# News Article Regarding CPP Reform



## jnorman5 (Aug 21, 2011)

I was browsing CBC.ca today and found an article regarding proposed changes to CPP: http://www.cbc.ca/...2013-cpp-reform.html

The one thing that really caught my eye are comments from the NDP and Canadian Labour congress stating that an increase to CPP benefits from 25% to 50% over the next 7 years could be completed with only an increased employee contribution of 0.43% of pensionable earnings. Considering that the CPP is expected to dip into it's investment income in the next 10 years or so with the aging population, I don't understand how it could continue to be self-sustaining on the current 75 year time frame it claims.

I am not an actuary so please point out if I am missing something here. A 0.43% increased contribution rate from 4.95% giving me double the pension in the end appears too good to be true, so it probably is . Of course, I am already a contributing member so I would not see "double," but I would still be on track for a 50% increase based on at least 20 more years of work to go before I consider retirement.


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## andrewf (Mar 1, 2010)

I am vehemently opposed to that proposal. It would be, in essence, the boomers stealing from Gen X and Gen Y. It would be an enormous intergenerational transfer of wealth. The only fair way to do it would be to raise contributions now and phase in increase benefits over 25-30 years.


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## andrewf (Mar 1, 2010)

And what they meant by a 0.43% increase is _per year_ for seven years. Or 3% total. In addition to 3% more employer contributions.


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## MoneyGal (Apr 24, 2009)

Ugh. Thankfully, reforming CPP is actually more difficult than amending the Canadian constitution, so it ain't gonna happen.


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## Sampson (Apr 3, 2009)

Upping contributions to double payouts would be terrible.

If people need more money in retirement, they should either have saved on their own or continue working. Why should 'savers' have to pay for the retirement of 'spenders'. Now that many people carry debt into retirement, maybe they should liquidate their wealth (homes) before they tap into the pockets of their working peers.


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## andrewf (Mar 1, 2010)

Constitutional change is more difficult because the scope is not limited. We have changed the CPP more recently than the constitution...

I think there is pretty broad public support for extending CPP. I wouldn't be surprised to see some change (though I would not be surprised to see none at all). As long as the big three provinces are on board at the same time (ON, QC, and BC), it it feasible.


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## andrewf (Mar 1, 2010)

Actuarially speaking, you're not really paying for anyone else's retirement income.


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## MoneyGal (Apr 24, 2009)

Well, you kind of are, at least if you die earlier than the mean life expectancy. Also, male CPP contributors as a group are subsidizing women CPP recipients.


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## Sampson (Apr 3, 2009)

This is true andrew, but the effect on my pocket is the same, and that of the pocket books of future generations when their contributions increase.


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## jnorman5 (Aug 21, 2011)

andrewf said:


> And what they meant by a 0.43% increase is _per year_ for seven years. Or 3% total. In addition to 3% more employer contributions.


Okay that makes a little bit more sense... I guess I should have drank my coffee before reading that article. Even so, I am not sure if the 75 year sustainability they tout right now would continue? And I agree with the others in the thread, I would definitely prefer to manage my own retirement funds thank you very much


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## andrewf (Mar 1, 2010)

Actuarially-speaking, you're getting something that has value in return. I wouldn't be that upset, unless I had terminal cancer or something, in which case I would be upset about other things ahead of CPP contributions.

jnorman,

Don't worry, that passage was written to deliberately mislead people into thinking the cost was very small. I expect it was lifted verbatim from a press release. Lazy journos.

I do believe that a 60% increase in contributions would be sufficient to double benefits while keeping CPP sustainable. The reason why you can double benefits without doubling contributions is that we are currently overpaying to make up for past undercontributions by the boomers and their parents.


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## MoneyGal (Apr 24, 2009)

Formula to amend the Canadian constitution (for most amendments, this is the "general amending" formula set out in s.38): resolution must be passed by all houses of federal parliament plus a two-thirds majority of the provincial legislative assemblies representing at least 50% of the national population.

Formula for amending the CPP: the requirement is federal consent plus consent of 2/3 of the provinces *representing 2/3 of the population*. 

2/3 > 1/2


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## andrewf (Mar 1, 2010)

True, but constitutional changes are more difficult, politically.


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## MoneyGal (Apr 24, 2009)

I think we are agreeing but making slightly different points. I'm just glad there won't be any redonk amendments to the CPP funding formula.

BTW, as I am sure I have mentioned here before, there is a great book-length discussion of the last set of reforms to the CPP, called Fixing the Future by Bruce Little.


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## andrewf (Mar 1, 2010)

Yes, the difficult CPP change threshold ensures that we are not one kooky government away from turning the CPP into a vehicle for industrial policy or whatever (a la Caisse de depot). Any changes require broad support from a variety of governments.


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## HaroldCrump (Jun 10, 2009)

Even if this proposal, or some variation of this, were to get implemented it is likely that the eligibility age (and the penalties for early filing), will increase over the next few years/decades.
The default age for filing CPP can easily be 70 in the near future, earliest filing moved up to 65, and the penalties for filing between 65 and 70 increased.

The net result will be delayed retirement for Gen X, Y, and Z.

The Boomers are living longer than their pre-war parents, however, will Y & Z necessarily have increased longevity than the Boomers (given the chronic health epidemics they are facing)?


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## andrewf (Mar 1, 2010)

Is it a bad thing that people are living longer?

And changes in retirement age may happen regardless.

It's no guaranteed that CPP will increase the base retirement age from 65. They also have the option of reducing benefits (spreading the benefit over more years).


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## 44545 (Feb 14, 2012)

I recently read the "MoneySense Guide to Retiring Wealthy" in which several retirement scenarios are detailed, ranging from "wealthy" to "living on government cheques." Even under current CPP/OAS rules, no senior in Canada should have to eat dog food. Their arguments were convincing to me and I see no reason to reform CPP.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> Is it a bad thing that people are living longer?


I am not saying it is a bad thing.
But further increases in longevity are likely to be almost all unproductive years.
There is very little room for productive years to increase.
Which means the number of contribution years stay the same, but the number of collection years keep increasing.


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## andrewf (Mar 1, 2010)

CJOttawa said:


> I recently read the "MoneySense Guide to Retiring Wealthy" in which several retirement scenarios are detailed, ranging from "wealthy" to "living on government cheques." Even under current CPP/OAS rules, no senior in Canada should have to eat dog food. Their arguments were convincing to me and I see no reason to reform CPP.


The problem is current OAS/GIS rules. These are not pre-funded, and the growing burden of these programs will fall on fewer and fewer workers. It's another intergenerational transfer of wealth. These benefits are less likely to be clawed back in future if they are prefunded.


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## MoneyGal (Apr 24, 2009)

Yes, but OAS in particular isn't even part of a program - it's just pure welfare. GIS has some legs to stand on and I have no problem with continuing GIS (although TFSAs add a wrinkle that was not present when GIS was created).


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## MoneyGal (Apr 24, 2009)

HaroldCrump said:


> I am not saying it is a bad thing.
> But *further increases in longevity are likely to be almost all unproductive years*.
> There is very little room for productive years to increase.
> Which means the number of contribution years stay the same, but the number of collection years keep increasing.


So...what do you think people did before they had 30 years of "retirement," defined as "not working"? Whether you or I or anyone likes it or not, there's no magic switch at age 65 that instantaneously depletes all remaining human capital value.


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## andrewf (Mar 1, 2010)

Yes, I don't understand how someone can object to increase CPP contributions and be okay with the status quo of OAS. 

As far as working past the normal age of retirement, it would be nice if it was made easier for companies to retain older workers who have declining productivity. This might include wage decreases and making it easier to transition workers to part-time/job sharing arrangements. I can imagine many people in their 60s being quite happy to work part time with long breaks for travel, etc.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> Yes, I don't understand how someone can object to increase CPP contributions and be okay with the status quo of OAS.


I am not okay with OAS whatsoever.
I think it is criminal that someone making $120K in retirement still gets to keep some OAS.

We essentially do not need OAS, if GIS is expanded to catch the bottom-most tiers of low income seniors.


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