# Expand the CPP



## sags (May 15, 2010)

Interesting comments from the past chair of the CPPIB.............

_Some believe the simple answer is for the government to take care of us. Simply expand the Canada Pension Plan.

“It would not only work, it would work well,” says Mr. Denison, who, after retiring from CPPIB was appointed to the boards of Royal Bank of Canada and BCE Inc.

“How do you get more retirement savings and therefore more retirement income for every Canadian? CPP will do it — there’s no question marks around it,” he says, adding that the expansion could be phased in over a number of years._

http://business.financialpost.com/2...our-best-savings-intentions-hitting-the-wall/

The Pooled Pension idea doesn't appear to have any traction, and I think the advice for people to depend on equity in their homes for retirement income may prove to be risky.

The government needs to get serious about a solution........time is money.


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## Daniel A. (Mar 20, 2011)

I believe the CPP should be expanded at least to the point where GIS is eliminated.
Why the provinces would not agree to expanding the CPP is puzzling when all the numbers show 65% - 70% of Canadians will not have what they need to retire.

What is even scarier is the number of workers that don't even know what they don't have.


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## doctrine (Sep 30, 2011)

There could be an optional contribution to the CPP - pay more, and have higher payments when you eventually collect. They are a well run fund and many people would be well off with CPP-like returns. However, I would be against across the board hikes in CPP benefits and contributions.


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## spirit (May 9, 2009)

It is a mindset, and I don't know if it can be changed.
Over 30 years ago, when I was a single teacher I served on our association's committee. Each school in our division sent a rep and I was the rep for our school. I was pretty green and mostly listened and learned. It was a time of rising costs, and interest rates. Some on our committee were angry that we were locked into 20 year bonds paying low, at that time, (4-5) percent interest when they could invest in the new product on the block (mutual funds) and get 12- 15 percent.
Some spoke about caution and long term investing in something important like pensions but most wanted the money in their own pocket to invest on their own. It was pretty controversial but I remember our members voting to change our contribution amount from 4% a month to 2.5% and it passed. I know our neighbor, a principal was glad the money was in his own pocket, but 20 years later was complaining that his pension was pretty meager.....;(
My husband and I were pretty frugal and put the extra money every month into mutual funds anyway and I think we came out pretty good in the end. The point is that we saved, lived below our means and I think we will be ok.
Would our money have done better in the plan? Hard to say. I know that our pension plan was a non profit one....run by our own members with professional advice. We are not the Ontario teachers pension plan but Albert's and except for an unfunded liability that the government recently rectified we have done all right. The fees for our pension plan were less than the mutal fund but we had an option to invest in a little more risky equity with our mutual investments. It all came out pretty even. The ones who may have not done so well would have been the teachers who had larger paychecks but spent the extra on depreciating assets such as bigger holidays, newer car etc.
I myself believe that increasing cpp would be the prudent thing to do. Not everyone has fiscal discipline.........and that is bourne out by recent news of Canadians retiring with debt......
But to change the mindset of many Canadians is difficult and smaller government = less taxes is the predominant idea here over the last 30 years.
I happen to believe that effective government is a good thing....not all government is bad and not all business mind sets are prudent...... but hey, I have been a minority voice in my community for a long time (;


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## andrewf (Mar 1, 2010)

Changing CPP now will do little to help boomers nearing retirement. It's too late. An immediate increase in contributions would result in only very gradual benefit increases, unless of course there is a massive intergenerational transfer of wealth (boomers get a pension they never paid for, and expect their kids to pay for it).


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## OptsyEagle (Nov 29, 2009)

The problem is that some people can afford to add a little extra to CPP and some cannot (or will not). If they make it mandatory, you will have those people who feel they cannot afford it very upset, along with a reduciton in business hiring due to the increased CPP payments (if employers need to contribute). The next option is to make it voluntary. If that is the case, quite a few that can afford it will still opt. not to participate. This is because, if you give a big fund of money to a goverment that is looking for votes, they will eventually take that money, from those that afforded it and give it to those that didn't. I know I am getting a little tired of this.

I think we are on our own with this one. It really can't work. CPP is as big as it can really get, if you ask me.


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## MoneyGal (Apr 24, 2009)

I would like to be able to buy units of CPPIB-invested funds. I don't agree with expanding the CPP for everyone. 

Paul Krugman's comments on expanding Social Security in the U.S., illustrated in this comic, encapsulate my feelings on this issue pretty well: http://philebersole.files.wordpress.com/2010/11/tomtomorrow11-171.png


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## Square Root (Jan 30, 2010)

MoneyGal said:


> I would like to be able to buy units of CPPIB-invested funds. I don't agree with expanding the CPP for everyone.
> 
> Paul Krugman's comments on expanding Social Security in the U.S., illustrated in this comic, encapsulate my feelings on this issue pretty well: http://philebersole.files.wordpress.com/2010/11/tomtomorrow11-171.png


That was great. Thanks for posting.


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## MoneyGal (Apr 24, 2009)

Thanks! But I probably should have qualified my comments: 

Expanding the CPP is telling janitors and their employers they have to pay more NOW and through their entire working life so that lawyers can receive more in retirement (because lawyers live longer). 

(Again, using Krugman's argument, which holds in Canada as well.)


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## andrewf (Mar 1, 2010)

The argument being that extending CPP benefits is regressive. Sure, it is. But any given policy should not be evaluated in a vacuum. We have many individual policies that are regressive, but these are offset by policies that are strongly progressive (like graduated income tax).

So, I don't find this argument to be very strong. We could offset the regressive effects of the policy in any number of ways.


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## MoneyGal (Apr 24, 2009)

By resurrecting people from the dead, presumably.


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> By resurrecting people from the dead, presumably.


Wasn't there a movie about that?


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## MoneyGal (Apr 24, 2009)

Yeah, I think it's called _28 Years Later: Expanding the CPP in an age of increasing longevity_


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## Square Root (Jan 30, 2010)

I thought some more about your post MG. Krugman has a knack for building an argument but his idea that extending pension start ages benefits the rich more than the poor is slippery. Why not look at the obese/fit, or men/women, or smart/not so smart? There will always be winners and losers in any policy change. Presumably over time things balance out so that the idea of universality keeps its appeal. Using lawyers as an example of wealthy people is also a little questionable, don't you think?


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## HaroldCrump (Jun 10, 2009)

Krugman is not being consistent.
If one were to follow his other ideas, the govt. should _reduce_ the retirement age and _increase_ benefits to stimulate consumer spending and pull the economy out of the recession.


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## MoneyGal (Apr 24, 2009)

As a class of people, workers earning less have shorter lives. As a class of people, workers earning more have longer lives. 

Because CPP contributions are "the same" for all income earners (i.e., they are the same rate within a pensionable band), this can be understood as a regressive tax on labour from which higher-income-earners can be expected (demonstrably), as a group, to benefit from more than lower-income-earners. 

Krugman was being cute or inflammatory or whatever when he used the personalized examples of "janitor" and "lawyer" (and of course I had forgotten that cartoon was originally about increasing the age at which one qualifies for SS versus expanding the program) but the basic argument still holds: 

In Krugman's formulation, "expanding the CPP is making janitors give up more of their earnings during their working years so lawyers can have more longevity-protected income in retirement." 

In my own view, people arguing for the expansion of the CPP should be clear about who is expected to benefit and who is expected to NOT benefit. Life expectancy has a high degree of randomness BUT longevity is correlated with income. Those minimum-wage workers who would pay a greater proportion of their income in CPP contributions during their working years would subsidize, in essence, the higher-income-earners who, as a group, will live longer and receive more CPP income from an expanded program.


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## MoneyGal (Apr 24, 2009)

Square Root said:


> I thought some more about your post MG. Krugman has a knack for building an argument but his idea that extending pension start ages benefits the rich more than the poor is slippery. Why not look at the obese/fit, or men/women, or smart/not so smart? There will always be winners and losers in any policy change. Presumably over time things balance out so that the idea of universality keeps its appeal. Using lawyers as an example of wealthy people is also a little questionable, don't you think?


It's not really slippery. There's a strong correlation between income and longevity.


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## Daniel A. (Mar 20, 2011)

I can see your point MoneyGal but the maximum CPP is based on something like 48,000.00 per year to receive the maximum return.
Hardly anything near what well off folks can make but very close to middle income.

When I worked my CPP was paid in the first four months of the year, my point would be that for most people without other pension money and we are talking about the majority of Canadians IMHO they will be moving on to GIS to subsidize their pension income. Expanding the CPP threshold would help bring more dollars into the pot.

For those in senior executive positions that likely have special pension deals the CPP is minor.


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## MoneyGal (Apr 24, 2009)

Square Root said:


> I thought some more about your post MG. Krugman has a knack for building an argument but his idea that extending pension start ages benefits the rich more than the poor is slippery. Why not look at the obese/fit, or men/women, or smart/not so smart? There will always be winners and losers in any policy change. Presumably over time things balance out so that the idea of universality keeps its appeal. Using lawyers as an example of wealthy people is also a little questionable, don't you think?


Went back and read your post again. Women live longer than men. The use of unisex mortality tables for CPP actuarial calculations benefits women. I've made this point multiple times in earlier discussions of CPP.


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## MoneyGal (Apr 24, 2009)

Daniel A. said:


> I can see your point MoneyGal but the maximum CPP is based on something like 48,000.00 per year to receive the maximum return.
> Hardly anything near what well off folks can make but very close to middle income.


Yabbut the issue is not "getting the maximum payout per year" - it is getting whatever level of payout *per lifetime.* Because lawyers just like janitors are subject to the same maximums, a janitor earning the maximum pensionable earnings will receive less, on a lifetime basis, than the lawyer who is also contributing the maximum to CPP. (Please note I am continuing to use "janitor" and "lawyer" as shorthand for lower-income-earners and higher-income-earners.)


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## HaroldCrump (Jun 10, 2009)

MoneyGal said:


> a janitor earning the maximum pensionable earnings will receive less, on a lifetime basis, than the lawyer who is also contributing the maximum to CPP.


Can you explain this part, please.
Is this because the janitor (on average) will live a shorter life than the lawyers (on average)?

Because if both the janitor and the lawyer have been at or above the YMPE throughout, the janitor will receive a higher % of his average lifetime income replacement than the lawyer will.


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## MoneyGal (Apr 24, 2009)

HaroldCrump said:


> Can you explain this part, please.
> Is this because the janitor (on average) will live a shorter life than the lawyers (on average)?
> 
> Because if both the janitor and the lawyer have been at or above the YMPE throughout, the janitor will receive a higher % of his average lifetime income replacement than the lawyer will.


Yes, but this is a red herring in this argument, because the dollar for dollar, _the benefits cost the same for the lawyer and the janitor_.


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## MoneyGal (Apr 24, 2009)

And to answer your first question: 

The "return on investment" for CPP is entirely a function of for how many years you receive payments in retirement. 

Let's assume two Canadians, each paying the maximum into CPP over 35 years of employment. For the sake of argument and simplicity we are going to assume two single males. 

The person who dies in the month following their retirement (after that 35 years of employment) sees approximately zero return on his investment (the only thing he gets is a $2500 "death benefit"). 

The person who lives 30 years in retirement sees a relatively significant return on their investment (a return which can be readily calculated, but I have not done so for this quick example). 

Now, suppose you could predict with fairly good accuracy what kinds of people are likely to live fewer years in retirement than others - not at the individual level, but at the group level (in fact, this is what actuaries do). 

If you knew that one giant class of people (not randomly distributed) are likely to live fewer years in retirement than others, would you say they benefit _more_ or _less_ from a system that requires everyone to make mandatory retirement income contributions? 

Put the other way: if you knew that one giant class of people (not randomly distributed) are likely to live many more years in retirement than others, would you say it was "fair" that they got a much higher average return on their dollars invested into a mandatory retirement income system than others?


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## Square Root (Jan 30, 2010)

MoneyGal said:


> It's not really slippery. There's a strong correlation between income and longevity.


Agree but there is also strong correlation between longevity and physical fitness, intelligence(I believe) and probably several other factors. In fact I think longevity is probably more closely correlated to wealth than income. I understand that income is easier to measure.


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## Square Root (Jan 30, 2010)

MoneyGal said:


> Went back and read your post again. Women live longer than men. The use of unisex mortality tables for CPP actuarial calculations benefits women. I've made this point multiple times in earlier discussions of CPP.


Yes, but that is my point, if we don't adjust for sex why should we adjust for income or anything else for that matter. Sex is a reeally significant differentiator. Not adjusting gives the wealthy males a little bit back,no?


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## andrewf (Mar 1, 2010)

MoneyGal said:


> By resurrecting people from the dead, presumably.


Increase progressivity elsewhere. The GST cuts were progressive. We could increase GST rebates to offset higher CPP contributions, for instance.

You didn't address my point that regressivity is not sufficient criterion to dismiss a policy. We need a better reason than that it is regressive (which we should all be able to agree on).


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## MoneyGal (Apr 24, 2009)

Square Root said:


> Yes, but that is my point, if we don't adjust for sex why should we adjust for income or anything else for that matter. Sex is a reeally significant differentiator. Not adjusting gives the wealthy males a little bit back,no?


I've never argued that the existing system is fair. I'm not arguing in favour of expanding the CPP either. Someone (Nemo2?) made the point recently that in any financial transaction, a prudent person will ask, _cui bono? _ That's what I'm suggesting needs to be asked w/r/t any proposals to "expand" the CPP.


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## Daniel A. (Mar 20, 2011)

I use real numbers for my group and as an individual, of all the people that retired from my place of work 85% lived well past 80 years and so did my parents.

Between the company and I we contributed 70,000.00 and a bit into the CPP, I assume I will collect for twenty years without inflation based on today's dollars that works out to just under 250,000.00 
Really hard to beat that return.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> The GST cuts were progressive. We could increase GST rebates to offset higher CPP contributions, for instance.


But what does GST rebates have to do with CPP contributions?
Someone receiving GST rebates probably isn't paying much into CPP anyway.
CPP issues should be settled by modifying CPP contributions, payout and age criteria only, not inter-mingled with other social programs.


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## Four Pillars (Apr 5, 2009)

I think if you want to ensure (ie 'force') the masses to save more for their retirement, increasing CPP is clearly the way to do it.

What I don't get is this idea of an impending retirement crisis. People have been retiring for years and years. Are a significant number of them starving? What is different about people who are currently working and apparently "not saving enough" (according to many surveys sponsored by financial companies) - why are they going to be worse off than someone who retired last year or 5 years ago? Are they not going to be able to figure out how to survive like their predecessors apparently did?


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## MoneyGal (Apr 24, 2009)

^ Yeah, that. I'm really unconvinced that there is a genuine problem worthy of public attention (and sacrifice) here. The existing social assistance programs ensure no senior lives in poverty. We are already dealing with a massive intergenerational wealth transfer - of debt.


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## andrewf (Mar 1, 2010)

HaroldCrump said:


> But what does GST rebates have to do with CPP contributions?
> Someone receiving GST rebates probably isn't paying much into CPP anyway.
> CPP issues should be settled by modifying CPP contributions, payout and age criteria only, not inter-mingled with other social programs.


GST credits go to people who earn up to ~$30,000. Those people pay a fair bit of CPP contributions. CPP contributions would continue to solely be used for benefits payments. The rest of the tax or benefit system could be changed to make the net effect of all changes more progressive. Giving some kind of transfer to poor people is not out of line, as increasing contributions to CPP would tend to reduce GIS costs in the long run as more low income Canadians would receive greater CPP payments. I would say it's fair enough to reallocate that money to measures that reduce the impact of CPP contribution rate increases on low income earners.

Harold, policies don't exit in a vacuum. There are complex interactions between all these systems. You need to consider net effects. The names we give to various programs and transfers are largely window dressing. What matters are the real impacts.


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## sags (May 15, 2010)

I think a large part of the retirement income "problem" as it relates to government spending is............GIS

I was under the assumption the GIS was only there to support a few retirees with low income. By and large, I believe that was true during an era when most retirees had some form of pension income, which put them above the income threshold for collecting the GIS.

At some point that must have changed, because when the government proposed to change the qualifications for GIS to include means testing of assets (cash or home equity), there was such an uproar that the government quickly backed away from their plans.

I was astonished at the number of people, many with significant assets or cash, who were also collecting GIS. 

Recently reading some articles and statistics on the GIS, I discovered that it is already a very expensive line item in the Federal budget and is projected to grow rapidly into a very significant amount. The disappearance of company sponsored DB pension plans is shifting the financial onus for retirement from the employee/company to the retiree/government and it will get worse.

As the assets of the retiree do not affect GIS benefits, the onus is further reduced to the government alone.

The income cut off for GIS is around 1500 per month, which is below the poverty line in many urban areas. The largest group living in poverty are single women seniors. The loss of a spouse's pension or OAS after death, pushes their income downward to toward the poverty level.

Expanded CPP or not................Canadians need a solution that works. Pooled pension schemes don't provide that.

If the plan is to continue (the status quo) to provide the same benefits...........we can all look forward to healthy tax increases.

Somebody is going to pay. If not the employee/company............then it will be the taxpayer.


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## Square Root (Jan 30, 2010)

MoneyGal said:


> ^ Yeah, that. I'm really unconvinced that there is a genuine problem worthy of public attention (and sacrifice) here. The existing social assistance programs ensure no senior lives in poverty. We are already dealing with a massive intergenerational wealth transfer - of debt.


Agree. the problem seems to be" created" by those who would benefit from the solution most-ie financial service providers. Always seems to be a survey paid for by a bank that brings the issue up. GIS/OAS/current CPP have virtually eliminated age related poverty in Canada.


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## MoneyGal (Apr 24, 2009)

sags said:


> I think a large part of the retirement income "problem" as it relates to government spending is............GIS
> 
> I was under the assumption the GIS was only there to support a few retirees with low income. By and large, I believe that was true during an era when most retirees had some form of pension income, which put them above the income threshold for collecting the GIS.
> 
> ...


I think you are mixing up OAS and GIS in most of this post, but your comment about "senior single women" being the largest group living in poverty (however you define this) is absolutely untrue, and there is no lack of evidence on this point. Sample data including international comparisons:

http://www.conferenceboard.ca/hcp/Details/society/elderly-poverty.aspx

Key messages from that report: 

Canada ranks in second place[in the world on a scale that assesses progress towards the elimination of senior poverty] and scores an “A” on this indicator.
Poverty among the elderly in Canada is at 5.9 per cent, _much lower than for children or working-age populations._


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## sags (May 15, 2010)

I stand corrected.

What I meant to say was among retirees, single women are the largest group living in poverty. 

There are other groups in poverty that are larger in overall population percentages.

From the statistics I see in the link I supply, there were 680,000 retirees collecting GIS. This is a large number of retirees, given this group is over the age of 65 and worked during a period when DB pension plans were more plentiful.

As we know DB pension plans are much less available now, the number of GIS recipients will only increase over time. The percentage of seniors collecting GIS will no doubt increase as well.

http://news.gc.ca/web/article-eng.do?nid=609019


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## MoneyGal (Apr 24, 2009)

Yabbut CPP, OAS and GIS are all integrated. There is a combined maximum that any one recipient can get. Between GIS and OAS there's no difference from a balance-sheet perspective; both are paid from general revenues. If you wanted to reduce reliance on government payments in general, you'd increase the proportion of that maximum coming from CPP.


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## 44545 (Feb 14, 2012)

There was an interesting post over on Bogleheads.org a while ago about the Australian superannuation system:

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=104934&p=1524908#p1524908

According to the poster, they start at 9% and ramp up to 12%.


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## My Own Advisor (Sep 24, 2012)

Anyone see this? 

http://www.canadianlabour.ca/action...irement-security-reform-1-double-cpp-benefits

What's the flaw in a gradual increase to CPP contributions? Other than the obvious maybe, an increase in contributions should ideally move in step with an increase in wages.


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## 44545 (Feb 14, 2012)

My Own Advisor said:


> Anyone see this?
> 
> http://www.canadianlabour.ca/action...irement-security-reform-1-double-cpp-benefits
> 
> What's the flaw in a gradual increase to CPP contributions? Other than the obvious maybe, an increase in contributions should ideally move in step with an increase in wages.


Not sure how I feel about that. 

I already save a lot of my earnings (40% of net income) in a self-managed retirement portfolio. (index funds) 

If the above-linked proposed changes went through, I'd be turning over control of more of my money to the government.

I concede, however, that the majority of Canadians would benefit from increased CPP contributions as they don't save much of anything beyond what they're forced to.


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## Daniel A. (Mar 20, 2011)

The vast majority of Canadians won't save for retirement, the fact that so many are only looking at CPP & OAS as pension income with very little personal savings.
Few will take the necessary steps on one hand they don't want to be forced to save believing they will do it when the time comes but in the end we all get the bill.
A future of people applying for GIS .

What we are going to be left with is a bunch of complainers blaming the government, employers, family, friends, stock-markets, because they chose not to put funds away. 

In the nineties when government made changes to the CPP I think they could have gone further and should have.


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## sags (May 15, 2010)

Flaherty says he isn't opposed to CPP enhancements, but the country can't afford it right now.

He should know........after spending all our money.


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## Daniel A. (Mar 20, 2011)

I did read that but changing to 60,000.00 with a 10 point increase in benefits would be a move in the right direction.

Strange how the country can't afford it when we are talking about benefits 10-15 years out.


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## HaroldCrump (Jun 10, 2009)

sags said:


> Flaherty says he isn't opposed to CPP enhancements, but the country can't afford it right now.


I don't understand why not - it doesn't affect the govt.
CPP premiums are paid by employees and employers, not the govt. - unlike welfare programs like OAS and GIS.
Expanding the CPP will cost the govt. nothing.

In fact, it will probably reduce the amount of tax revenues they have to set aside for OAS and GIS.
So why not increase CPP contributions, reduce the threshold for OAS clawbacks, and maybe even increase the rate of OAS clawbacks above certain income levels.

And if he so worried about workers and employers having to set aside more money for retirement, how about give us a tax cut, eh?
Cut tax rates by 1% across the board, or cut GST by another 1%, or reduce corporate taxes, or increase TFSA limits - there are many ways to solve that situation.

He should stop shedding crocodile tears, and instead tell us how much the financial institutions are lobbying him for his pet project - the PRPP.


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## AltaRed (Jun 8, 2009)

The issue was not that the gov't couldn't afford it, it was that the economy was too weak for employers to put in a bigger share. The problem with expanded CPP is that employers are paying the penalty for people not being disciplined enough to save enough for retirement. Not that I am a big fan of business, but without business, there would be only gov't jobs.


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## 44545 (Feb 14, 2012)

AltaRed said:


> The issue was not that the gov't couldn't afford it, it was that the economy was too weak for employers to put in a bigger share. The problem with expanded CPP is that employers are paying the penalty for people not being disciplined enough to save enough for retirement. Not that I am a big fan of business, but without business, there would be only gov't jobs.


The contributions employees pay could be increased without impacting their employers.

Also, if you believe Mr. Carney, companies are sitting on piles of cash right now. Even if expanding CPP did have an added cost to employers, perhaps they can afford it.


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