Retirement » Pension

Don’t enhance CPP, leave the CPP alone!

I’ve written lots about the Canada Pension Plan in the past. Now, many of the Labour Unions in Canada support the idea of expanding CPP. One suggestion from the Canadian Labour Congress is to double the CPP. There is no question this suggestion would have a significant positive impact on the benefit that Canadians get in retirement. We must also recognize the significant negative impact it would have on people’s paycheques because it would require significantly increased contributions to CPP. Employers would also pay a hefty price to double the CPP and according to the Canadian Federation of Independent Business (CFIB), this could drive wages and job growth down.

Although I understand the concern that many Canadians are failing to save and might not feel prepared for retirement, I must admit I was very happy to hear that the government is not going to double the CPP. Instead, Finance Minister Jim Flaherty announced back in June, they will make modest increases to CPP but with no details as to how much. There will be a debate in the House of Commons about pension reform soon. After that, federal and provincial ministers meet in Alberta to discuss the options for increasing the CPP.

Many people like Canadian Capitalist, a well known personal finance blogger with Moneysense, suggested that “it is hard not to favor modest CPP changes that would allow retirees who haven’t saved anything on their own maintain a certain minimum standard of living”.

Although I can accept a modest increase, I think we need to keep the increases to a minimum and look at alternatives to help people save money for retirement.

Three reasons not to enhance CPP

Rate of return. The biggest concern I have about CPP is the math on our contributions versus the benefit we get from CPP at retirement. Great-West Life did some calculations and determined that if you started contributing to CPP at age 25 and worked until 65, your effective rate of return on your contributions would be a mere 1.43%. If you think you can make more than 1.43%, then you are better off not putting money into CPP and seeking alternatives.

Control. Another problem with CPP is our lack of both control and flexibility. We put our hard-earned money into a pot where someone is managing our money and we have no say in how that money is managed. For many people, that might be a good thing but there are many other Canadians who engage in the management of their portfolios and prefer having more control over their investments and when they can get at it. If they make more than 1.4%, they want to benefit from that surplus.

Accountability. CPP does not contribute to teaching people to engage in their financial affairs and learn about the merits of learning good money management and savings skills. Canadians need to accept some accountability over their financial affairs. As an example, if I don’t make 1.4% on my portfolio, I don’t think the government or other people should bail me out either. My hope is that the task force on financial literacy is the right step towards enhancing financial education. Enhancing CPP does very little to promote more financial accountability of Canadians.

If enhancing the CPP is not the right solution, then what is? Also released today on is an article with some alternative strategies for enhancing CPP.

Other relevant articles on CPP

Will CPP Be there when you retire? –

The Four Most Common Questions about Canada Pension Plan (CPP) –


  1. Rob Aldred

    Jim, in terms of enhancing (or not) of CPP and other federal retirement products of OAS and GIS, why aren’t the payouts of only these products NOT somehow already distributed tax free!??

  2. Mike MacKinnon

    Hey Jim,
    Late to the party but people keep talking about the terrible return on the CPP investment when they (finally) get paid out for their contributions. There are also other factors involved such as guaranteed return of that amount (guaranteed annuities generally cost more) but more importantly the other benefits that people partake in such as – CPP disability, children’s benefit, survivor’s pension, and death benefit. I look at those as almost like life and disability insurance that often gets forgotten when people look at their CPP contributions.

    I do think the biggest reason for enhancing the CPP (or argument against dropping CPP) is that people for the most part will not contribute the ‘extra CPP money’ to investment accounts. Also, when they contribute to those accounts the majority of people will either invest in low return assets or possibly take on high risk investments. This would then put an even larger burden on the government as an even larger share of the older population would then be unprepared for retirement living in poverty or forced to work longer due to insufficient savings.

    I get the complaints about the CPP but I also understand the reasoning behind it and also understand that there is more to CPP than solely the CPP payments made to people upon retirement. I think the government has to look out for most people who are unfortunately are not financially savvy and do not understand investing.

    Just something to think about. Thanks.

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