Keep an Eye on Canada Pension Plan
June 15th, 2010In the early 1990s I carried out a survey for the readers of the Canadian MoneySaver Magazine to test their attitude towards the Canada Pension Plan. The results were depressing to say the least! Most of the participants thought it was more likely they would see Elvis walking down the street than that they would actually receive their Canada Pension Plan benefit payable in full on their selected retirement date. I could never pin down the root cause of this general pessimism, but I was concerned that much of it was emanating from folks who were trying to sell mutual funds!
Then came the restructuring in 1998 when the contribution rates were increased to a level that was viable for the long term and the investment strategy was overhauled to provide for more active management of the funds that were accumulating. Since then the CPP has certainly been rehabilitated to the point where it is now being touted as the solution to the retirement income challenges facing Canadians as the “boomers” start to retire in droves.
The web site for the Canadian Labour Congress states that: “The Canadian Labour Congress believes that we must double Canada Pension Plan benefits for future retirees over the next seven years, so that no Canadian will ever again live in poverty when they retire”
The unlikely pair of Federal Finance Minister Jim Flaherty and Ontario Provincial Finance Minister Dwight Duncan are also in agreement that some increase in the level of CPP benefits would address the key challenge for the retirement income system; the retirement needs of middle income Canadians, working in the private sector. At the June 13/14 meeting of the Federal, Provincial and Territorial ministers of finance, held in Prince Edward Island, there was general agreement that this was an idea that merited further study before this group meets again in the Fall.
Key to future discussions will be a resolution of the following issues:
- How will the benefit increases be structured?
- What contribution increases will be required to pay for them?
- Over what period will the changes be phased in?
- How will employers respond?
Given that an initial round of changes is expected to be introduced effective January 1, 2011, this is an important item for those considering their retirement options.
Patrick Longhurst
