ORPP vs our CASP

I have to admit, I don't agree with most of Kathleen Wynne and her party's policies, but at least she has a plan to try to set up an enhanced retirement plan.  Starting a new additional retirement plan is the right thing to do.  Increasing the CPP contribution rates, in my mind would be the wrong thing to do.  There is no clear guideline what so ever on what the future CPP monthly payments will be and if they are going to be only the inflation adjusted equivalent monthly payment in 2016, then I think we should look for an additional retirement plan.  We won't talk much about ORPP, but for the full details on ORPP you can visit the website for the ORPP here.
    I don't like all the aspects of her plan, but it is still better than expanding the CPP.  I also think that she isn't going far enough, I think they could tailor the plan so that individuals Canadians and their employers can contribute above the minimum amount to help the working class without a work place pension even more.  You should also be allowed to receive your benefits at the age and decide on whether you want to receive your benefits as an annuity, a RRIF or both.


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What is CASP?

CASP is the Canadian Annuity and Savings Plan.  The plan keeps your contributions segregated and because they are segregated, you will be able to choose how and when you want to retire.

Contributions:    Funding CASP would come from both you and your employer.  The minimum would be 1.9% (3.8% combined), but the employer has the option to increase their portion of CASP and so do all the employees.  The CASP payments would be taken directly from your paycheck and would be put in a segregated account using your Social Insurance Number.  The combined maximum contribution level would be 18%, the same as your RRSP contribution limit.  Some examples of contribution rates would be 4% employee/4% employer, 4% employee/6% employer or whatever is agreed upon.  The employer can use enhanced CASP payments as an incentive to obtain and retain talent.

Who is Excluded:    Anyone under the age of 18 and over the age of 65, anybody that has already started collecting their CPP, any earning provided by Employment Insurance, earnings from social assistance and any employer that already has a pension plan.  Initially or possibly permanently, individual provinces can opt out of making the CASP program mandatory.

Early Withdrawals:    You can make up to four early withdrawals equal to 20% of the market value of your CASP account.  The early withdrawals are treated as regular taxable income.  The first early withdrawal can be taken out at $0.95 on the dollar, the second at $0.80 on the dollar, the third and fourth at $0.675 on the dollar.  Proof of a terminal disease that will end your life within two years, will allow you to withdraw the full amount, minus a 1.5% fee.

Death Benefit:    If you pass away before converting your CASP funds into an annuity, your estate will get 98.5% of your CASP account.  You can also leave up to 5% of your account, after the date in which you must convert your funds into an annuity or into a RRIF, as a death benefit for your estate.  Any funds left in a RRIF will also be added to your estate.

Who Invests the CASP Contributions:    An independent federal agency will invest the contributions.  All assets would need to be liquid and have a marketable value.  For example, CASP wouldn't be able to buy individual real estate holdings and no private companies.  The investments that would be bought would be stocks, bonds etc.  Each year, your stocks to bonds ratio would be lowered by a set amount.

When Can I Receive Benefits:    You can start receiving benefits as young as 45 years old or you can hold off until you are as old as 71.  It is entirely up to you.  Although the CASP team won't be selling any annuities until you reach the age of 60.

How Do I Receive Benefits:    There are a variety of ways to receive your benefits.  You can turn your CASP fund into a RRIF.  You can also buy annuities directly from CASP or through a private institution.
    You can buy an annuity at any time, although CASP won't sell you an annuity until you reach the age of 60.  If you buy an annuity from a private institution, you can start receiving annuity payments as young as 45 years old.  You get to choose when you want to start receiving your benefits, just know that generally the younger you are, the more you will need to have in your CASP account to get the same monthly benefit.  You can also purchase from a financial institution if you don't like the terms of a CASP spousal annuity or if you want to lock in your annuity ahead of your retirement date, in fear that your CASP account may decrease in market value before you retire.
    You also don't need to lock in your CASP funds all at once.  You can purchase multiple annuities over a period time to reduce timing risk and to help bridge the gap if you are having low income years before your full retirement.  You can also choose to leave whatever percentage you want in your CASP fund so that it can be later converted into a RRIF.
    CASP will be a crown corporation, that will intend on making a reasonable profit.  This is to insure that private companies can compete against CASP to provide alternative annuity plans and so that in the future CASP doesn't try to socialize your CASP account by providing additional benefits to different groups of people, while possibly hurting you.


Benefits for the Employer

Some of the key benefits for the employer would include;


  • Easy to implement the plan, there is no need to set up an account at an independent financial institution.
  • Easy to increase the employee and the employer contributions.
  • Eliminates the uncertainty of funding a pension plan.
  • Easy for small companies to provide extra incentives to their current and prospective employees.
  • Companies can take a one-time hit, and take their underfunded pension plan and buy into CASP for all of their employees, if their unions/employees allow it.


Benefits for the Employees

Some of the key benefits for the employee would include;


  • Easy to implement the plan, there is no need to set up an account at an independent financial institution.
  • Easy to increase your contributions.
  • Contributions are taken directly from your paycheck.
  • Eliminates the need to work at a company with a pension plan.
  • You don't have to work at a large corporation or in government in order to have a pension plan.
  • You get to choose your magic number.
  • You get to choose your spousal benefits.
  • Your family will get a real death benefit based on the market value of your account.
  • If absolutely needed, you can make an early withdrawal from your CASP account.
  • Every year of contributions count, regardless if they were low income years.
  • Mutual funds with a high MER will more than likely become a distant memory over time.
  • You get exactly what you contribute.
  • No legacy costs to pay for!
  • Everyone is in the same boat, you have the same options and privileges as everyone else in the country, and there is no risk that you will have to fight in bankruptcy court for your pension plan (no more events like the Nortel pension fiasco)!


Which Canadians Benefit the Most?

The Canadians that will get the most benefit from CASP, are the Canadians that currently don't have a company pension plan, the ones that don't have a habit of putting savings aside and the Canadians that start working full time jobs, as soon as they are out of high school.
    The best part is no Canadians lose out.  Your funds are segregated and when or how you receive your benefits is up to you.


CASP Account Value Based on the Current CPP Contribution Rate

Below we have what your CASP account value in inflation adjusted dollars would be with a contribution rate that is equal to the current CPP contribution rate (4.95% employee + 4.95% employer).  We ran the results on two investments with a 4% and a 3% real rate of return.  Contributions were added at the end of the year and compounded annually.




Account Value on CASP Payments Equal to 9.9% (The CPP Rate) on the Average Canadian Salary ($49,036) in 2016 Dollars

Year You Turned 65 (Current Age)

4% Real Return

3% Real Return

2026 (55)

$58,284

$55,652

2031 (50)

$97,206

$90,290

2036 (45)

$144,560

$130,444

2041 (40)

$202,173

$176,994

2046 (35)

$272,268

$230,958

2051 (30)

$357,549

$293,517

2056 (25)

$461,307

$366,040

2063 (18)

$645,391

$487,381



CASP Account Balance on the Average Canadian Salary with a 3.3% Real Return (2016 Dollars)

Contribution Rate

CASP Account Balance at the Age of 65 (Current Age)

3.8%
(1.9%/1.9%)

$203,251 (18)
$119,447 (30)
$70,677 (40)
$35,429 (50)

5%
(2.5%/2.5%)

$267,436 (18)
$157,166 (30)
$92,997 (40)
$46,617 (50)

7.6%
(3.8%/3.8%)

$406,502 (18)
$238,893 (30)
$141,355 (40)
$70,858 (50)

10%
(5%/5%)

$534,871 (18)
$314,333 (30)
$185,993 (40)
$93,234 (50)

12.5%
(6.25%/6.25%)

$668,589 (18)
$392,916 (30)
$232,491 (40)
$116,542 (50)

15%
(7.5%/7.5%)

$802,306 (18)
$471,499 (30)
$278,990 (40)
$139,851 (50)

18%
(9%/9%)

$962,768 (18)
$565,799 (30)
$334,788 (40)
$167,821 (50)



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A Wake Up Call

A lot of Canadians are currently not saving for retirement.  Some think they can't, others don't know how, others don't have planning for retirement as a priority yet and there is probably many more reasons as well.  One thing for sure is, if your retirement plan starts at the age of 65, then you have already missed the boat or will need to rely on the 6/49 plan at the very least.
    A lot of times, how you live in your retirement years has more to do with where you worked and less to do on how much you know about saving for retirement.  Someone with a pension plan isn't necessary smarter financially than someone that relies only on marginal savings, but merely had the right saving tools on autopilot.
    Now you might be one of the many Canadians that already have pension plan or a savings plan that you actually stick to, but there are many that don't and won't be saving for their retirement.  Sadly, when a lot of Canadians don't do what they should do, the government will eventually need to step in some way.  So it is either implement a mandatory savings plan or keep on paying an increasing GIS budget.
    Generally the government tries to implement tax law that caters to how they want Canadians to live and act.  That's why we have the RRSP, the TFSA, the CPP and reduced taxes on capital gains, to help stimulate savings.  That is also why you get a small first time home buyers credit, a child tax credit, a donation credit and tuition credits.  That is also why they should implement an autopilot savings plan for Canadians without an employer pension plan.


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