CPP and OAS

[brucecohen]

The only time Service Canada is notified of the tax and CPP amounts for individuals is when employers file a T4 summary for the previous year. That will usually be in February.

The other time is when self-employed people file their taxes by April 30.

Actually it takes much longer than the tax filing season. I started receiving CPP this January and recently phoned to ask about when my benefit will be adjusted to reflect my 2009 maximum contribution. The CPP lady said it typically takes CRA more than a year to provide them with that info.

[ghariton]

Actually it takes much longer than the tax filing season.

For many years I worked in Quebec while living in Ontario. As a result, my employer deducted QPP, which was transferred over and eventually shown on my CPP statement. IT would take two to four years for the contributions to show up on the CPP statement. But they showed up eventually.

George

[adrian2]

The other time is when self-employed people file their taxes by April 30.

Actually it takes much longer than the tax filing season. I started receiving CPP this January and recently phoned to ask about when my benefit will be adjusted to reflect my 2009 maximum contribution. The CPP lady said it typically takes CRA more than a year to provide them with that info.

I usually file in the second half of April. By late May, I'm normally able to see my CPP contributions for the previous tax year on Service Canada's website. In your case, Bruce, it may have been a different kettle of soup because it required a re-calculation of the CPP already started.

[StuBee]

Is there tax withheld at source on OAS? I am aware of the clawback mechanism whereby you pay back the excess amount of OAS received (i.e. above a certain threshold). If I am receiving OAS for the first time, is there any withholding tax? If my annual income always remains below the threshold for clawback will there ever be withholding tax?

[Springbok]

Is there tax withheld at source on OAS? I am aware of the clawback mechanism whereby you pay back the excess amount of OAS received (i.e. above a certain threshold). If I am receiving OAS for the first time, is there any withholding tax? If my annual income always remains below the threshold for clawback will there ever be withholding tax?

If I recall correctly, you can opt to have (or not have) tax withheld. Same with CPP. But you will be taxed when you file your return, or perhaps earlier if your income is then high enough to require quarterly payments.

[OhGreatGuru]

Is there tax withheld at source on OAS? I am aware of the clawback mechanism whereby you pay back the excess amount of OAS received (i.e. above a certain threshold). If I am receiving OAS for the first time, is there any withholding tax? If my annual income always remains below the threshold for clawback will there ever be withholding tax?

If I recall correctly, you can opt to have (or not have) tax withheld. Same with CPP. But you will be taxed when you file your return, or perhaps earlier if your income is then high enough to require quarterly payments.

Correct. There are two types of deductions. The first is a voluntary income tax deduction that you can request, if it suits your purposes for budget reasons. The other is a mandatory "OAS Deduction for Higher Income Seniors". If, in the previous tax year, your income was above the threshold limits for OAS clawback, CRA informs OAS to start making monthly deductions In July for an estimated clawback for the current year. These deductions are treated as income tax deducted at source when you file your return. The actual clawback owed is adjusted when you file your tax return.

[StuBee]

Thank-you Springbok and OhGreatGuru.

StuBee

[izzy]

http://money.ca.msn.com/investing/news/ ... d=26740285
Note this applies to FEDERALLY regulated private plans only
As they say in the article that is only 7% of plans since most are regulated provincially.

[George$]

This seems like the best thread to post the following:

25th Actuarial Report on the Canada Pension Plan as at 31 December 2009
Presentation to the Board of Directors of the Canada Pension Plan Investment Board

52 overheads with some interesting data - including "Investment Assumptions" staring at slide 19


2nd CPP link added later
Technical Aspects of the Financing of the Canada Pension Plan

[ghariton]

Thanks, George$. That's very helpful.

This raises many questions, but I have two in particular.

(1) The chart on page 21 of the first link shows risk-free yield on federal government bonds. In particular, "Ultimate fedral government long term bond real-term yield is assumed to increase from 2.1% in 2010 to 2.8% in 2015." Am I right in assuming that this should correspond to the expected yield on RRBs? Or do I have to knock off 0.5% to 0.8% for an insurance premium against unexpected inflation? And if there is a big spread between the real returns on RRBs and on risk-free government bonds, how should I interpret this -- that the comparator bonds aren't really risk-free?

(2) The chart on page 41 shows the asset/expenditure ratio dropping precipitously for the QPP, reaching zero around 2040. Does this suggest that the QPP (as opposed to the CPP) might be in trouble?

George

[newguy]

(2) The chart on page 41 shows the asset/expenditure ratio dropping precipitously for the QPP, reaching zero around 2040. Does this suggest that the QPP (as opposed to the CPP) might be in trouble?

Too lazy to look right now but the QPP site says they need to increase contributions to something like 11%.

newguy

add:

The financial pressure on the Plan has therefore increased since the last actuarial report, since the steady-state contribution rate has risen from 10,54% to 11,02%.

http://www.rrq.gouv.qc.ca/en/regie/etud ... _2009.aspx

We still contribute 9.9% like everyone else. I think maybe I should retire in Canada, then I assume I will get CPP.

[adrian2]

I think maybe I should retire in Canada, then I assume I will get CPP.

I think you are in Canada.

[ghariton]

I think you are in Canada.

In their minds, many Quebeckers left years ago. They just show up from time to time to collect the alimony equalization payments.

George

[Shakespeare]

In their minds, many Quebeckers left years ago. They just show up from time to time to collect the alimony equalization payments.

Not to mention the bedroom privileges....

[StuBee]

So, clearly the QPP is less healthy than CPP... Has it ever occurred that contribution rates have deferred between the two plans? The previous actuarial report determined that the MCR should be 10.5%, The most recent (2009) report determined it to be 11%. Will the government simply wait until the next actuarial report in 2012 (I read that the Caisse de Depot et Placement has done fairly well recently...)? Is this a political "hot potato"?

[newguy]

I think maybe I should retire in Canada, then I assume I will get CPP.

I think you are in Canada.

Not for retirement benefits. I was told that residence where you retire (apply for CPP/QPP) determines who pays your benefits. So theoretically I can work in Quebec and then move to the ROC in order to retire and collect CPP.

newguy

edit spelling

[Bylo Selhi]

In their minds, many Quebeckers left years ago. They just show up from time to time to collect the alimony equalization payments.

Not to mention the bedroom privileges....

Tricky Dicky, a used car dealer, was determined to break all sales records with his 'like new' models. A large sign in his window announced: "One Blonde Free With Every Car." A delighted young stud plunked down his money and, in hot anticipation, drove his newly won blonde out into the country. He parked, gave her a few preliminary kisses, and whispered a suggestion in her ear. She shook her head, smiled, and said, "You got that when you bought this car."

[Spidey]

In their minds, many Quebeckers left years ago. They just show up from time to time to collect the alimony equalization payments.

Not to mention the bedroom privileges....

Tricky Dicky, a used car dealer, was determined to break all sales records with his 'like new' models. A large sign in his window announced: "One Blonde Free With Every Car." A delighted young stud plunked down his money and, in hot anticipation, drove his newly won blonde out into the country. He parked, gave her a few preliminary kisses, and whispered a suggestion in her ear. She shook her head, smiled, and said, "You got that when you bought this car."

And afterward did she add?:

"Is THAT meant to be a 'Surprise'? THAT is 'How' the Worm-Turns... Follow the MONEY.

That's True. It's Awesome.

Be Uplifted."

[StuBee]

So, clearly the QPP is less healthy than CPP... Has it ever occurred that contribution rates have deferred between the two plans? The previous actuarial report determined that the MCR should be 10.5%, The most recent (2009) report determined it to be 11%. Will the government simply wait until the next actuarial report in 2012 (I read that the Caisse de Depot et Placement has done fairly well recently...)? Is this a political "hot potato"?

Sorry for bumping this. However, I would appreciate some input.

On another thread, Marty123 pointed out that there are changes to be implemented concerning CPP. These changes are succintly described here:http://www.taxtips.ca/seniors/cpprules.htm. In a nutshell, changes are being made to the "low earnings dropout rate" as well as adjustments to"early and late CPP take-up".

I am a Quebec resident so I did some investigating (internet-based) in order to ascertain that these changes were also in the QPP. To my surprise, nothing of the sort appears to be on the QPP horizon. QPP appears to be going in a different direction as described here:http://www.rrq.gouv.qc.ca/SiteCollectionDocuments/www.rrq.gouv.qc/Anglais/publications/regime_rentes/consultation_publique/consultation_2008_en.pdf. I draw your attention to page 53 and I quote

Avenues of solution to facilitate continued work after age 60:
2. Eliminate the requirement to stop working in order to be able to apply for a retirement
pension before age 65.
3. Calculate the retirement pension by taking into account the 40 best years of career
earnings.
4. Increase from 0,5% to 0,7% a month the actuarial augmentation factor applied to the
pension of a person who postpones applying for a retirement pension until after age 65.
5. Have only one definition of disability, which would apply up to age 65, by eliminating the
less stringent definition that currently applies to contributors aged 60 to 64.
6. Cover the risk of total disability for beneficiaries of a retirement pension who are aged 60
to 64 and who continue to work and contribute to the QPP.

In a nutshell, 1: QPP is not increasing the actuarial reduction from .6% to .72% per year for retirement before age 65. 2: The "low earnings drop-out rate" appears to have been removed and replaced by simply taking into account the 40 best years (between age 18 and age 60 there are 42 years and between age 18 and age 65 there are 47 years). This point obviously adversely affects people who chose to retire before age 60 since they will now only be able to remove up to 2 low earning years...

Add to this the fact that QPP is clearly less "sustainable" than CPP.

The end result is an ever increasing divergence between the two plans. It is difficult for me to imagine a substantial difference being pemitted since the effect on man-power portability will progressivly increase. In addition, at an administrative level, it would be a nightmare when attempting to reconcile the two plans for those who may have been employed in Quebec and ROC.

I am sure that there are many posters here who are better informed than I am on these issues and I would appreciate your input specifically on the following:

The changes that I have mentioned above are they only "proposed" changes or, is it already "certain" that they will be implemented?
In the past, have there ever been significant differences between the two plans. (i.e. are these proposed differences unprecedented...)?
Are there discussions taking place between QPP and CPP in order to harmonize?

StuBee

[newguy]

I always thought that they would have to be similar because you can apply for either depending on where you live. But...

If you have contributed to both the CPP and QPP, you apply to the QPP if you live in Quebec when applying for a benefit, and to the CPP if you live elsewhere in Canada when you apply.

If you live outside Canada, you apply to the last province in which you lived before you left the country.

Regardless of which plan pays your benefit, the amount is calculated according to your contributions to both plans and the legislation of the plan responsible.

So even if I move to Ontario to retire, the CPP guys will do the calculation based on Quebec's rules.

newguy

http://www.servicecanada.gc.ca/eng/isp/ ... tire.shtml

[marty123]

3. Calculate the retirement pension by taking into account the 40 best years of career
earnings.

...
In a nutshell, 1: QPP is not increasing the actuarial reduction from .6% to .72% per year for retirement before age 65. 2: The "low earnings drop-out rate" appears to have been removed and replaced by simply taking into account the 40 best years (between age 18 and age 60 there are 42 years and between age 18 and age 65 there are 47 years). This point obviously adversely affects people who chose to retire before age 60 since they will now only be able to remove up to 2 low earning years...
...

Indeed. The 40 best years is probably more detrimental to most 60-year-old CPP retirees than the 6%->7.2% actuarial reduction. That means about 5% (versus CPP's 17% worst years are dropped).

The end result is an ever increasing divergence between the two plans. It is difficult for me to imagine a substantial difference being pemitted since the effect on man-power portability will progressivly increase. In addition, at an administrative level, it would be a nightmare when attempting to reconcile the two plans for those who may have been employed in Quebec and ROC.

I don't know how portability is determined, but my 3 years of QPP contributions show as if I made them to CPP on my CPP statement. There is no trace nor mentions of QPP being involved. It might very well be that one or the other (between CPP and QPP) is responsible for applying its own rules based on where you've made the bulk of your contributions. (note: that's more of a question than an answer).

[newguy]

And a seemingly contradictory statement on pg 16

Every person who works in Québec contributes to the QPP. If, during his or her working life, a person works elsewhere in Canada, he or she will contribute instead to the CPP during that period. At retirement, to receive his or her pension, that person will apply to the plan in effect in the person’s place of residence, as if he or she had always participated in that plan. Benefit rights under the QPP and the CPP are therefore totally transferable. Agreements between the two plans make it possible for them to make the necessary financial adjustments to take into account these worker movements.

But the Service Canada site doesn't exactly imply total transferability.

newguy

[StuBee]

I don't know how portability is determined, but my 3 years of QPP contributions show as if I made them to CPP on my CPP statement. There is no trace nor mentions of QPP being involved. It might very well be that one or the other (between CPP and QPP) is responsible for applying its own rules based on where you've made the bulk of your contributions. (note: that's more of a question than an answer).

ISTM that in the past the two plans were very similar (though not quite identical). However, with increasing divergence how can this continue to be the case?

For instance a 55 year old retiree living in western Quebec may be encouraged to move to eastern Ontario simply to improve his pension at age 60. This is not fair to the CPP plan. If CPP and QPP are taking different routes to deal with sustainability issues, why should one plan compensate for another plan? I presume that CPP is receiving some form of "actuarial equivalent" from QPP to provide a pension at age 60 to that former Quebec 55 year old retiree. Why should CPP compensate for the fact that the QPP has taken measures to discourage the 55 year old from retiring in the first place? Or, to put it another way, why should the QPP provide an actuarial equivalent to someone who is now in another plan if QPP has chosen not to provide the same thing to someone who has remained in the QPP plan?

StuBee

[brucecohen]

The end result is an ever increasing divergence between the two plans. It is difficult for me to imagine a substantial difference being pemitted since the effect on man-power portability will progressivly increase. In addition, at an administrative level, it would be a nightmare when attempting to reconcile the two plans for those who may have been employed in Quebec and ROC.

Not really. You'd simply get one pension from QPP for credits earned in Quebec and another from CPP for credits earned in the RoC. No different from the situation in which an immigrant from the US gets $x from CPP and US$y from US Social Security.

To me the big issue is one of politics. Would Quebec voters tolerate a demonstrably worse payout from QPP versus CPP? Would they be able/willing to understand that QPP is in worse shape? To what extent would a political party (PQ?) demagogue this?

A few years ago I read a paper in which a pension expert contrasted CPP's positive outlook and QPP's negative outlook and described a mechanism through which CPP could take over QPP.* But, alas, I don't remember the author's name or any of the details.

* One huge obstacle to such a takeover is that QPP has a provincial economic development mandate for its fund while the CPP Fund has no economic development mandate and no geographic constraints. How desperate would Quebec have to be for the nationalists to scrap QPP's economic development mandate?

[Shakespeare]

One huge obstacle to such a takeover is that QPP has a provincial economic development mandate for its fund while the CPP Fund has no economic development mandate and no geographic constraints

That's one of my concerns about a possible "Alberta Pension Plan".