Increasing CPP benefits comes at a price

We’d all like to see an improvement to the benefits of the Canada Pension Plan.

We pay into it all our working life, the fund had assets worth $183 billion as of the end of March, it is well-managed and free from political manipulation. The fund predicts it can cover its obligations for the next 75 years, so if that’s the case, why not pay us more?

This issue is top of reader’s minds. Here are some questions that have come up:

Q: If the CPP is in such good shape why don’t we get a bigger pension?

A: The maximum per month for someone who is 65 and retiring this year is $1,013. If we want more than that, we can have it, but at the cost of higher premiums.

The CPP figures it can cover our pensions for the next 75 years, but that doesn’t mean the fund has that much cash in hand. It means that based on what we pay — a maximum of $2,356 this year, matched by our employer — plus the fund’s expected investment returns, things should work out.

While it is likely they will work out, it’s not guaranteed.

Provincial finance ministers, including Ontario’s Dwight Duncan during his tenure, wanted the CPP to pay more and Fred Vettese, chief actuary at benefits consultant Morneau Sheppell and co-author of The Real Retirement, agrees a modest increase in the basic CPP pension is a good idea.

“But for future service only,” he says. “We really cannot afford a retroactive increase.”

He points that the CPP is only about 20 per cent funded and that ratio is not getting any better, so let’s hope assets continue to grow nicely at the assumed 4 per cent a year after inflation.

Vettese adds that when the CPP is combined with Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) the package compares favourably to other industrialized countries.

Q: Why can’t we choose to pay more into the CPP to get a bigger pension?

“Has anyone ever asked if it would be possible to make additional voluntary contributions (AVCs) the way other pension plans such as OMERS, allow,” asked reader Bill Lidstone, referring to the Ontario municipal employees plan. “We have already paid for the investment expertise. Just a thought. “

It’s an interesting idea, but one that has not made it to the table where these things are considered.

The federal, provincial and territorial finance ministers, jointly administer the CPP and meet every three years to discuss the plan.

Any changes need the approval of the federal minister and the provincial finance ministers representing two-thirds of the provinces with the two-thirds of the population. Then it must be approved by Parliament, says Stéphanie Rubec, a spokesman with the federal finance ministry.

These checks and balances ensure there are no arbitrary changes to the fund. If you think the idea has merit, the place to start is with your federal MP and provincial MPP.

Q: Why don’t we make the CPP survivor benefit more generous?

When a person dies and they’ve paid into the CPP, the maximum their surviving spouse can get is an amount that brings that person to the maximum one person would have received in the year they started their pension. You don’t get two pensions.

This is because the plan is based on the notion of pooled risk. First it recognizes that some people live longer than others. Money not paid to one person goes back into the pool. It is also designed to offer income support as one portion of retirement savings, not a second income.

Two stories illustrate this apparent unfairness.

Cape Breton residents Sheila and Winston Billard paid into the CPP all their working lives. When Sheila died in 2012, Winston’s extra benefit came to $22.75 a month. This topped him up the maximum he would have been paid in 2004, the year he started his CPP.

In the other case, Kitchener real estate agent Bill Bell started taking the CPP in 2002 when he turned 65. His wife Catherine died in 2010 two weeks after her 60th birthday and did not draw any benefits although she had paid into the plan. His extra comes to 98 cents a month.

While many of us think this should be changed, readers like Julia Hall, who are single, think that would be very unfair.

“Who ought to be considered a survivor?” she asks. “Fewer people are marrying and more are single, living with siblings (as I do), or in some other dependent living arrangement.

“To provide improved benefits only to those who are married seems discriminatory. Those who are married already enjoy many benefits not extended to others, i.e. RSP rollovers without tax, property transfer without tax, income splitting, ability to share health benefits. I don’t think we need to extend CPP to cover survivors at all.”

Original Article
Source: thestar.com
Author:  Adam Mayers