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Grow the CPP - A better way to save

We propose a doubling of Canada Pension Plan (CPP) benefits to ensure a better minimum pension for all Canadians. This would be financed through a modest and gradual increase in contributions over seven years, following the pattern set by CPP reforms in the 1990s.

Our plan is endorsed by Bernard Dussault, who was the Chief Actuary of the CPP and Old Age Security program from 1992 to 1997.

Currently workers and employers pay 4.95% of salary into the CPP (up to a current “Yearly Maximum Pensionable Earnings” limit of $47,200 per year).

Labour's plan to double future CPP benefits can be paid for by increasing what workers currently save through CPP contributions by 0.43% of pensionable earnings each year for 7 years.

These increased contributions would effectively double the average earnings replaced by CPP pension benefits, to a maximum (in 2010 dollars) of $1,868 per month.

Some might be surprised that we can finance a future doubling of CPP pension benefits by saving less than 3% more of our salaries. This is because the CPP structure is so cost-efficient. It is possible to achieve more with less.

Our plan offers a better minimum pension to everyone. CPP benefits are indexed, secure, and portable across jobs. Workers wouldn’t fear losing their pensions given the misdeeds of Bay Street and Wall Street.

This reform will benefit young workers the most, as they would pay higher CPP contributions over the rest of their worklives. That’s why our plan for the CPP is about preparing for the future, so the next generation of workers can count on a dignified retirement.

Why This is a Good Idea

Canadians would have more pension security: They would no longer fear losing their pension savings to higher inflation, stock market shenanigans, or the loss of employment.

This is a pan-Canadian solution to a pan-Canadian problem: Some provinces have suggested their own solutions to address pension concerns, but these initiatives won’t suffice. Worker mobility between provinces is a major concern, and the CPP’s scope is capable of dealing with this issue. The CPP’s framework can’t be matched by any provincial or regional solution.

This prepares us for the future: Young and future workers would benefit the most from CPP expansion given they would make more CPP contributions at a higher rate. In this way, expanding the CPP is about preparing for the future, and leaving behind a better system for our kids.

How our CPP Plan Would Work

We propose a doubling of the Canada Pension Plan benefits, financed on a go-forward basis.   Labour’s plan to double future CPP benefits can be paid for by increasing what workers currently save through CPP contributions by 0.43% of pensionable earnings* each year for 7 years.

* Pensionable earnings include all declared earnings above $3,500 up to $47,200 (the 2010 cap, established annually by the Canada Revenue Agency).

For a worker earning $47,200 or more per year, the initial cost of gradually doubling future CPP benefits works out to about 9 cents an hour, or $3.57 a week. That’s less than the cost of a newspaper subscription.

For a worker earning $30,000 per year, the initial cost would be about 6 cents an hour, or $2.27 a week. That’s less than the cost of a medium double-double with a donut at Tim Hortons.

Our plan would effectively double the average earnings replaced by CPP pension benefits, to a maximum (in current dollars) of $1,868 per month. 

Increase in CPP contributions, each year for seven years

Salary % increase .
 
$ increase
 
cost/week cost/hour
$47,200.00 0.43% $185.43 $3.57
$41,000.00 0.43% $161.07 $3.10
$30,000.00 0.43% $117.86 $2.27
$20,000.00 0.43% $78.57 $1.51
$10,000.00 0.43% $39.29 76¢

Please note that annual salary here is converted to an hourly rate by  dividing it by 52 weeks and then by 40 hours a week or 8 hours a day.   This corresponds to 173.3 hours of work per month.

 

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