Handbook of Canadian pension and benefit plans Flashcards
What are the Components of the Government-Administered Pension Plans?
- Old Age Security (OAS)
- Guaranteed Income Supp (GIS) and Allowance Benefits
- Canada and Qc Pension Plans (CPP/QPP)
Compare the sufficiency of the current legislated total contribution rate of 9.9% of pensionable earnings of Canada and Qc Pension Plans
- Canada: Rate is sufficient to provide for benefits past 2085 without depleting the fund
- Quebec: Rate should be increased or benefits decreased, else fund will be depleted in 2039
What are the Components of Canada’s retirement income system
- Government-Administered Pension Plans
- Employer Pension Plans
- Personal Retirement Savings
Briefly discuss the Old Age Security Benefits (OAS)
- Flat monthly benefit
- 10 to 40 years of residence at age 65 receive proportionate pension
- Universality has eroded by the implementation of the clawback tax in 1989 (15%)
- If Canada has a reciprocal agreement with another country, benefits are portable. If not, benefits are payable for 6 months but may resume upon his return
- Financed on a PAYG basis from general tax revenues
- Taxable income
Briefly discuss the Guaranteed Income Supp (GIS)
- Available to all recipients of the OAS pension subject to an income test
- Additional flat monthly benefit for those receiving OAS and meeting income requirements
- Benefit is reduced by $1 for each $2 of other monthly income over OAS
- Financed on a PAYG basis from general tax revenues
- Not taxable income (Through participants and employers)
What was the goal of CPP and QPP?
Provide, combined with OAS, a replacement ratio of approx. 40% or pre-retirement income up to the national average wage (25% from CPP, 15% from OAS)
GIS benefit is reduced by $1 for each $2 of other monthly income over OAS. What must be included and excluded from calculation?
Excluded:
• OAS payments + allowances + similar prov payments
• Payments under Family Allowance Act + similar prov payments
• CPP/QPP death benefits
Included:
• CPP/QPP payments other than death benefits
• Private pension plan payments
• Earnings and investments
Briefly discuss the Allowance and Survivor’s Allowance
- Flat monthly benefit
- To spouses (deceased or alive) aged 60-64 (Min 10 years in Canada after 18)
- Must meet income and residence requirements
- Stops at separation, divorce or remarriage
- Not taxable income
Discuss problems with CPP/QPP rate adequacy and how these problems were addressed
- Aging population
- Disability payments are higher than expected
- Economic growth less than expected
How were rate adequacy problems with CPP/QPP addressed
1998 amendments:
• Contribution rate increase (9.9%)
• Freezing of YBE at $3500, YMPE become indexed
• Max death benefit lowered and frozen at $2500
• New calculation method reduces some benefits
• Establishment of independent CPP Investment Board
What changes have been made to OAS due to the aging Canadian population?
- Eligibility for OAS will gradually increase from 65 to 67 (between 2023 and 2029)
- Allowance/Survivor increasing from 60-64 to 62-66
- Can defer OAS pension up to 5 years to receive a higher payment
When is the starting age for CPP?
Benefits normally begin at age 65, but can start as early as age 60 or be deferred as late as age 70 (-0.6% or +0.7% per month)
The formula for employee contribution (CPP)
[min(Earnings, YMPE) – YBE] * Contribution rate
CPP Investment Board has 2 Main objectives
1 - Manage funds in the best interests of the contributors and beneficiaries under the CPP
2 - Invest in assets with a view to achieving a max ROR, without undue risk of loss
Describe the Investment Board’s affiliation with the government
- Operates at an arm’s length away from the govt, is a Crown corporation, and its intent is to diversify and enhance the performance of the CPP assets
- As a result, can invest in other investment vehicles and not just govt bonds
