older gens pile on the debt. on CPP,why CARP now

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/older-consumers-pile-on-new-debt/article2315580/

Much of the rise is being driven by the baby boom generation, raising concerns that a demographic group that should be focusing on saving for retirement is instead digging itself faster into a financial hole.

...

Other economists, too, have discovered that it is older Canadians who are piling on debt. In October, a TD report found the 65-plus age group is racking up debt at three times the average pace.

“The traditional cycle was when you were younger, you take on debt, when you’re older, you save more and pay down your debt. And when you hit retirement, you live on your savings,” said Toronto-Dominion chief economist Craig Alexander. Now, as people stay in school longer and retire with debt, we are witnessing “fundamental changes to the life cycle that people have.”

...

The CIBC study finds virtually all of the rise in debt in the past four years comes from people with a high ratio of debt to gross income. “The indebted have piled on still more debt,” it said.

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D - and what do you suppose their reaction will be to retirement?
Break open the piggy bank. Not theirs, though. OURS.

D - and on that note... about the idea of raising retirement age to 67.
First of all, lots of Boomers WANT to keep working.
Second of all, the original ages were different too for these programs.
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http://www.thestar.com/article/892566--should-retirement-begin-at-67

Encouraging workers to delay retirement will help relieve the burden on young workers, who face having to help support twice as many seniors past the age of 65 by 2035.

But this concession to fairness is too little and too late for a pair of Ontario political scientists, who point to other developed nations having agreed sooner to gradually raise the age of retirement.

Canada moved sooner to increase Canada Pension Plan contributions to build up a large reserve fund. Unfortunately, that might not be enough.

So, after conferring with the chief actuary for the CPP, Martin Hering of McMaster University and Thomas Klassen of York University are calling for a later retirement age, too.

...

“A retirement age increase leads to a more balanced distribution across generations of the costs of population aging than a contribution rate increase,” they argue.

...

So, true to form, baby boomers who have already had it easier winning the best jobs, best pensions and best homes would be less affected than the younger baby boomers. Also the proposal would be harder on low-income workers, who tend to die sooner than those with higher incomes.

The professor suggest this inequity for low-income workers could be addressed by raising the retirement age for private pension plans, or by changing Old Age Security pensions.

A reduced Old Age Security could be paid at 62, and an unreduced pension at 67, to parallel CPP, they suggest. They do not note, however, that Old Age Security, as now designed, includes a tax-free Guaranteed Income Supplement that would help low-income workers by topping up their CPP benefits and lack of other savings.

Later retirement and an income cap for Old Age Security

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D - aside - VERY nice primer on pre-CPP Canadian old age programs!

http://www.mapleleafweb.com/features/canada-pension-plan-overview-history-and-debates#history

Accordingly, in 1951, the federal government introduced the Old Age Security Act, which provided a universal pension plan to Canadians, referred to as Old Age Security (OAS). Under the new scheme, all Canadians aged 70 or older (and with more liberal residency requirements) were eligible for a taxable benefit of $40 per month. With this new scheme, the means test was dropped, allowing seniors to collect the same benefits regardless of their other income or assets. At the same time, the federal government also introduced the Old Age Assistance Act. It provided a needs-tested (as opposed to means-tested) pension of $40 per month to retired Canadians aged 65 to 69.

...

The CPP, by contrast, was a compulsory social insurance plan, in which employees and employers contribute towards a wage-related retirement pension, and included long-term disability and survivors’ benefits. When it was first introduced, the CPP covered approximately 92 percent of the labour force and was designed to replace 25 percent of the average industrial wage.

D - today, what would that be? Certainly not 2/3 ....

As a social insurance plan based on contributions, the Canada Pension Plan was not designed to pay full retirement benefits until 10 years after its introduction. In the meantime, the federal government amended the Old Age Security Act by introducing a tax-free, income-tested supplement for seniors with little or no other income. Referred to as the Guaranteed Income Supplement (GIS), the program was intended to be a temporary stop-gap measure to support seniors until the CPP was fully operational. During the 1970s, however, concerns were raised that the OAS and CPP were still insufficient as far as preventing poverty for all seniors. As a result, the GIS has become a full-fledged part of the retirement income system; since then its payout value has increased, and it has been indexed to the cost of living.

Between 1966 and 1986, reforms included introducing a full annual cost of living indexation for benefits;

In 1987, another package of CPP reforms was implemented. It included the introduction of a flexible retirement benefit, allowing retirees to begin collecting their benefits as early as age 60

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Review Finds Canada Pension Plan Is Financially Sound
News release
June 27, 2006
"Federal and provincial Ministers of Finance, as joint stewards of the Canada Pension Plan (CPP), today announced the conclusion of their triennial financial review of the CPP. The review confirms that the CPP is on sound financial footing. "Our analysis suggests that the 9.9 per cent contribution rate will be sufficient to sustain the Plan into the foreseeable future," stated the Honourable Jim Flaherty, Minister of Finance. "We have therefore agreed that the contribution rate will remain unchanged." By providing over 3 million retired Canadians with maximum benefits of up to $844 per month, the CPP represents a key pillar of Canada’s retirement income system. With assets projected to grow to $250 billion in the next 10 years, the Plan has been recognized internationally as an affordable model for securing adequate retirement income in the face of population aging and economic change."

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D - now here is where things get interesing. Sure, we do hafta wait for the next Triennial Financial Review in 2012ish. But what do the fund size projections suggest?

http://www.hrsdc.gc.ca/eng/oas-cpp/reports/2010/page07.shtml

As at March 31, 2010, total CPPIB net assets were valued at $127.7 billion. These net assets are composed of contributions and investment income that have accumulated since the CPP’s inception in 1966, minus benefit and administrative expenditures over the same period.

The CPPIB has $127.7 billion in net assets.
D - Hmm, this seems a far cry from $250 billion, with only um 4-5 years left to meet that goal. I'm gonna say the stock market is not gonna suddenly start to shine again any time soon.

http://www.cppib.ca/Results/Financial_Highlights/

Yup. Not looking too good. NOW does the sudden CARP push for CPP pension benefits hike make sense? You guessed it- they gotta do that NOW, or the next review will indicate just how severely the fund has been damaged. After all, what do they care? The present rules allow a .2%/year increase easily. So GenXYZ can absorb the costs with a gradual CPP deduction increase of 1%/5 years without too much fuss.
Yup, that pretty chart says what you think it does.
2012: 152.3 BILLION. Almost 100 billions shy of what the cheery last meeting complacently expected.
I hope you are, at this moment, finding it difficult to feel warm thoughts about CARP. That really is the point.

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http://www.thestar.com/Business/article/680409

In fact, the amateur investor could have done better by holding a higher percentage of Canadian stocks.

The CPP fund has shifted more toward foreign investments for long-term strategic reasons.

It had only 14.4 per cent of its assets invested in Canadian stocks at the end of June, down from 23.6 per cent a year earlier. It had 43.1 per cent invested in foreign stocks, 32.7 per cent in bonds and 9.8 per cent in real estate and infrastructure.

...

The health of the plans, endorsed recently by provincial finance ministers and the official actuary, depends mainly on employment levels and the number of years we live.

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D - gee, sure a good thing we did that (sarcasm)...

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http://www.fin.gov.on.ca/en/consultations/pension/ris.html

Very nice primer.

Pillar 2: Canada/Quebec Pension Plan
CPP or QPP (in Quebec). The CPP and QPP are mandatory pension programs for the employed and self-employed, and are intended to replace 25 per cent of career average pensionable earnings.

D - hmm, is that so? I gotta run down those #s again...