Pension plans and taxes | General financial discussion | Discussion forum

spy or not depends on consent; yes consent, not spying; no consent, spying.

But it is alarming about are we creating a surveillance society through as we need to give out so many information all the time to use different service.

Excessive individualism and insisting that only I as an individual can make the best decisions about money is a significant threat to society. If everybody held on to all their money because they believed every kind of deduction was a "tax" and therefore bad, we would have total social chaos, all our systems for working together as a society would break down, nobody would want to live here, and we would be totally vulnerable to whatever else was going on in the world.

Pension plans are not a tax. They involve a deduction through which one pays into something from which one can expect personal benefits. They exist for the benefit of everyone. One can argue about how well they are managed and whether they are sufficient, all of which are the substance of healthy debate. I would personally argue against the Ontario plan because I think it would be better to beef up the CPP and just have one plan, but the federal government does not want that. The CPP is a better plan, no question in my mind.

Personally, I do not anticipate being as sharp as I am now when I'm in my 80s, and I will be grateful that people smarter than me are running the pension plans from which I benefit. I have enough difficulty trying to figure things out now, and I am younger, smarter, interested, and generally very well educated. Being old is always about being more vulnerable, sooner or later. There is nothing that will insulate anyone 100% from something going wrong, but betting only on one's own non-professional wits is putting all your eggs in one very vulnerable basket. A pension plan offers the necessary diversification, at a minimum. I have not yet run into anyone who did not want to receive a pension as part of their retirement income, as everyone seems to appreciate it as a fairly solid foundation, but perhaps there is someone on this board who does feel that way.

I don't know if it is really worth my time to continue to respond to such hyperbole and innuendo.
You can say anything you like speculatively about what MIGHT happen. And if you want to be inflammatory, the sky's the limit.
There is lots I could say, but it's getting tiresome. No matter what is said, Jack seems capable of creating an even more dire scenario than his previous one. Now, apparently, he does not expect his pension until he is 80 in the new Dickensian world that he expects to live in. Previously he suggested it would be somewhere around 72 yrs. What will the next version be?
I don't doubt for a minute that very major changes may occur in our economy over the next 20 or 30 years. However, there was all kinds of scare-mongering about the CPP a few years ago when a lot of similarly inclined people were spreading the rumour that the CPP was running out of money. While contributions have gone up a bit (and what hasn't?), the CPP is now understood by actuaries to be in a very healthy position. Might things go worse at some point? Of course. Can we protect ourselves from all potential calamities? No.
The point is that none of us really knows what is going to happen. A pension plan remains an important part of one's retirement planning. It is immune from any bad investment decisions that we might personally make now or later. Diversification remains the best hedge against everything, and a pension plan is an important piece of that.
Yes, inflation can and will happen. Everyone needs to look very carefully at what sort of inflation protection is promised in any pension plan to which they belong and at the extent to which CPI reflects their reality. Most people have never read the fine print on that. Generally, public pension plans such as CPP offer the best inflation protection plans. The one which affects my life (other than CPP) does not offer 100% of CPI; it offers 75%, although at one time it did offer 100%. However, it is still a great deal compared to what we have put into it. And if the period during which we receive it should be shortened by death, I really don't care, because I will be dead. The purpose of a pension plan is not to provide for one's heirs. It is to provide for living people to receive pensions. Just as real estate should not be considered part of one's investments, neither should a pension plan be considered a personal asset, because that's not what it is.
If you want to be thoroughly protected against inflation, then you should invest all your cash in things like real return bonds. But of course you would not do that, would you, because the returns on them right now are extremely low.
If anyone is interested in developing their understanding of how pension plans work and why they are worth having, I suggest they read Pension Confidential: 50 things you don't know about your pension and investments. by Drummond, R. J. (Robert Johnston) and Roberts, Chris. (Toronto: Lorimer, 2012). I found it very helpful, and it says much more than I can say here. I even wrote to the author for clarification on one point and he gave a good answer which did show that the pension system is not foolproof. However, in my view, it is still our best option for a basic level of income security.
I don't intend to respond to any more comments on this thread.

Jon has brought up a new point, so I will try to respond.

It's unquestionably true that defined benefit pension plans are being abandoned by all employers who think they can get away with it. However, it is not true that this is their only option. There is always a push-pull between employers and employees. The problem now is that labour is in a weakened state and is not fighting back as hard as is required, and other people are pushing the idea that it's not sustainable.

I can't buy the argument that the reason why defined benefit plans must be abandoned is that people are living longer. First, they are also being made to work longer, witness the recently announced increase from age 65 to 67 to get OAS and the significant incentives to defer receipt of CPP. Thus, if you are having to work longer to get benefits (and Jack thinks that could go as late as age 80!, invoking a Dickensian scenario which I highly doubt), then the payout period does not necessarily change. According to Jack, it will actually get shorter! Adjustments can and will always be made, but this does not mean you have to get rid of the plan unless you have something better to offer.

Second, if there is a problem financing old age through pension plans, then there will also be a problem financing it privately. It's all the same money in the end; it's just a question of who controls how it is invested and used. We are heading to a situation where the income gap between the wealthiest and the poorest is increasing dramatically and the middle is being squeezed out with part time work, unemployment, underemployment, de-industrialization, and outsourcing. This will result in more poverty among the elderly and a greater burden on the public purse sooner or later.

Third, CPP, which is a defined benefit plan, has made the necessary adjustments and is doing very well. All well-managed defined benefit plans will have to make adjustments, more than likely. This reflects the economy in general and the fallout from the financial crises earlier in the century.
In the same way, individuals who do not have such plans are finding that the income they thought they would get from their investments is nowhere near what they thought it would be, with interest rates so low, and many are having to live more frugally than they expected - not to mention those who lost substantially through personally investing in Nortel etc. (Jack speculates in another thread that they need $1.2 million in order to finance a modest but comfortable retirement if they are funding it themselves, and I don't think that is at all unrealistic.)

The safest scenario, given all these variables, is a large defined benefit pension plan. Nothing can beat such a plan's ability to spread investment and risk over the longest possible term and with the greatest diversification to cushion sector downturns. No individual can come close to competing with this because they simply don't have enough money as individuals to weather all these factors.

People thought they were investing fairly conservatively when they owned Nortel shares, for example. They then completely lost whatever percentage of their portfolio was invested in Nortel, which was a hard hit for a lot of seniors. While all funds which were invested in Nortel would have lost that money, the largest and most diversified ones would feel the least impact, by far. Perhaps 20 years or so ago, "Freedom 55" was the mantra of the banking industry and financial world, as it was felt that people could safely retire at 55. Now, at 70+, a lot of those people have regretted their decision and many have taken up low-pay part time jobs to fill the gap because they have found that they can't make it due to the decline in interest rates.
The ones that have defined benefit pension plans, such as teachers and some government employees, and politicians, are not experiencing that problem because they are not dependent on individual investments in short and medium term bonds and GICs. The answer is not to get rid of the defined benefit plans that exist and work, but, rather, to have more of them, so that these crises can be mitigated

The problems of competition from Asia are real, as is the youth underemployment problem.
We do have the strengths to deal with these problems. Everybody wants to live here.

By the way, when I was young, we said the same thing about the older generation having left us messes to clean up. The same thing will happen to you. The dependency on fossil fuels, for example, was very well established before we came along. My generation, or at least some of us, were the first to wake up to the problem. It was my generation that founded organizations like Pollution Probe in the 1970s when the "older" generation did not want to acknowledge that there was a problem. We are all in a continuum.

Most crime has ALWAYS been committed by young males. Recent research suggests that they tend to be immature compared to females and exercise poor judgment in many ways. They also have more motor vehicle accidents. It makes me wonder why so many of them have such active roles in running our economy - and always have - because that is where we need people who are more conscientious and careful.
There is no question that all young people need the possibility of decent employment. However, other statistics suggest that there will be a shortage of workers in the foreseeable future due to the demographic curve and that this will encourage older workers to stay in the work force. One thing that is NOT going to happen is that everyone will delay retirement until they are 70 or older. People get sick, they die, get turfed out of their jobs, can't work in jobs that simply require a younger person, some can afford to retire and do so. It's a mixed bag.

There are no substantial arguments here for me to respond to.

I appreciate the fact that Jack wants people to be able to read my posts more easily. Accordingly, I have added more paragraph breaks.