Pensions Pre Industrial Revolution l Families l Manual vs. “Thought” work l Life expectancies

Pensions l Social Change l The intent of the “original” pension plan l The income replacement ratio

Income Replacement Ratio Lower income is needed because certain expenses disappear: l Payroll taxes (i.e CPP and EI) l Senior discounts l No more work expenses l No more mortgage payments l No more dependents (Hopefully!!!)

Income Replacement Ratio Will vary by individual l travel l investments and other sources of income l new hobbies l health l courses l couch potatoes

The Three Legged Stool 1 Corporate Pensions (next class) 2 Personal Savings (RRSPs and non tax-assisted savings) (much later in the course) 3 Government Pension (C/QPP, OAS)

C/QPP Canada Pension Plan l Contributions made by ER and EE over working life of EE l Currently 5.2% of earnings above Year’s Basic Exemption (YBE) up to Yearly Maximum Pensionable Earnings (YMPE) l Benefit is 25% of Average Earnings up to YMPE Average

C/QPP Canada Pension Plan l Depends on having made contributions to the plan l Taxable as income l Indexed (inflation protection) l Payable at age 65 or from age 60 with a reduction l pay-as-you-go funding

Example - Contributions Current earnings $40,000 YMPE for 2001 = $38,400 YBE = $3,500 l Maximum ER contribution=.052 * [Min($38,400; $40,000)-$3,500] l Maximum EE contribution=.052 * [Min($38,400; $40,000)-$3,500]

Example - Pension Final Average earnings over the last three years = $40,000 Average YMPE over the last three years = $36,050 l Maximum Pension =.25 * min($36,050; $40,000)

OAS Old Age Security l Paid from general revenues l Independent of work history l Flat amount - currently around $415 per month l “Clawed Back” for high income earners Government