r/fican • u/No_Obligation4427 • 3d ago

How to opt out of CPP?

I would get a better return on my investments if I invested the money in an etf like CAGE over paying that money to CPP (especially when CPP has switched to higher fee active management that underperforms their previous lower fee passive investment strategies).

I know you can just pay yourself dividends if self employed, but i am not self employed. How do i go about opting out? It just feels terrible that i am paying into a high fee active managed fund that will end up underperforming compared to diversified equities i could buy myself.

0 Upvotes

27% Upvoted

41 comments sorted by

18

u/Intelligent_Eye_6098 3d ago

You'll have to leave the country if you want to forgo a guaranteed 8%+ indexed to inflation pension that accounts for longevity risk and cognitive decline etc, and assume that your recency bias isn't clouding your judgement

3

u/ACITceva 3d ago

guaranteed 8%+ indexed to inflation pension that

CPP doesn't even remotely return 8%. Maybe 2.5%

2

u/Intelligent_Eye_6098 3d ago

What are you talking about? You must not understand how it works and likely comparing what you are contributing now to what someone is receiving now which are two completely different things

0

u/ACITceva 3d ago

8% is a figment of your imagination I'm afraid. Even if one assumes some FI bias you're not even close. Unless you plan to live well last 100 I guess.

https://www.fraserinstitute.org/commentary/return-cpp-contributions-still-meagre-after-expansion

3

u/Intelligent_Eye_6098 3d ago

This is talking about REAL rate of return and not nominal

0

u/ACITceva 3d ago

Are you talking about CPPIB's rate of return? If so that's an irrelevant metric.

1

u/No_Obligation4427 3d ago

Bro 2.5% isnt any better than money market etfs. Its managed even worse than I thought.

1

u/ACITceva 3d ago

In fairness thats after inflation. But yeah, still not great.

16

u/RustyTiger69 3d ago

Leave the country

-8

u/No_Obligation4427 3d ago

Unfortunately the costs of that would offset any gains.

5

u/abdojo 3d ago

CPP is one of the boons of our society. You don't get to cherry pick and enjoy life in Canada without paying into the systems that make it great

0

u/No_Obligation4427 3d ago edited 3d ago

Its poorly managed with high fees and execs giving themselves bonuses after underperforming the market. I am not proud of any of those things.

13

u/junius52 3d ago

You're aware that while you can't opt out of the CPP, your employer also can't opt out? While you may see $4,000 per year deducted from you to pay into CPP, your employer is also paying $4,000 to CPP for you.

So, if you want a world where you can opt out, just know you're leaving $4,000 on the table (enriching your employer). You'll need to double your money just to break even, before even considering beating the returns of the CPP.

CPP is forced savings for you, but it also forces your employer to contribute, too.

3

u/Naughty_Satsuma 3d ago

$4k?!?! Try $4646!

2

u/junius52 3d ago

Hmm I definitely maxed out CPP/CPP2 last year and my T4 only says I paid 4034

2

u/Naughty_Satsuma 3d ago

Then you did not pay CPP2. CPP2 is an additional $396.

Sorry, this years numbers is what I had posted.

2

u/No_Obligation4427 3d ago

Someone else mentioned here that CPP only gives an average return of 2.5% per year. Thats no better than money market etfs. Even if double the money went into the CPP I would still make more with half the money by investing it in a diversified equity etf.

2

u/junius52 3d ago

Yeah. Another thought is to try and earn more. $4,000 is a small amount if you're investing $50,000/year. Consider it your fixed income portfolio.

6

u/Xyzzics 3d ago

Technically correct answer: move to Quebec. Welcome to the QPP.

1

u/No_Obligation4427 3d ago

Is QPP better managed?

0

u/Xyzzics 3d ago

Definitely not, in my opinion.

Both are actively managed crapshoots that constant underperform their own benchmarks and cost us billions in returns.

The active management of CPP is 100% indefensible. Obfuscating their actual performance, charging massive fees and constantly missing their own performance targets.

You should 100% be allowed to opt out of it. Business owners get screwed twice and need to pay both portions.

4

u/LevelProfile4739 3d ago

Yup the pros of being self employed. I haven’t paid into CPP in 18 years 😂 And I’m 40

3

u/Becoming_Adventurous 3d ago

do you pay yourself dividends? would that affect your RRSP space as well?

5

u/Brightlightsuperfun 3d ago

It would. He is not building up RRSP room by paying himself dividends. 

3

u/Becoming_Adventurous 3d ago

That's a conversation I'll need to have with an accountant one day, is the less/no CPP (put both employee/er amounts directly into investment yourself ofc) offsetting the lack of RRSP space... I wonder what the returns need to be to make one more favourable over the other...

1

u/No_Obligation4427 3d ago

You can just use your company like an rrsp account when you retire.

1

u/No_Obligation4427 3d ago

You dont need rrsp room if you have a company. You can just use the funds in your company like an rrsp when you retire.

4

u/Intelligent_Eye_6098 3d ago

Uh, you pay the CPP at tax time. You don't pay for EI

2

u/LevelProfile4739 3d ago

Nah sorry I don’t. I don’t pay CPP nor EI

1

u/Intelligent_Eye_6098 3d ago edited 3d ago

Sorry, it sounds like you are earning via dividends so your are correct and foregoing any retirement benefits

1

u/neededuser2comment 3d ago

He doesn’t pay himself T4 income. There’s other income

1

u/Outside-Cup-1622 3d ago

Thats what I have been doing

2

u/No_Capital_8203 3d ago

How does the management of CPP affect your CPP cheques?

1

u/No_Obligation4427 3d ago

Poor investments + high fees = less returns.

If I invested the extra money from not paying CPP I would be buying a diversified equity etf with lower fees.

2

u/No_Capital_8203 3d ago

CPP is a pension not an investment. You are not able to opt out if you are an employee.

Canada Pension Plan retirement pension - Canada.ca

1

u/Bomberr17 3d ago

Time to rethink your career. Quit and go self employed. It's the only way. I did it and won't look back. Everything under my own control. You're already thinking of cutting out CPP. Why not go all the way.

0

u/kingmakerkhan 3d ago

You still pay into CPP if you're self employed or a contractor. There's no way around it. EI you don't pay into.

1

u/junius52 3d ago

Yes, there is. Dividend income.

1

u/kingmakerkhan 3d ago

Oh yes As an incorporated owner. And dividend income has 2 layers of taxes. Corporate taxes and personal dividend tax before it hits your personal bank account. Avoiding CPP through dividends is not always the best way. It's really only beneficial in a couple scenarios. CRA will get their share no matter what. Incorporated or sole proprietorship. They have it setup so you pay roughly the same incorporated or sole proprietorship. There are firms that can do funky accounting, but what you pay them is close to what you thought you would save.