Daw: Bigger CPP should be fair to low-wage earners

[scribblet]

Exactly how is it 'fair' for a group of people who pay a lot less than others do, to receive the same benefits !

Low retirement incomes should be addressed with large GIS payments.

http://www.thestar.com/business/article/826622--bigger-cpp-should-be-fair-to-low-wage-earners?bn=1

Any expansion of the Canada Pension Plan should be fair.

A group of experts is to advise finance ministers on possible changes to CPP later this year, following an agreement by a majority of ministers meeting in Prince Edward Island June 14.

Those experts should recognize that low-wage earners can least afford an increase in payroll deductions, no matter how gradual and modest the increase. They already pay 9.9 per cent of pay, split evenly between themselves and their employers.

But they get less for their money. Those who earn a low wage beyond their first several years in the workforce will generally live shorter lives, and will thus collect CPP benefits for fewer years than high-wage earners. Their increase in CPP benefits would come with a reduction in other government benefits.

So it only seems fair that their potential burden could be reduced by having high-wage earners and their employers pay proportionally more. These employees would still realize a substantial benefit from an expanded CPP and Quebec Pension Plan.

cont...

[Shady]

Yeah, CPP shouldn't be treated as a welfare program. You should receive back what you pay in. Or let people opt out, where they could use that money for real retirement investments, that produce a much better return.

[Renegade]

This article shows how a biased position can be supported by selective facts:

But they get less for their money. Those who earn a low wage beyond their first several years in the workforce will generally live shorter lives, and will thus collect CPP benefits for fewer years than high-wage earners. Their increase in CPP benefits would come with a reduction in other government benefits.

Daw: Bigger CPP should be fair to low-wage earners

The article seem to define "fair" as if a low-wage earner has a tendancy to live shorter lives, they should be paid more CPP to offset the reduced lifespan.

I wonder if the author would support, smaller payouts for women because they live longer lives, or larger payouts for smokers who have reduced lifespans.

It might be in interesting exercise if we applied this definition of "fair" to other social programs. Perhaps women should pay higher EI rates due to the fact that they are at higher risk of collecting due to pregnancy. Or perhaps old people should pay higher healthcare rates due to their increased usage of the healthcare system.

I'm all for it if the author wants to use this definition of "fair" as it appplies to social program, but he should not expect that its applicability should be restricted only to poor people getting CPP.

[segnosaur]

Yeah, CPP shouldn't be treated as a welfare program. You should receive back what you pay in. Or let people opt out, where they could use that money for real retirement investments, that produce a much better return.

Keep in mind that the CPP has changed over the years. When it was created initially, payments to pensioners were taken out of payments from current workers (with any extra revenue stored in government securities). So, back then you didn't really "get much" from the plan.

But back in the 90s, they changed the structure. CPP now invests in various stocks and bonds (some Canadian, some Foreign). So they are getting a 'real' return similar to mutual funds. (Personally, I think this is one of the smarter things Martin did as finance minister.)

You can see the investments here:

http://www.cppib.ca/Investments/

[Renegade]

Keep in mind that the CPP has changed over the years. When it was created initially, payments to pensioners were taken out of payments from current workers (with any extra revenue stored in government securities). So, back then you didn't really "get much" from the plan.

Actually, I think that if you were one of the early pensioners, you got quite alot. The initial plan was operated as a pay-as-you-go plan and had a large working population supporting a small set of pensioners. Pension payouts were relatively substantial because of the larger contributor base.

But back in the 90s, they changed the structure. CPP now invests in various stocks and bonds (some Canadian, some Foreign). So they are getting a 'real' return similar to mutual funds. (Personally, I think this is one of the smarter things Martin did as finance minister.)

You can see the investments here:

http://www.cppib.ca/Investments/

I've seen it estimated somewhere that anyone born after 1980 will never realize as much out of the plan as they put in. (Accounting for inflation-adjusted dollars). The contribution rate was increased from 6% to 9.9% without a corresponding increase in benefits. Not a particularly good outcome for workers and employers, but it likely saved the plan from collapse due to the way it had been operating.

[Topaz]

First of all CPP is taxable, you can pay by the month or wait and pay it on your income tax. I don't understand why it should be taxed because you paid income tax on the pay cheque, they take YOUR money, invest and when you draw on it, they tax you again! Can we ask for the interest on that money? Not likely.

[Bonam]

You really should be able to opt out of this bogus scheme. I can save fine for my own retirement, thank you very much.

[segnosaur]

You really should be able to opt out of this bogus scheme. I can save fine for my own retirement, thank you very much.

I probably could too. Most people probably could.

The question is, if you allow people to opt out, what happens if people opt out and don't invest at all? (Decide to spend the money instead of save.) Or they decide to invest their retirement funds in Bre-X and Nortak shares? Such people could be left with nothing when it comes time to retire, or be forced to use welfare (which is, of course, paid for by the taxpayer.)

The libertarian in me says we should minimize government interference, but the idea of people starving in the streets (or having to work until they're dead) doesn't appeal to me either.

edited to add: Perhaps a program that allows people to opt out, but only if they put a matching amount into particular investment types might be in order, which would at least give partial ability to choose where your money goes.

Edited June 23, 2010 by segnosaur

[Wilber]

First of all CPP is taxable, you can pay by the month or wait and pay it on your income tax. I don't understand why it should be taxed because you paid income tax on the pay cheque, they take YOUR money, invest and when you draw on it, they tax you again! Can we ask for the interest on that money? Not likely.

Sigh! CPP contributions are not taxed, they are the same as any other registered plan, contributions are not taxed, benefits are.

[Bonam]

I probably could too. Most people probably could.

The question is, if you allow people to opt out, what happens if people opt out and don't invest at all? (Decide to spend the money instead of save.) Or they decide to invest their retirement funds in Bre-X and Nortak shares? Such people could be left with nothing when it comes time to retire, or be forced to use welfare (which is, of course, paid for by the taxpayer.)

The libertarian in me says we should minimize government interference, but the idea of people starving in the streets (or having to work until they're dead) doesn't appeal to me either.

Well, you are missing the obvious third option, which is to rely on their families (their children, grand-children, and great grand children). Humans exist in families for a reason. Also, people do not starve in the streets, there are food banks, charities, churches, etc.

edited to add: Perhaps a program that allows people to opt out, but only if they put a matching amount into particular investment types might be in order, which would at least give partial ability to choose where your money goes.

Yes that certainly would be an improvement. Just having the money actually stay yours, in an account which you can check on at any time, and not be transferred to some black hole in the government for 50 years, would be a big improvement.

[Molly]

Well, you are missing the obvious third option, which is to rely on their families (their children, grand-children, and great grand children). Humans exist in families for a reason. Also, people do not starve in the streets, there are food banks, charities, churches, etc. in the government for 50 years, would be a big improvement.

Wow. I might say something like that too, but if I said it, it would be sarcastically intended.

[Renegade]

Wow. I might say something like that too, but if I said it, it would be sarcastically intended.

It is actually not farfetched. At least in some juristictions legaly bind children to look after aged parents.

Under Section 10 of the Maintenance Act of 2005, every adult has an obligation - as long as he is able to do so - to maintain his parents and grandparents if they are unable to do so themselves due to physical or mental infirmity. The law also applies to children who were cared for and nurtured by adults to whom they were not biologically related.

If the children fail to do so, the dependent parents or grandparents can take their adult children to court to secure maintenance

Yes, parents can sue their children!

The Act provides for Singapore residents aged 60 years old and above, who are unable to subsist on their own, to claim maintenance from their children who are capable of supporting him but are not doing so. Parents can sue their children for maintenance, in the form of monthly allowances or a lump-sum payment. The Act also establishes the Tribunal for the Maintenance of Parents to decide on applications made under the Act.

Maintenance of Parents Act

[segnosaur]

The question is, if you allow people to opt out, what happens if people opt out and don't invest at all? Or they decide to invest their retirement funds in Bre-X and Nortak shares? Such people could be left with nothing when it comes time to retire, or be forced to use welfare (which is, of course, paid for by the taxpayer.)

The libertarian in me says we should minimize government interference, but the idea of people starving in the streets (or having to work until they're dead) doesn't appeal to me either.

Well, you are missing the obvious third option, which is to rely on their families (their children, grand-children, and great grand children).

That will work for some people, but will not work for those that are either childless, or who are estranged from their children. (Not to mention the fact that if the parents are irresponsible with their money, there's a good chance that the children will be likewise irresponsible.)

Humans exist in families for a reason.

Because children make a good renewable food source?

Also, people do not starve in the streets, there are food banks, charities, churches, etc.

Yes, there are options for people to at least survive. But, not sure how far 'charity' will go. I'm unfamiliar with any charity that, for example, pays rent/utilities for people on a regular basis.

Perhaps a program that allows people to opt out, but only if they put a matching amount into particular investment types might be in order, which would at least give partial ability to choose where your money goes.

Yes that certainly would be an improvement. Just having the money actually stay yours, in an account which you can check on at any time, and not be transferred to some black hole in the government for 50 years, would be a big improvement.

Also has the advantage in that if you haven't spent all your CPP at the time you kick the bucket, the leftover can be transferred to your kids.

[Renegade]

You really should be able to opt out of this bogus scheme. I can save fine for my own retirement, thank you very much.

Unfortunately it is not practical for the government to implement such an option because of the way the plan was set up and to a certain extent is still set up. Even today the plan is not fully funded. It depends upon continued contributions of workers. In the worst case if everyone opted out, the plan would eventually collapse and would not be able to meet its obligations. This would further lead to pressure on the government for a taxpayer-funded bailout of CPP.