poverty rates among Canadian seniors from 35 per cent in 1980 to just 5 per cent today."

D - note that OAS is intended for "(up to) low-to-middle income". Yet the clawback does not begin until much higher than that.

http://www.theglobeandmail.com/globe-investor/investment-ideas/portfolio-strategy/how-to-avoid-the-dreaded-oas-clawback/article2037894/

"OAS is a federal social program designed to provide a very modest pension to low- to middle-income retirees. The maximum monthly benefit right now is $526.85 or $6,322.20 a year. The clawback of OAS benefits starts with a net income of $67,668 and it completely eliminates OAS with income of $109,764."

D - the only way to avoid the OAS clawback ought to be being poor, period. Yet that is not the case. "Low-to-middle income" - really?!
Since when was $67,668 the thresh-hold for "low to middle income"? I assume that phrase is meant to mean upper-lower class.
Let's examine this amount more closely.

http://www.statcan.gc.ca/daily-quotidien/110615/dq110615b-eng.htm

"After-tax income for unattached individuals remained stable at $25,500, though this was not the case for all unattached individuals."

D - in no way does StatsCan support the hypothesis that single income earner without dependants is 'average' up to the OAS clawback. What we have here is 'creep' to subsidize not the poor but everybody up to upper-middle-class incomes! For that matter, the fact that somebody earning SIX DIGITS qualfies- to $109, 764, is simply scandalous.

D - well, if senior poverty is the issue, then here is my counter-proposal: just re-arrange OAS/ GIS funding and cut off the rich jerks feeding at a public trough intended to address poverty. Here is my proposal. Reboot OAS with its existing funding to focus exclusively on its original (and true) mandate- preventing poverty in retired seniors in a lower class income situation. How? Linkage. Link the clawback start and end to the level that other gov't policy suggests is an important middle class break point.

http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html

"Federal tax rates for 2011 are:

15% on the first $41,544 of taxable income, +
22% on the next $41,544 of taxable income (on the portion of taxable income between $41,544 and $83,088), +"

D - my suggested OAS start/end points for clawback are the top of the 1st and 2nd income tax tier at the federal level. $41, 544 and $83,088 respectively.
Take OAS funding from wealthy middle-to-upper class seniors and redistribute it to the poor ones, who are nominally the intended recipients of the OAS program.

But we won't see this proposal put forth into public discussion. You see, Boomers feel entitled as middle-to-upper class members of society to waste OAS funding intended to alleviate senior poverty. They feel entitled to hike pension payroll deductions in the very year they begin to retire at the age of "Freedom 55". Boomers are like the first date nobody wants. She orders the lobster, but is only getting started. The dessert and more champagne are also on the way. Care to guess which generation gets to pick up the tab, though?

http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/sis13539

D - I detected a similarly strong correlation in the age Boomers entered the workplace and suddenly clamped down on student loans.

D - A coupla comments. I know that periods ought to stay inside quotation marks at the end of a sentence, but I don't like how they look. You also might be wondering about the images for this blog. Well, a CARP is a fish known for hoovering up every bit of low-end biomass, leaving nothing for anything that arrives later, too late for the feeding frenzy. CARP even went with the fish motif! I chose a snake - let's refer to it as an asp. Why? ASP stands for "Advocating Sustainable (social) Programs" - as in each generation paying for itself, particularly when the Boomers are twice the size of any other 1. Also, when I was generating visual graphs of Boomer spending and taxation patterns, the Hippocratic double helix of entwined snakes appeared, as did the fish motif. It looks like 2 sine waves cancelling each other out. One wave is the Boomers USING public funding for programs. Early in life, the Boomers used this funding for subsidizing post-secondary educational institutions. Now they begin to eye pensions and health care with the same avarice. Conversely, the other sine wave represents their opinion on taxation (particularly income tax) once they entered the workplace. The fish motif appears simply by drawing a coupla vertical lines, though I like to add fins and eyes too.

I am not accusing the Boomer generation of some grand conspiracy. No, this is simply a matter of benign neglect- and an overwhelming pervasive sense of ENTITLEMENT. When university students, they supported tuition subsidies and generous student loan terms. When working as adults, it was "income tax" that occupied their vision - with blinders on to all else. Finally, now and in the next few decades, they will remain par for course and do their best to gut social progams of use to them on the way out the door. By that, of course, I mean health care as well as income programs.

I know what their epitaph will be . "Entitled". Or: "Cuz we're worth it1"
Right...

the subtle cost to society of high tuition

http://www.sciencedaily.com/releases/2011/12/111214102926.htm

D - this is a USA study. But the implications of deregulated tuition for us are there.

The researchers, who reported their findings in the current issue of the American Economic Review, said a shift occurred in the 1990s as more low-income students began to struggle to access credit to pay for a college. During the 1990s, youths from high-income families were 16 percent more likely to attend college than youths from low-income families.

According to Monge-Naranjo, constraints on financial aid could have far-reaching economic impacts. When poor but intelligent workers are unable to earn a college degree, their career choices are restricted, Monge-Naranjo said. That could mean less qualified and less productive workers will attain those positions.

"It's a matter of economic efficiency," said Monge-Naranjo. "Are we choosing the best individuals for the job, or just the individual whose parents are wealthy? In the long-term that may have an effect on the economy, although it may take a couple of generations to find out and, even then, perhaps be hard to quantify."

--------------------------------------------

D - the Republican "Texas Miracle" ignores this creeping long-term cost of slashing funding.

D - if student loans don't cover the actual cost of tuition (and sundry associated costs), then if private credit cannot be accessed, and the job market is not reliable, highly talented poor students will opt out of more expensive school options. Don't get me wrong- a trade apprenticeship or college diploma can be a highly sensible career choice.

Jubilee, debt slaves and student loans

D - I just read "The History of Russia" in which their serfs were freed - but needed to pay landowners for their land. The limit on how long they could owe their debt was 49 years.

Why is that? The Old Testament- Jubilee.

Jubilee (or "jubile," in the King James Bible) deals largely with land, property, and property rights. As with most cultures, the property rights regarding land, slaves and indentured servants was less absolute than for other property rights such as for tools and personal artifacts. As examples, in Leviticus, God is speaking to Moses:

Leviticus 25:10
Consecrate the fiftieth year and proclaim liberty throughout the land unto all the inhabitants thereof: it shall be a jubilee unto you - and you shall return every man unto his own clan, you shall return every man to his family.
Leviticus 25:23
The land must not be sold permanently, for the land belongs to me. You are only foreigners, my tenant farmers.
Leviticus 27:21
When the field reverts in the Jubilee year it shall become holy unto the LORD, as a field set apart; and it shall become owned by the priests."

Jubilee (Google blog just changed my margin. I hate you Google...)

the long and short of it is you forgive your own tribe debts every 7 years, but foreigners only every 7x7 years - 49 years.

Why do I mention this? Presently, Canada student loans can be defaulted upon after 7 years. In other words, our nation recognizes students as members of the tribe.

BUT.

It was 10 years before that. The implication of this in a Xn nation is significant. The message was sent loud and clear - students weren't worth considering as members of the tribe. They're outsiders, renegades - failed citizens who failed membership requirements. Therefore treating them as outsiders was acceptable.

You know, I was 'that guy' in high school. The guy who stood earnestly at attention for the national anthem at school. The guy who volunteered for the local army reserve. I was quite the patriot.

I got over it. Being raked over the coals for most of your adult life can do that.

Canada indicated I am not a member of the tribe. Good for them - I no longer consider myself one. I am not a tribe member. I am no longer a patriot.

When the rule changed to 10 years, I wondered if it would get hiked to 25, or life. Sound a bit like a prison sentence? Exactly. The terms of repayment were changed after the time I assumed the debt. Eventually I realized the gov't was bargaining in bad faith. I was so concerned that I looked into Lithuanian citizenship as a back-up option. It seemed eminently reasonable to consider.

So I'm not a tribe member any more - and don't identify as one either.

Congrats. That took a lot of doing. But I finally got the message.

high stakes pension case in court appeal Ontario

http://www.theglobeandmail.com/globe-investor/supreme-court-to-hear-high-stakes-pension-case/article2256460/

The Supreme Court of Canada will weigh into the high-stakes debate about whether pension plan members have a claim on an insolvent company’s assets to cover shortfalls in their plan.

The court announced Thursday it has agreed to hear an appeal of a landmark Ontario court ruling that reversed the traditional pecking order for distributing corporate assets when a company goes bankrupt. The June decision by the Ontario Court of Appeal concluded former employees of aluminum processor Indalex Ltd. had a priority claim on their company’s assets to fund a shortfall in their pension plan.

------------------------------------------------

D - This is significant. If the world economy crashes then Canada will get mired in it too. Regardless, Ontario's manufacturing sector is being gutted by the strong dollar, which has been increased by western commodity exports, primarily to support the Chinese these past few years.

My roomie pointed out that the glory days of the stock market will be past once Boomers retire in droves and try to cash out their investments.