Government Benefits

Three current debates of Canada Pension Plan

For the past year, Canada Pension Plan (CPP) has really hit the headlines because pension reform has become a really hot topic. Remember that Canada Pension Plan still represents the cornerstone of retirement income and any changes to CPP has a universal affect on everyone. If you have an opinion, your voice needs to be heard. Here’s my voice on some of these recent issues.

CPP changes are official

Back on May 25, 2009, there was a proposal submitted to make some key changes to Canada Pension Plan. All levels of government have discussed this proposal and on December 15, 2009, these changes became law with the passing of Bill-C51. Most of the changes will come into effect on January 1, 2012. To read about the changes, here is an article I wrote outlining the changes – New proposed changes for CPP.

One of the big questions around Canada Pension Plan is whether you should take CPP early? Now people are wondering how the new rules affect this popular question. Check to see how this change might affect you: Should You Take CPP Early with the new Changes coming?

Expanding CPP

There are many studies that suggest Canadians are not saving enough money for retirement and our current government programs are insufficient to provide Canadians with a decent standard of living. As a result, there is quite a bit of support from many of the Labour Unions in Canada to not only expand CPP but to double the benefit.

While this may sound great in theory (bigger CPP amounts in retirement), Canadians need to recognize that the cost to fund the benefit would be shared by both employers and employees. The bottom line is that your bottom line would shrink because of greater CPP deductions.

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. I’ve been quite vocal in my opinions and your can read more details about why I think they should leave CPP alone and alternative solutions to enhancing the CPP.

If the government wants to move the age of retirement, they should look at Old Age Security as opposed to CPP.

Increasing the age of eligibility

Earlier this month a paper was issued from the University of Toronto recommending that the government move the normal retirement age on CPP from age 65 to 67. This shouldn’t come as a complete surprise since other countries like the US and Great Britain have already taken steps towards moving the age at which you can collect benefits further out. Dan Richards wrote about his thoughts on raising the retirement age for CPP.

Personally, I think they should leave the CPP alone. They have already made good changes in Bill-C51 to help reflect changing times. The biggest reason I think they should leave CPP alone is because CPP is properly funded now. If it was not funded properly, then I suppose a change might be needed but CPP is good just the way it is.

If you think about it, why enhance the CPP and change the age of eligibility? These two issues seem to have opposite effects. On one hand, the whole point of enhancing CPP is to give more to Canadians because they are not saving enough but on the other hand, changing the age of eligibility will reduce the benefit because we have to wait an extra 2 years to access it.

My two cents

As I said earlier, CPP is one of the cornerstones of our retirement income system in Canada. We need to continuously re-visit and monitor it’s existence to ensure that it remains a solid foundation for helping people make the best of their retirements. I like the healthy debates that are occurring about CPP but the key to a successful evolution of this program is to hear the voice of Canadians. I am just one voice and I reach out to all of you to voice your opinions if you have one.

I like CPP and the idea that it will help Canadians retire. That being said, I still think it is healthier for Canadians to take responsibility and ownership over their own retirement and financial affairs as opposed to have CPP take care of it for them. My vote is for the government to create more incentives to create better employer sponsored workplans since they are one of the key sources of retirement income.

For the people that need help and income supplements in retirement, I think the Guaranteed Income Supplement (GIS) is the better place for this task. Although I can accept some modest changes to enhance CPP, I’m not sure CPP should a benefit that ‘takes care of people’ in retirement. What incentive would there be to properly prepare for retirement beyond just CPP?


  1. Doug

    This is another debate that should be happening regarding the CPP!
    I’m writing to warn yourself and your readers, about a CPP issue that has affected me and affects about 4,000 other divorced/separated male contributors each year. The issue is how the Division of Unadjusted Pensionable Earnings (DUPE aka Credit Split) functions when there were children involved in the relationship.
    The DUPE equally shares the CPP earnings (UPE), after a separation/divorce, but does nothing to acknowledge the value of what is known as the Child Rearing Dropout (CRDO). The net result in my case is that my CPP retirement pension estimate at age 65 decreased by about $190/mthly as a result of an 18-year DUPE, whereas my ex-wife’s CPP retirement calculation only increased by about $70/mthly. The reason is that she is able to drop out about 10.5 years under the CRDO provision if those years are less than her “average lifetime earnings”, which is the case for her both before and after the DUPE. I, on the other hand, am stuck with 1/2 max earnings for the 18-year period, only 7-8 of which I can drop out under the general 15-17% dropout provision.
    I am currently appealing this situation at the Federal Court level, and would be glad to hear from others that are affected by this situation.

  2. Gregg Doyle

    All you financial advisors act like we should all have a million dollars saved and if we don’t, it’s our fault. If all you made was the bare minimum most of your working life, then that is all you were able to save, if even that. Most of the people I know, including family members, are going to starve without every penny they can get from CPP. They can’t afford to have it taken from them for another 2 years. They can’t afford for a larger percentage taken from them, for taking it early. My wife has worked all her life since 16. Aside from a couple odd jobs early on, she has worked for herself cleaning houses. She only made 5-10,000 per year. Not enough to contribute to CPP. Now at 61, she is entitled to $78 a month. Could you live on $78. And you people want to withhold that too. Unbelievable. How much do the politicians get after only working for 6 years…$5,000 a month for life? We are probably going to loose everything eventually, in order to pay bills. Who are you people talking too? Millionaires?

  3. Al

    All this political and general conversation in articles talk of future CPP improvements not CURRENT t RETIREMENT BENEFITS.
    Current retirees receive CPI 2% INCREASES per year while performance of the fund is 8% per year as I understand; one the top performance pension plans anywhere. Our invested funds as a retire person at 77. No recognition of the R.O.I.
    2008 WITH NO DEFINED PENSION but RRSP. pensioners lost as much as 40% of self funded pensions with no relief on income taxes or the benefits of pension reforms now. It is retirees contributions still in the fund but no great benefits. What is wrong with acknowledging existing pensioner with better pensions? No tax relief or even conversation of current circumstance and earned pension benefits. Is it not reasonable current retirees not receive the new maximum pensions INCREASES and not be treated as second class citizens.
    We all toughed it out for over 45 years + to build CPP. Funding for our generation of Canada.

  4. Steven B.

    Another aspect in support of CPP (& other large pension plans) is that it is professionally managed and it’s size gives it huge diversity normally giving it economies of scale on fees and costs and diversification to optimize earnings. Something that is harder to replicate for individuals running their own RRSP even with financial help of Jim and financial planners.

    Thank you Jim for your articles and access to yourself and financial planners.

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