Don’t double down on a ‘Big CPP,’ CD Howe warns

November 12, 2011

National Post

June 9, 2011

CPP needs to be shored up, not expanded

As a target-benefit plan (rather than a true DB plan), in principle the CPP may not justifiably match its assets and liabilities, the institute says. Like struggling corporate DB plans or even individuals trying to save in RRSPs, the CPP is “currently relying on future returns significantly higher than those available on low-risk assets,” Robson says.

Therefore, he argues, it’s “misleading to tell Canadians that the CPP is fully funded and could reliably deliver richer benefits on the same basis.”

As I’ve argued repeatedly in this blog and columns, an expanded CPP means putting too many of our retirement eggs in the single basket of “government pensions.” As Robson points out, there are other ways to improve the retirement prospects of Canadians, including saving more in RRSPs and TFSAs, and in professionally managed employer pensions for those lacking them (i.e. the Conservatives’ Pooled Registered Pension Plan or PRPP proposal).

Fortunately, the Tories do not appear to have backed down from the PRPP, and they still plan to double TFSA contribution limits to $10,000 per person once the books are balanced: hopefully a year early, based on the revised Budget released on Monday.

The Tories have not ruled out a “modest” expansion to the CPP. Based on Robson’s take, that would appear to be the prudent path. Let’s make sure the existing CPP is solid and define what we mean by a “modest expansion.”

My view of the latter would be to slowly raise the salary base on which CPP contributions are raised, as Morneau Shepell chief actuary Fred Vettese has argued.

Why major changes to CPP not viable

Fair Pensions for All

Bill Tufts

P.S. After posting the original version of this blog, I heard from Bill Tufts, of Fair Pensions for All. In this link, he discusses possible changes with Bernard Dussault, former chief actuary of the CPP.

Tufts argues there are too many variables that have to be aligned positively in order for the CPP or QPP to remain viable — even at today’s relatively modest levels of contributions and benefits. They include fertility and mortality rates, labour participation rates, inflation, immigration, unemployment and job creation and rising health care costs.

QPP the canary in the pension coal mine

The canary in the coal mine may be Quebec and its Quebec Pension Plan, which is parallel to but separate from the CPP. Based on the current 9.9% contribution rate, QPP plans will exceed contributions by 2013 and with no adjustments, the reserve will be depleted by 2039. Given that Quebec is now NDP territory and the fact Jack Layton pushed for an expanded CPP during the recent election, the rest of the country should pay close attention to developments surrounding the QPP.

The average retiree gets just over $6,050 in CPP benefits a year, Tufts says, since not everyone paid in at the maximum rate, so even a doubling of CPP or QPP benefits wouldn’t solve the problem of retirement income shortfalls  over night. Most seniors will still depend on Old Age Security and the Guaranteed Income Supplement, he says

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