Lecture 9 Flashcards
what are the three pillars of canadian pensions?
- gov plans (CPP, OAS, GIS)
- Employer sponsored plans (RPP - DB &DC)
- Personal Savings (RRSP, TFSA)
pros for offering a pension plan (employers POV)
- Pay less corporate tax
- makes it easier to retire employees in an orderly way
- improves the employers competitive positioning in the labour market
cons for offering a pension plan (employer POV)
- prefer to invest the funds back into their own operations
- employers may be discouraged by the rising administration costs and regulatory environment
what is the flat benefit type of DB plan?
provides a fixed benefit under a formula that disregards the level of participants income
- usually $x per month of service
what is the “career average earnings pension plan”?
calculated as a % of the participants earnings during each year of membership in the plan
ex. 2% * average salary * YOS
what is the “final average earnings” DB pension plan?
benefit is calculated as a % of the final average earnings of the member * YOS
- provides protection against large increases in salary
what is OAS?
provides monthly benefits to all who reach age 65 and who meet residency requirements, but is subject to clawback
what is GIS?
provides monthly benefits to OAS recipients and is subject to an income test and residency requirements
how can you qualify for a full OAS benefit?
40 years of residence in canada after the age of 18
how can you qualify for a proportionate OAS benefit?
Available to individuals with 10 to 40 years of residence in Canada after the age of 18
how are OAS pensions financed?
financed on a pay-as-you-go basis from the governments general tax revenues
what is the clawback in OAS?
when the benefit is lowered for those with high pension incomes
how is the CPP funded?
though contributions from employees, employers and investment earnings on the contributions (not subsidized by gov)
how are CPP contributions paid?
paid on earnings between the Year’s Basic Exemption (YBE) and the Year’s Maximum Pensionable Earnings (YMPE)
- both employee and employer contribute 50% of the total contribution rate
how do self-employed people contribute to CPP?
They pay the full % contribution amount, since there no employer to split the contribution with
