Canada Pension Plan

[Pateris]

This year, the first of the baby boomers (born 1945-1966) have the option of beginning to draw retirement benefits from CPP. Over the next 20 years, the ratio of people collecting benefits versus those paying in will get lower and lower.

In 1994 when the Government of Canada started increasing the CPP tax rate to 9.9% of insurable earnings, their OWN studies showed that making the plan sustainable required raising the CPP tax to 14.5%.

So, this is the beginning of the end of the CPP.

May it rest in peace.

[Slavik44]

or may they tax us to death to make up for lost ground, either way somethin's gonna die.

[PocketRocket]

You make a good case for increased immigration.

[August1991]

In 1994 when the Government of Canada started increasing the CPP tax rate to 9.9% of insurable earnings, their OWN studies showed that making the plan sustainable required raising the CPP tax to 14.5%.

Do you have a link for this Pateris?

From what I can see, CPP contributions rose from 5.85% of ensurable earnings in 1998 to 9.9% in 2004. (These contributions are shared equally by employers and employees.)

These contributions are only made on income up to $40,000.

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Pateris, you use the term "sustainable". What do you mean? The CPP does not put contributions into a bank account and then pay them out when people retire.

In fact, the CPP is merely a transfer scheme. We take from Peter to pay Paul. The government does this in myriad ways, not just for pensioners.

Here's an idea to contemplate. With all these boomers retiring, there will be a labour shortage. This will drive up wages. Young people will earn more and some boomers may double dip.

[Argus]

You make a good case for increased immigration.

Until you realize that immigrants get the CPP too, and the average age of immigrants is really not that much different than the average age of Canadians. It's not like we're bringing in a lot of nineteen year olds, you know.

[Pateris]

August,

There may be some increase in wages due to labour shortage - but the more severe problem is going to be that the labour shortages are going to be in skilled worker categories, and if wages go too high it will be cheaper to do the work outside Canada.

Further, since CPP is only taxed on the first $40,000, higher wages won't bring in more money unless they raise the cap - which is simply a tax increase.

Methinks the better solution is to RAISE the age of entitlement from 65 to 75. Voila! No more problem and we can even reduce the rate of CPP taxation.

As for a reference to the study showing 14.5%, I used to have a hardcopy. I think my father stole it.

And when I say "sustainable", I mean the amount of money going in will equal the amount going out. What is likely going to happen is that the government will end up "topping up" CPP with general revenue funds.

[PocketRocket]

You make a good case for increased immigration.

Until you realize that immigrants get the CPP too, and the average age of immigrants is really not that much different than the average age of Canadians. It's not like we're bringing in a lot of nineteen year olds, you know.

I think that most immigrants would be a little below the typical baby boomer age.

What you collect from CPP is based on how much you have put into CPP over your working lifetime, so, an immigrant would be contributing to the system, but would only collect based on his time in the Canadian workforce.

Therefore, if he's older, he will collect less later, being that he's spent less time contributing.

But many of these immigrants bring kids with them, an investment in the future.

And let's face it, a lot of people immigratre because of deplorable conditions in their home country.

Immigrants, especially from poorer countries, produce, on average, more kids per-capita than Canadians born and raised here. That's a large factor behind their wish to immigrate, to be able to raise a family in a peaceful and prosperous land.

Any kids that they either bring with them, or give birth to here, end up contributing to the system at a later time.

Win-win situation. At least in the short term.

Long term??? Probably make little or no difference.

[August1991]

Pateris

There may be some increase in wages due to labour shortage - but the more severe problem is going to be that the labour shortages are going to be in skilled worker categories, and if wages go too high it will be cheaper to do the work outside Canada.

"If wages go too high, it will be cheaper to do the work outside Canada." What do you mean exactly?

My idea of rising wages was simply to note that pensioners in the future will have to pay high prices for the goods and services they receive.

Methinks the better solution is to RAISE the age of entitlement from 65 to 75. Voila! No more problem and we can even reduce the rate of CPP taxation.

That's possible in theory but perhaps impossible politically. Bear in mind that old people vote and young people don't. Politicians jack around with pensions at their peril (as even Putin is now learning).

I note that the recent reform of CPP was primarily in contributions.

Further, since CPP is only taxed on the first $40,000, higher wages won't bring in more money unless they raise the cap - which is simply a tax increase.

That's right, it is. But are current contributions not a tax?

And when I say "sustainable", I mean the amount of money going in will equal the amount going out. What is likely going to happen is that the government will end up "topping up" CPP with general revenue funds.

If you consider the OAP and GAINS, then we already do that. CPP contributions now are just a regressive tax.

What you collect from CPP is based on how much you have put into CPP over your working lifetime, so, an immigrant would be contributing to the system, but would only collect based on his time in the Canadian workforce.

That's false for a number of reasons but primarily because the CPP is an insurance scheme.

But pocketrocket, I tend to agree with you. There are rather severe restrictions on immigrants' access to the pension system. So, I merely wonder whether immigrants will accept this lopsided deal in the future.

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Our pension is a transfer scheme from young people to old people. In the future, there will be more old people and fewer young people. You do the math but be careful. Other variables will change as well.

[PocketRocket]

You do the math but be careful. Other variables will change as well.

Of course they will, but like the old saying goes; The more things change, the more they stay the same.

[August1991]

You do the math but be careful. Other variables will change as well.

Of course they will, but like the old saying goes; The more things change, the more they stay the same.

I was thinking in more precise terms than that. Old people transfer wealth to young people (through inheritances).

So, this "impending pension crisis" of taking from the young to give to the old can be reversed. But it is the old people that will have the power to decide. (CPP contributions are obligatory. Inheritances are not.)

[cgarrett]

i'm afraid that the constant rattling of the cpp cage is old. part of its demise was the 'liberalization' to rrsp's brought on by salivating banks and equity market players. how are you rrsp's doing? are you constantly on top of investment strategies etc... most people are not. changes proposed for more 'liberalization' of social security in the u.s. will further put people in the tank as they loose even more money in the stock market.

the equity markets love things like the 'tech bubble'. because brokerage houses and investment bankers all make huge quick money from selling stocks that have astronomical price to earnings rations to grandmothers. what the equity markets hate is government investors who wield huge money like a big stick and create growth and potential wherever they choose to land it just from the force of capital. these investors can rarely be taken for a quick ride...

we all want to retire someday. none of us wants to drop dead at work! we need guaranteed returns or as close to that as possible and we need to pool our money.