Rethinking the double down on CPP

TORONTO—Bigger isn’t necessarily better when it comes to the Canada Pension Plan (CPP), warns a new paper from the C.D. Howe Institute.

The Toronto-based think tank says retiring Canadians could be misled by the current push in Ottawa to expand the CPP.

The NDP is pressing for a doubling of CPP benefits to reduce risks of low incomes in retirement. Several labor groups, including the CAW, have backed the official opposition’s proposal.

The CPP is being touted as a retirement plan with definite benefits when there’s actually no guarantee those benefits will be fully funded, says C.D. Howe president and CEO William B.P. Robson, who authored the paper.

He notes that CPP projections assume a 4 per cent net real return on investments—well above this month’s most recent yield of 1.02 per cent.

The CPP won’t be able to pay for scheduled benefits at its current 9.9. contribution rate. Instead, that rate would need to rise above 11.3 per cent, costing both employees and employers.

“The CPP is way less of a slam dunk than advocates are making it out to be,” Robson says.

Disappointing investment returns could trim benefits as well, a scenario that’s already played out in Quebec’s Pension Plan(QPP), with cuts for those who leave the workforce before 65.

“Contributions would have to go up or benefits would have to be trimmed—either way, you run the risk of people paying more to get less than what they expect,” Robson says.

The paper suggests alternatives to “doubling down” on the CPP such as the Conservatives’ proposed Pooled Registered Pension Plan, a privately managed plan with voluntary contributions.

While there may be problems with the CPP, retirement-aged Canadians still see it as a good bet right now, says Susan Eng, vice-president of advocacy with the Canadian Association of Retired Professionals (CARP).

CARP recently surveyed its more than 350,000 retirement-aged members across Canada to get their opinion of various retirement savings plans.

Eighty per cent cited a need for supplemental pensions.

“People are saying, why are we running around trying to create something new when we have an entirely good fund here that has been working for Canadians and we could just double down on that?’” Eng says.

She acknowledges Quebec’s much smaller QPP trimmed benefits, mainly because it didn’t receive the level of contribution it needed, but says the CPP is guaranteed to be safe for another 75 years.

“It’s a universal plan that everyone is into and it’s run by nonprofit. A plan manager at OMERS is just as good as someone from SunLife,” Eng says.