Canada Pension Plan: Should the Canadian Government be Responsible for Your Retirement? If Yes, There Has Got to Be a Better Way

There are many people who do not agree with the current set up of the Canada Pension Plan (CPP) as they have no control over how it grows or how much they get in the end. It isn’t only that though, if you pass away for any reason before the age of 60 (the minimum age you have to be to draw your CPP), you currently only get a one-time $2500.00 death benefit, regardless of how long you contribute to the system. As well, if you die earlier, you will never see your full benefit and neither will your family. In other words, you will have contributed 4.95% of your over all earnings for pretty much nothing – if you are self employed you would have contributed 9.9% for nothing. These contributions are on top of taxes which add insult to injury and this is before Justin Trudeau raised the CPP premiums. Justin Trudeau’s new CPP reforms will not help people who are currently working, nor will they help the people who are currently drawing CPP and working as the people who see the full benefit are in their early 20’s.

The CPP system allocates the pool to many things – the CPP, the CPP Death Benefit, the CPP Survivor’s benefit, the CPP Child benefit, and so forth. These things while important do not necessarily benefit the people who have paid into it. For example, say that I am single and I have no children and I were to die. All that I would see at most is the $2500.00 death benefit and nothing more. One year of premiums pays for that, and where does the rest of the money go – to someone else’s family or the general slush fund – this is not fair. Some people would say that this position is one of a greedy person yet I don’t think it is. The main reason that I believe this is because other people could provide for their own families as well using their own CPP. All CPP is at it’s very root is a glorified government locked in retirement account (LIRA), based on the government’s rules and the government’s payout rate. In it’s simplest terms for those who know the financial lingo is that the CPP is a life annuity with a cost of living adjustment rider (COLA) – in simpler terms it is a fixed payment to you adjusted for inflation. When looking at the big picture, the government is probably making more money than you are.I somewhat agree with those who say something should be saved for retirement or that the government should force some people to save for their retirement as there are some who either cannot or will not save for themselves. I would take the position that CPP should be a mandatory LIRA that you can set up yourself thus choosing all investments and giving you full control of the money and giving your beneficiaries control of the money after you pass (in most cases, you or your heirs would get more than a measly $2500.00) after January 1, 2019 all recipients will get the measly $2500.00. As well, in simple terms if you are able to control your own CPP investments, this would please people who currently wish that they could opt out of the CPP program (and this should be a right). I would propose that the CPP be a special LIRA that could not be drawn until age 60 unless there were special circumstances such as early death or disability. For those who have no desire to control their own retirement – the government could set up a LIRA for them using government sources where the government would choose their investments yet it would be built up for the individual citizen and his or her family. The CPP in its current state can be considered a laughable joke as the funds simply go into the general pool and the payout is low, even if you maxed out your premiums for 40 years. Some might say that this type of program would be more expensive to administer – which it may very well be, but we know that the government is very irresponsible with our money and that the individual would know what to do with the money better than our government. A special CPP LIRA (and when set up it could be called this) would hold you accountable to the government in terms of paying into your retirement – but here’s a shocker – the government would also be accountable to you, especially if you let them do your investing for you. If the government is unreliable in terms of your investments, you should have the right to move it to an institution of your choice. There would also be more benefit to higher tax payers if CPP premiums could be used as a deduction rather than a non-refundable tax credit.

Other features that could be built into this type of program is the feature that if a CPP contributor dies with young children – the contributions could be rolled over to an Registered Education Savings Plan with no tax consequences until the money is used – unless of course the contributor had a spouse. This particular pension should have a maximum per year.

While a different type of proposition, I feel very strongly that this type of Canada Pension Plan would be more beneficial to the populous as a whole for many reasons. For example, you would potentially get a bigger death benefit, disability benefit, survivors benefit, or child benefit. As well, the money would be locked-in until the need to use it for its purpose – thus holding you accountable -the money would also be locked-in on the government side meaning that they cannot use it in their general pool – thus holding them accountable. I believe that the Employment Insurance (EI) Program could be set up the same way as there are many people who do not get to use regular EI benefits and there are people who do not need to go on EI each year – this would also get rid of the need for that useless EI clawback as people would choose when they need the funds.

I am not against the government forcing people to pay into CPP although I do disagree with the current CPP structure and I do believe that it should be overhauled.