You are concerned about the value of your retirement savings

Pension issues, I can feel it coming to you.

I’ve raised the issue a few times lately, I want to come back to it to move the debate forward and clarify certain elements.

A column published last week, “The Value of a Civil Servant’s Pension,” focused more broadly on defined benefit (DB – plural, a picky reader explains) pension plans. These pension funds promise the participants a lifelong pension, that’s a dream.

DB and DC plans

They oppose the much more widespread defined contribution plans (DC – in the singular, according to the same reader). These let retirees fend for themselves with their accumulated share of their plan. In this respect it is similar to an RRSP.

In both cases, employees and employers pay into the fund. In the DB formula, the risk lies more with the employer. This must save the fund if the financial markets do not achieve the expected returns when calculating the promised pensions. With DC plans, the risk is on the shoulders of the participant. The retiree has to manage his money and tighten his belt when things go wrong.

The former tends to be more expensive, especially for late-career workers. What I particularly want to emphasize here is that it is not free for the beneficiaries, a more or less large part of their salary is used to finance this business.

A friend just joined an organization that offers such a plan. He took the plunge when he saw the cost on his first payslip.

Are these future retirees overly spoiled? This opinion is widespread among civil servants, and even less so among university professors or bank employees.

For the assessment, we must not only concentrate on the pension fund, but on all remuneration. The money that goes into a retirement plan is money that could have been paid as salary.

So the question: Do you find government employees overpaid?

Sub-question: What are you waiting for to send your CV there?

18% RRSP savings and pension adjustment

Which brings me to reader Alexandre’s question: Do the same employees see an 18% cut in their pay every two weeks? In the aforementioned column, I said that in order to “bank” a government employee’s defined benefit plan, you must pay the equivalent of 18% of your salary into an RRSP, hence the question.

Answer: no.

Participants in RREGOP, the plan for government-paid employees (including nurses, teachers, etc.), contribute 10.04% of their salary to the fund, with this nuance: the first approximately $16,000 of salary is exempt from contribution ( 25 % of maximum eligible income – MPE). The employer finances the rest. As I said above, it’s part of the total compensation.

The figure of 18% does not come out of nowhere, I wrote. It is equal to the RRSP contribution limit…for a person not benefiting from a retirement plan.

Employers who offer a pension fund to their employees must calculate a “pension adjustment” and report it to the Canadian Revenue Agency. This factor reduces plan members’ RRSP contribution margin and can go as low as zero. An officer doesn’t have to be far from it.

The system is designed in such a way that in the end everyone benefits from a comparable pension place. Some have to manage to fill it with their income (RRSP). Others are partially funded by their employer (for a lower paycheck – DC Plan + RRSP). Still others don’t need to worry about it, all their space is taken up by the system set up in the workplace (generous DB plan).

In the latter case, it should be emphasized that the lifelong pension is only possible by pooling the risk. I often remember this principle: the first to die fund part of the pensions of the last to leave.

Not everyone likes knowing that part of their contributions to a DB fund can be used to pay for employee travel.

With the CD plan, the money stays in the family if you haven’t seen the end before you die.

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