Opinion: We don’t need bigger CPP

Do we really have a retirement problem?

Senior poverty is way down. Thanks to public pensions, Canada has one of the best records of senior poverty reduction in the developed world, according to a report by Human Resources and Skills Development Canada.

Middle- to high-income earners have the means to save for their retirement. And most will be able to monetize assets like their principal residence, inheritances and small businesses in order to supplement pensions and savings.

In short, top income earners require no additional help to enjoy their retirement.

Read: CPP fund grows $5.6 billion

But any improvements to CPP benefits will accrue to all who qualify. That means a group that needs help but can ill-afford increased premiums will help those who can afford more premiums to get more benefits they don’t need.

You’d think that would be enough to stifle any further talk about increasing CPP. And here are more reasons to seriously question such a proposal.

1. Cash flow drag for employees, employers and self-employed Canadians

Overhead costs are important to business owners, and an increase in CPP premiums will affect decisions about hiring or maintaining employee levels.

2. Loss of flexibility and options

Unlike personal savings, CPP doesn’t let you decide how your money is allocated. You also lose the option of dipping into your savings on a rainy day: there’s no way to access CPP savings if you lose your job, want to buy a home or pay for education.

Read: Ottawa sets new CPP and OAS benefit rates

3. Diversification of savings

Diversification is a basic tenet of investing. Why direct even more assets to the CPPIB? Size is important when it comes to an investment pool and most experts will tell you that small is better.

4. Estate value

When you own your savings, you can pass leftover assets to your heirs. Not so with CPP. There are no guarantees that you or your loved ones will receive back what you’ve contributed.

Retorts to conventional CPP wisdom

“Retail investment choices have excessive fees”

There are many low-cost options, such as ETFs and GICs.

“Canadians can’t save”

If people can’t find a way to put aside savings, how can they afford to make more CPP contributions?

Read: Retirement saving top priority, survey shows

“People aren’t contributing to their RRSPs and the program is a failure”

Some of that unused RRSP room is likely owned by people who shouldn’t be contributing because they will be in the same marginal tax rate when they retire as they are while they’re working. And some people don’t need to contribute because they have other assets or retirement lifestyle plans. Low RRSP contribution rates do not mean the program has failed.

“Mutual funds are too risky”

The CPPIB invests in publicly traded stocks and bonds, just as mutual funds do.

Read: How institutional investors use ETFs

“CPP benefits are guaranteed”

If markets don’t co-operate or demographic projections don’t play out as planned, the only way to continue to pay out at promised levels is to increase premiums. Any perceived guarantee depends on the willingness to prop up the plan.

A push for higher CPP premiums is likely a push for income re-distribution for the sake of politics. Generations of Canadians have retired comfortably on their savings plus public pensions. So why can’t this and future generations live within their means?

What do you think? Comment below or email us.

*David Jay is pseudonym for an advisor in southwestern Ontario.