CPP doesn’t need to be overhauled, it needs to be killed

When it comes to how and how much workers should save for retirement, the federal government doesn’t know better than Canadians themselves

Matthew LauAs the calendar flipped to 2020, the federal government again made the Canada Pension Plan (CPP) tax more expensive, even though CPP doesn’t help the economy or workers.

The combined employee and employer contribution rate has risen from 10.2 per cent in 2019 to 10.5 per cent this year, while the maximum taxable amount (but not the exemption amount) has also gone up.

This means workers at all incomes will pay more. For example, for those earning $58,700 or more annually, the combined employee and employer CPP tax hike will be $298 in 2020.

It’s the second of five annual planned increases; by 2023, the CPP tax is scheduled to rise to 11.9 per cent. Unfortunately, expanding CPP does no good for the economy and workers – indeed, the entire plan is a bad idea.

The claim from the Liberal government that expanding CPP helps workers save for retirement is false. CPP is a pay-as-you-go plan, meaning that workers paying into it aren’t really saving for their retirements – their CPP taxes are instead used mostly to pay benefits to current retirees. When today’s workers retire, the funding for their benefits will in turn rely on the next generation of workers’ taxes.

But even if we suppose, incorrectly, that CPP was a program through which workers saved for their own retirements (instead of paying for somebody else’s), expanding it would still be foolish. Forcing all Canadians to save a certain percentage of their income is unfair and unreasonable.


Feds fail to make convincing case for CPP expansion by Charles Lammam and Hugh MacIntyre


Take for example a worker with a terminal illness who is not expected to live to retirement age. The federal government forces this worker to put aside 10.5 per cent of their income for retirement – savings that will prove worthless. How does this make sense?

This example proves a more general point: the amount workers should save for their retirements depends on their circumstances and preferences. It’s preposterous to have a one-size-fits-all government approach to retirement savings for a diverse population of millions of workers.

As American economist Milton Friedman put it: “Why is it that it is appropriate for government to tell me what fraction of my income I should save for my old age? If that’s okay, why can’t it come in and tell me exactly what fraction of my income I have to spend for food, what fraction for housing, what fraction for clothing?”

Yet another problem with the government’s one-size-fits-all approach is that not everybody wants their money invested in the same way. Some Canadians might want their money invested in riskier assets with higher potential returns. Others might want to invest in safer assets, even if the expected returns are lower.

Because of the Canada Pension Plan Investment Board’s active investment strategy, its costs are $3.3 billion per year or 0.83 per cent of assets. Many Canadians might prefer a passive investment strategy with much lower costs.

When it comes to how and how much individual workers should save for retirement, the federal government doesn’t know better than Canadians themselves. By expanding CPP, the government is unfairly treating adult workers as if they were children, unable to make their own financial decisions.

Matthew Lau is a research associate with the Frontier Centre for Public Policy.

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One Response to "CPP doesn’t need to be overhauled, it needs to be killed"

  1. Avatar
    Letters to The Editor   February 1, 2020 at 11:35 am

    Matthew Lau’s CPP diatribe says workers aren’t saving for retirement through their CPP contributions and claims that CPP benefits are paid only out of current payments.

    How does he explain that CPP has $405 billion in investments that earned 10.2% annual interest over the last 10 years? He doesn’t. He pretends that doesn’t exist.

    The fact is that CPP is a hybrid system. As explained in Wikipedia, “Instead of a “pay-as-you-go” structure, the CPP is expected to be 20 per cent funded by 2014, such funding ratio to constantly increase thereafter towards 30 per cent by 2075 (that is, the CPP Reserve Fund will equal 30 per cent of the “liabilities” – or accrued pension obligations).”

    The fund is regularly audited for future viability for 75 years of projected growth. Most people pay higher costs if they invest individually – does he mention that? Just the opposite. For most peopel returns are higher too. The CPP is far more reliable than private company plans as we have seen from Sears to Nortel.

    This article is pure one-sided ideology and propaganda.

    Brian Gifford
    Halifax, NS

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