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A bit of 1957 RRSP history
February 3, 2017
8:56 pm
Norman1
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Loonie said

I suppose it was the government that first cooked up the idea of RSPs. It was a win--win for them because they knew they would eventually get the tax anyway, and probably foresaw how they would make up any losses through final tax bills and people who forgot to convert to RIF in time (it still happens). It was also a win for the investment industry, who must surely have had a hand in the idea. …

I don't think that was what happened in 1957.

From Investing For Me: Registered Retirement Savings Plans (RRSPs):

First established by Prime Minister Louis St. Laurent’s final government in March of 1957, the RRSP was originally intended to help those Canadians that did not participate in a company-sponsored pension plan to accumulate savings that would support them in their retirement. (At that time, the Canada Pension and Quebec Pension Plans did not exist and those without a company-sponsored pension plan could only look forward to the government Social Security Plan payments in their retirement.)

Initially in 1957, an individual was able to contribute up to $2,500.00 or 10 percent of his/her income each year into an RRSP. …

Apparently Canadian doctors had a hand in it. This is from Globe & Mail: Six little known facts about RRSPs that could save you money:

Created in 1957, the RRSP came into being in part thanks to the lobbying of the Canadian Medical Association. It urged the government to create a retirement savings plan similar to a pension plan because many physicians were not members of workplace pension plans, [accountant and certified financial planner] Mr. Lamontagne says. …

February 3, 2017
11:52 pm
Loonie
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Interesting about the physicians' role, and that their concern seems to have been for themselves, not for their patients who did not have a pension plan.

Not to disparage the lot of them, but physicians I know very well personally (and there are a number of them) still complain regularly that they don't have a company pension plan and are openly resentful of those of us who do! But when I explain to them what is involved in having one, they don't want that either because they don't want to be part of a group that pools its assets and only pays out until you die.

Only recently did I find out what our pension plan is worth in terms of capital that might otherwise be invested in an annuity (although not an option for us). The next time one of these physicians expresses jealousy of our pension plan, I will tell them to take that amount from their RSP and buy annuities with it. I am quite sure they will still have lots left over. This would give them what we have, so there would be nothing for them to resent, but I guarantee they won't like that idea.

All of these people pay megabucks annually to their financial advisors and think nothing of it because, as they tell me, they "don't have time" to learn about it and figure it out for themselves. Then, when they suffer significant losses, they complain again about not having a pension plan! See above.

As I recall, it took quite a while for RSPs to catch on with the wider population. Perhaps there were restrictions, but I no longer remember. Maybe it was just that ordinary people couldn't afford them. My father, who retired from a white collar job in the early 1980s, never had one, although I remember him saying that he should have bought them in his later years of work. I started buying them as soon as I'd paid off my student loan, and have lived to regret it! I bought them thinking I wculd use them to pay for grad school later, but, in the end, paid for grad school without cashing them in because I then thought I should save them for retirement. It's now clear that I should have cashed them for grad school. It's hard to know how life will turn out.

February 4, 2017
2:16 pm
Norman1
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I think the Canadian Medical Association's self interest also served all of their patients too who were not members of a workplace pension plan.

I'm not sure what physicians would miss from a pension plan. If it is the guarantee lifelong income, then, as you mentioned, they can replicate that with a life annuity.

Perhaps it is the employer contributions they miss. Being self-employed, there's no-one else to contribute to the RRSP or to the cost of the life annuity. No way to replicate that unfortunately.

As for financial advice, perhaps the physicians could have a talk with an advisor from MD Financial Management. MD Financial Management is owned and run by Canadian Medical Association for physicians.

February 5, 2017
1:38 am
Loonie
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It's true that there are no employer contributions for self-employed MDs, but they earn more than more people who are in pension plans and are never out of work. They forget that the cost of employer contributions and any other employer-paid benefits is factored into the salaries offered to employees. So, it really doesn't make any difference as far as I can see, that they don't have an employer contribution. They just seem to enjoy complaining about not having it - when in the presence of those who do.

They seem to want it both ways - the security of a guaranteed pension but also control over the funds and a legacy. Doesn't work that way. One or the other. And, unlike the rest of us, they actually do have a choice. They can put their RSPs into annuities and get a guaranteed "pension"/income or they can hang on to the money, invest, hope for the best, and leave a bequest from what's left over.

And I have yet to see any of this group that I know pay for an airline ticket to anywhere. It all comes out of their untaxed Platinum travel rewards cards which they collect from buying things required for their business!

So, yes, I do get a bit annoyed when they begrudge us our pension plan! By all means, take advantage of whatever you can that is legal, but don't complain about what I am entitled to and have worked for. You do have options.

Same goes for any group that makes the same kinds of complaints. I just happen to know a lot of physicians (and dentists - same story).

February 6, 2017
7:31 pm
Norman1
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There is probably much mythology around pension plans floating around among people, including doctors, who are not members of a pension plan.

I was once told federal government workers get a "full pension" after 35 years of service. That was interpreted to mean that, after 35 years of service, a federal government worker would get a pension equal to his/her full salary. Imagine that!

I did some research. True, after 35 years of service, the worker would have earned the maximum pension. But, the maximum pension is not 100% of his/her salary. I think the actual maximum is around 70%.

February 6, 2017
8:16 pm
Loonie
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I don't know what the max is for the feds, but another question is X% of what? It won't likely be of your final year's salary. And then there is the question of what your salary was. If you were on the lower end of the stick, then X% will be even lower and may even be a worry in terms of cost of living and enjoyment.

I must admit, it had never occurred to me that someone might think that a full pension meant a full salary! Maybe that's what I'm encountering. For sure, they would not be at all happy with our pension income or that of federal retirees that I know. They require much more for their lifestyle.

I know a couple of retired federal civil servants who "did the time." I was actually surprised at how relatively low their pensions are (25-30K). One was a middle manager; the other was lower on the totem pole. They are now several years out from their retirement. However, they are doing ok financially because they saved and inherited money, have CPP and spouses who worked, and don't live extravagantly.

And not all of the government pensions are fully indexed either - another misconception.

CPP remains the best deal but only if beefed up to a liveable income. It's the most efficient and low cost. When you're gone, so is it. No legacy except spouse. That's the way it should be. It's a pension plan, not an estate plan. A lot of complaining comes from people who are looking for an estate plan.

February 9, 2017
6:20 am
Norman1
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Loonie said
I don't know what the max is for the feds, but another question is X% of what? It won't likely be of your final year's salary. And then there is the question of what your salary was. If you were on the lower end of the stick, then X% will be even lower and may even be a worry in terms of cost of living and enjoyment.

You're correct. It not X% of final year's salary. For the fed's, it's X% of the average of the highest five consecutive years of paid service. Details at Canada.ca: Reaching age 65 – Retired members - Pension.

I must admit, it had never occurred to me that someone might think that a full pension meant a full salary! Maybe that's what I'm encountering.

I think lots of people misunderstand what "full pension" actually means.


I know a couple of retired federal civil servants who "did the time." I was actually surprised at how relatively low their pensions are (25-30K). One was a middle manager; the other was lower on the totem pole. They are now several years out from their retirement. However, they are doing ok financially because they saved and inherited money, have CPP and spouses who worked, and don't live extravagantly.

I think many pension plans are set up as CPP top ups. Payout may not be as much as the plans actually top up CPP to X% of average of best five consecutive years.

February 9, 2017
6:49 am
Bill
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Another element of some larger plans (e.g. feds, teachers, some private sector plans) is that they are "integrated" with CPP. So if you retire at age 60 (which isn't unusual for the lifers who put in their 35 years) the full pension calculation applies and is paid until age 65 whereupon it drops by the amount of CPP (that you "earned" while employed there) you're entitled to at age 65. So that might account for the surprisingly low pensions, after age 64, for some of these folks. All in all, it's still a good, secure situation compared to most other plans.

February 9, 2017
6:56 am
Norman1
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Bill said
Another element of some larger plans (e.g. feds, teachers, some private sector plans) is that they are "integrated" with CPP. So if you retire at age 60 (which isn't unusual for the lifers who put in their 35 years) the full pension calculation applies and is paid until age 65 whereupon it drops by the amount of CPP (that you "earned" while employed there) you're entitled to at age 65.…

The federal government employee plan refers to a bridge benefit that is paid until the retiree starts collecting CPP/QPP or reaches age 65.

February 9, 2017
10:00 am
Bill
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Norman1, it is called a "bridge benefit" but my point was that a 35-year employee gets 70% of best 5 years salary calculation only until age 65, then it's reduced by the CPP entitlement. (Again, still a good deal.)

February 10, 2017
6:55 am
Norman1
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Bill said
Norman1, it is called a "bridge benefit" but my point was that a 35-year employee gets 70% of best 5 years salary calculation only until age 65, then it's reduced by the CPP entitlement. (Again, still a good deal.)  

I think we are saying the same thing. sf-smile That's what I meant with my statement that the pension plan tops up CPP to X% of average salary. That's in contrast to a misconception that the pension plan pays X% of average salary on top of any CPP.

February 10, 2017
7:37 pm
Bill
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Norman1, exactly!

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