Retirement Security

Enhancing the Canada Pension Plan

May 10, 2016

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What are we asking for?

We are asking the federal government to double the Canada Pension Plan (CPP) retirement benefit for Canadians so that it replaces 50% of a Canadian’s pre-retirement employment earnings up to a maximum amount.

Today, the CPP retirement benefit replaces about 25% of a Canadian’s average pre-retirement employment earnings.

We are calling on the government to phase in a universal expansion of the Canada Pension Plan that includes every working Canadian, including those who are self-employed.

Who will benefit?

The CPP is not just the main way in which most workers save for retirement out of their employment earnings. It is the only way that millions of Canadian workers put aside a portion of their wages for retirement. 

CPP benefits offer secure, predictable and protected against inflation retirement income for virtually all working Canadians. In fact, in a recent study on pensions, 70% of Canadians surveyed believed that CPP premiums and benefits should increase.

The CPP is a cornerstone of retirement income

The Canada Pension Plan provides a monthly benefit to retired Canadians, and nearly everyone who works in Canada and their employers are required to contribute to it. Currently the maximum retirement benefits one can receive from the CPP is $1,092.50 per month. On average, Canadian retirees receive $550 a month.

The CPP is portable. It follows workers anywhere in Canada, no matter how many times they change jobs.

The CPP is cost-effective. Without the excessive management fees found in other retirement savings plans, the CPP keeps up with the cost of living (it is indexed to inflation) and pays out benefits for life. Canadians will not run the risk of outliving their CPP pension benefits.

The CPP is safe. The CPP is protected against the ups and downs of the stock markets, which makes it a secure and predictable source of retirement income. 

The CPP is sustainable. The Chief Actuary of Canada, who monitors and reports on the health of the CPP, indicated in his last report that the CPP is well on track to pay benefits, as promised, for the next 75 years.

Why enhance the CPP?

Employers today are more resistant to providing or contributing to workplace pension plans for their employees. That’s why nearly two thirds of Canadians don’t have a workplace pension plan. With a workforce of 19 million people, that works out to 11 million people. 

In the private sector, 75% of employees are without a workplace pension plan today. The pension plans that are left are being squeezed – converted into plans with limited benefits that cost employers less, but also offer lower and unpredictable incomes in retirement.

Left on their own, Canadians are saving less for retirement.

Canadians are more and more in debt. In 2015, Canadians owed $1.64 for every $1.00 of disposable income – a debt-to-income ratio of 164%. In 2000, that ratio was below 110%.

Higher income Canadians contribute more to Registered Retirement Savings Plans (RRSPs). Canadians making $80,000 or more accounted for 62% of all RRSP contributions in 2013, but only represented 13% of all tax filers. Yet, governments continue to spend just over $13 billion each year on tax subsidies for RRSP contributors. As a result, Canadians are more likely to pay higher taxes to support wealthy RRSP holders than they are to save for their own retirement.

RRSPs and mutual funds are dependent on the stock markets, and management fees erode retirement savings. 

An extra fee of 1%, charged by mutual-fund sellers, can cut into your lifetime savings by as much as 25%. A typical mutual-fund fee in Canada (2.3%) can slash your returns in half.

At the same time, Canadians have started to delay retirement and work longer, whether by choice or because they can’t afford to stop working. But staying on the job and working longer isn’t realistic for many workers and Canada can expect a lot of retirements – 3.6 million retirements in the next decade.

Canada’s population is getting older. Forty years ago, there were about eight working-age persons (15-64 year-olds) for every person aged 65 or older. Today, there are fewer than 4.5 for every senior. In 20 years, that ratio could be as low as 2.5 to one.

What’s brewing is a perfect storm of seniors’ poverty: a large population of seniors with low retirement incomes, with a smaller population of working tax-payers capable of sustaining social programs for low-income seniors as they stand today. 

The only way to steer clear of this problem is to increase the amount of retirement savings among workers today.

The best way to do that is by expanding the Canada Pension Plan.

Why does it have to be “universal”?

One of the reasons the CPP performs so well is because its administration costs are kept low. Low operating costs means more of the money Canadians contribute through their CPP premiums get invested, which means higher returns, which means more money for retirement incomes.

The high administration fees charged by the retirement plans sold by the financial industry really eat into future savings. In fact, an extra fee of 1% can cut into your lifetime savings by as much as 25%. The typical fee charged for mutual funds in Canada (2.3%), for example, can slash your returns in half.

The CPP was created to be a “universal” pension program, meaning it belongs to everyone. Everyone pays into it when they work. Everyone gets a pension from the CPP when they retire. Fair and simple.

Creating exceptions for certain workers or special arrangements for some employers, rather than offering the same plan to everyone, would make it more complicated to operate the CPP. More of the money Canadians contribute would get used to pay administrative costs and not get invested toward retirement income.

The result would be a more expensive, less efficient CPP for everyone, just because a few employers don’t want to pay their fair share. It’s hardly fair.

Ontario’s government has chosen to abandon a universal approach to its new Ontario Retirement Pension Plan (ORPP). The result is a plan that’s more expensive to run and unlikely to deliver the results they hoped for.

We can’t let this happen to the CPP. The whole point of expanding the CPP is to help today’s workers save more and have higher incomes when they retire. It makes sense to stick with the fair and simple universal approach that works best.

This is why we are calling on the federal government to enhance the CPP in a way that is universal and available to everyone who works, including the self-employed.


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