Increase Canada Pension Plan contributions?

[Merry]

I have been an advocate of an increased CPP for many years, and here's one of the reasons why.

When we were young, my spouse and I took saving for our retirement seriously. We always paid ourselves first, and budgeted as best we could to ensure we were able to save the required 10% of our income every year. Some years we were able to save more, the odd year we wound up saving less, but on balance I think we balanced our savings and income fairly well.

However, like many other Canadians, we didn't do as well in the investment department as we did in the savings department. Partly due to lack of knowledge as to what to invest in, partly due to playing it too safe for fear of losing what little we had, and partly due to making some poor investments on some of the few occasions that we did try to get a better return on our money.

When I look back on it now, with the benefit of age and wisdom, I can see mistakes we made and areas we could and should have done better. But hindsight is 20/20. The fact is that most young people lack the knowledge to make good investments on their own, and don't have enough resources to make hiring an independent financial advisor practical (many will not deal with clients who have less than a certain amount of money to invest).

As most private companies no longer offer direct benefit pension plans, Canadians whose profile is similar to what I outline above, are in for a pretty bleak retirement. And that, while obviously being bad for the individuals themselves, is also bad for the economy as a whole. Because, in a society such as ours, it is unlikely we would allow our old folks to sit and starve, so having large numbers of seniors with an inadequate income would inevitably lead to a greater strain on working taxpayers.

My generation is fortunate that many of us have workplace pensions which help cushion many of our past investment mistakes. But as the current younger generation does not have that same luxury, society needs to find a way to replace some of that cushion, and the CPP would be a good way to do that. It would give young workers an affordable way to access the kind of money management only a large group plan can provide, provide them with some security in their old age, and protect the generation beyond them from having to pay higher taxes to support their seniors.

[Merry]

I think the answer to that question is “yes”. While some of us have been “paying ourselves first” and putting money into savings and investments before spending it anywhere else, the statistics show the vast majority of Canadians haven’t been. Whether the reason is lack of knowledge or discipline or perceived inability due to low income (although even ten percent of a little can ultimately grow into a lot), the fact is many Canadians (apparently the majority) are not preparing themselves. A short-sighted and simplistic response might be to say “Look after yourself or suffer the consequences”, but the reality is we will all be paying the consequences through increased taxes for increased health costs (associated with elder poverty), subsidized housing, etc. Better we implement some form of forced savings. Even those of us who have our own investment plans will not lose out, and we will all benefit from reduced stress and demand on our health and social safety nets.

In the above post, Steven touches on the other reason why I'm in favour of an increased CPP. Because it forces the irresponsible to save for their own retirement, thereby letting the rest of us "off the hook" as far as having to pay for those folks retirements through our taxes.

Over the years I have often observed folks who are making a very good income spend it all (and more) bragging how they intend to "let the government support them" in their old age. Such folks make absolutely NO attempt to save and be responsible for themselves, and I've always resented their attitude. Because while I, and others like me, did without when we were young in order to save, these spendthrift folks were out having fun and buying all the things we "savers" were doing without. And now, as we enter old age, many of us who "saved" and did without a lot of things throughout our lives, are heading into a retirement that will be OK but not particularly "glamorous" or exciting, because we weren't able to save enough for that. Which is fine, I'm not complaining, BUT those of our counterparts who saved diddley over the years will be in almost as good of a financial position in retirement, due to being eligible for government benefits that people with "savings" do not qualify for.

This argument doesn't apply to those who have enough money to have a fairly decent retirement. But it definitely applies when comparing the "spendthrifts" with folks who were only able to save enough to just get by, because such folks could well end up WORSE off than their "spendthrift" neighbours. So when you compare those who deprived themselves all their working lives only to end up no better, or possibly even worse off, than those who spent every dime as fast as they made it, It's easy to see an argument for enforced retirement savings.

Making folks save for their own retirement makes the system "fairer" while also easing the burden on taxpayers. But, as not all people earn enough over the years to qualify for a decent amount of CPP (even with an enhanced system) we're always going to need government programs such as OAS and GIS to protect certain seniors from poverty. However, those that CAN save, SHOULD be made to do so. And the CPP is a perfect vehicle for doing that.

[GrooveTunes]

Noticed a whole bunch of "bullies" demonstrating outside the talks this morning. Even in the bitter cold they made it out, some with their walkers. Good on them.

[Donald G]

To Merry ...

The more young people that read your well thought out comments the better off the next generation will be.

One additional option is to pay into more than one pension plan ( ie RRSP) and the earlier (in time) you start contributions, the more opportunity you will have to profit.

[NAB]

It appears Federal Minister of Finance Flaherty has but one word for the provinces' CPP reform proposals...

"NO!"

Gonna be interesting to see if the Federal Liberals take a position on the matter.

Nab

[Merry]

Yep, it sounds as though the idea is "dead in the water" yet again.

All the premiers were looking for was an agreement in principle that contributions and benefits should be increased at some future date when the economy is on a sounder footing. The details were to be worked out afterwards, at subsequent meetings to be held in the future. But Flaherty wouldn't even agree to that much.

I truly believe that the Conservatives are making a huge mistake here. Because, as one premier pointed out, if we wait until the economy improves before even beginning discussions about this, the process is bound to take so long that the economy will have worsened again by the time consensus is reached. Which means the increase will likely never happen. And, for all the reasons I outlined in my earlier posts, that is condemning future generations to having to support through their taxes all those who failed to save enough for their retirement (despite earning enough to do so).

Most people don't mind supporting those who, for various reasons, are unable to provide for themselves. But nobody should have to pay for those who could have saved but didn't. On the other hand, I don't think anyone would be able to just stand by and watch a senior citizen starve either, regardless of the reason for their poverty. And an enhanced CPP would solve that problem. Not for my generation, or even the one immediately after. But for the generations to come.

Oh but I forgot, anything beyond the next election isn't part of this Government's mandate!

http://www.theglobeandmail.com/news/pol ... e15987267/

[Donald G]

Sounds to me that "no" is a reasonable initial negotiation position. It does not in any way stop people from starting more than one Retirement Plan though, regardless of what the government decides to do.

[Merry]

I hope that Canada doesn't wind up with a "patchwork quilt" of retirement plans because, in this day and age of high labour mobility, it would just make for an unnecessarily complicated system.

Let's keep our fingers crossed that our various levels of government find a way to work together on this issue.

[steven lloyd]

Yep, it sounds as though the idea is "dead in the water" yet again. All the premiers were looking for was an agreement in principle that contributions and benefits should be increased at some future date when the economy is on a sounder footing. The details were to be worked out afterwards, at subsequent meetings to be held in the future. But Flaherty wouldn't even agree to that much.

A bit surprising that the Conservatives are being so short-sighted and rigid on this issue - even for Conservatives. This lack of foresight is something we will all collectively be paying for later, and quite regrettable since such relatively small action now would help to avoid much of the greater deficit to come. I really hope Trudeau gets his act together before the next election. We can no longer afford the conservative approach – never mind the arrogance and corruption.

[NAB]

I'm beginning to think that Minister of Finance Flaherty's health problems may be beginning to have an effect on his judgement.
Nab

Give CPP a boost
It's a prudent measure to help future retirees

Vancouver Sun December 19, 2013

It's unfortunate that federal and provincial finance ministers couldn't come to a consensus Monday on the need to boost Canada Pension Plan contributions, and therefore, eventually the payouts as well.

There are several reasons why boosting CPP contributions from employers and employees makes sense for the economy and Canada's future finances.

First, study after study has shown that Canadians are not saving enough for their retirements, which will tarnish their golden years and strain taxpayers in the future.

Indeed, Statistics Canada reports that only 24 per cent of Canadians contributed to a Registered Retirement Savings Plan, and of those, only a small percentage contribute the maximum allowed.

What many Canadians do not understand is that the CPP is not funded by taxes. It is funded entirely by workers and employers.

The beauty of the CPP is that because it is mandatory, it covers almost all Canadian workers and therefore spreads the risk and management fees. It is also fully portable, unlike many company pension plans, and provides a guaranteed income to all retirees.

By forcing all workers to pay more toward their own retirements, there will be less of a tax burden on future generations. It is a truly conservative value that should be embraced by federal Finance Minister Jim Flaherty.

We believe boosting CPP is a prudent measure that forces fiscal discipline on individuals.

http://www.vancouversun.com/sports/Give ... story.html

[rvrepairnut]

cpp contributions are high enough already. Especially for small business.its hurting them quit bad.If there is to be a increase in payments it needs to come out of the workers pocket not the employers pocket.increasing personal payments by 1-2% would provide billions over the years.

[Veovis]

What about a blended CPP plan?

For instance self employed people pay both portions of CPP for themselves, well under that similar idea after the cap as it is now, the employee would become responsible for paying both portions as well for the increased amount for a higher retirement benefit.

HOWEVER - this only get's triggered if the employee cannot show other retirement savings having been performed IE - TFSA contributions, RRSP contributions, other pension plan contributions, or simply a fiscal level showing it will not be needed.

Therefore the people not saving for their future are government required to pay in extra to then have extra where people planning for their future would not be subject to this second level of the CPP plan.

Sad that we need a government babysitter to take care of ourselves, but that isn't an employers fault or cost responsibility, perhaps the burden for any increase should be transferred to the individual, but in a fashion that forces then to save for the future instead of spending it as often happens.

Just a concept.

[Steve-O]

Had a chat with a fella from CFIB and his explanation for the desire for an increase in CPP is largely from the unions as they know much of the pension increases they have negotiated over the years will be unfunded in the years to come so they (unions) would like the taxpayers to step up and fund these shortfalls. Information available on their website http://www.cfib.ca

[hobbyguy]

My perspective on CPP increases is this:

If we don't increase mandatory CPP contributions, then the GIS system will force us into paying higher taxes. The GIS system is a valuable safety net, but as merry pointed out, there are folks who see it as a way to game the system. By not increasing mandatory CPP contributions, we are subsidizing the irresponsible among us.

There are lots of ways to approach it so that small businesses and low income folks don't get "bitten" by the increases. The most logical way is to make the increases progressive. Here is one suggestion:

1. Increase the contributions only as the employee passes say, 32,000/year in gross income. So from 32,000 to 52,000 (the current maximum pensionable earnings) you and the employer pay more.
2. Extend the enhanced contributions up to 62,000 - i.e. significantly increase the maximum pensionable earnings.
3. Extend the employee portion only to a maximum pensionable earnings of 80,000 - and possibly at a higher rate.

Doing it that way would ease the hit on lower income folks, ease the hit on small business, and make sure that higher earners are in fact looking after their own retirement. It isn't "one size fits all".

It would also virtually guarantee that folks who have had the income to save for their own retirement would never qualify for GIS. It would also mean that future retirees would have more money to spend (keeping the economy humming), more money to draw on for long term care (if and when needed) payments (generally based on income) - thus easing the cost burdens for the health care system.

Flaherty and the Harper government are indeed being short sighted.