SOURCE: The Fraser Institute

The Fraser Institute

June 16, 2016 05:30 ET

Fraser Institute News Release: Case for CPP Expansion Rests on Five Common Myths

TORONTO, ON--(Marketwired - June 16, 2016) - Proponents of an expanded Canada Pension Plan rely on incorrect assumptions and flat out mistakes, finds a new study released today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

Canada's finance ministers will meet next week in Vancouver to discuss expanding the Canada Pension Plan (CPP) -- a move that would increase mandatory contributions on working Canadians.

"When you consider the facts, not the rhetoric, it becomes abundantly clear that expanding the CPP is a solution in search of a problem," said Charles Lammam, director of fiscal studies at the Fraser Institute and co-author of Five Myths behind the Push to Expand the Canada Pension Plan.

The study dispels five common myths underlying the push to expand the CPP:

Myth 1: Canadians are not saving enough for retirement

Fact: Most Canadians are well-prepared for retirement. Claims to the contrary overlook the ample resources available to retirees outside of the formal pension system. In 2014, Canadians held $9.5 trillion in non-pension assets (stocks, bonds, real estate, other investments) dwarfing the $3.3 trillion assets in the formal pension system.

Myth 2: Higher CPP contributions will increase overall retirement savings

Fact: Forcing Canadians to contribute more to the CPP will reduce their private voluntary savings (RRSPs, TSFAs, other investments) resulting in little or no increase in total savings.

Myth 3: The CPP is a low-cost pension plan

Fact: The total investment and administration cost of running the CPP is $2.9 billion, much higher than the $803 million operating expenses of the Canada Pension Plan Investment Board, the entity that manages the CPP's investments.

Myth 4: The CPP produces excellent returns for individual contributors

Fact: Some people conflate the returns earned by the investment arm of the CPP and the returns that individual Canadians receive in CPP retirement benefits. The CPP actually provides a meager rate of return (after inflation) of just three per cent or less annually for Canadians born after 1956 and 2.1 per cent for those born after 1971.

Myth 5: Expanding the CPP will help financially vulnerable seniors

Fact: Canada's most financially vulnerable seniors will gain little or nothing from an expanded CPP partly because many have not contributed to the CPP and are therefore not eligible to receive CPP retirement benefits. For low-income seniors who have contributed, an increase in CPP income could trigger a reduction in other government transfers, which means little or no net increase in retirement income.

"The case for CPP expansion is weak and largely built on misinformation," Lammam said.

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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of think-tanks in 87 countries. Its mission is to improve the quality of life for Canadians, their families and future generations by studying, measuring and broadly communicating the effects of government policies, entrepreneurship and choice on their well-being. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.

Contact Information

  • MEDIA CONTACT:
    For interviews with Mr. Lammam, please contact:
    Aanand Radia
    Media Relations Consultant
    Fraser Institute
    (416) 363-6575 ext. 238
    aanand.radia@fraserinstitute.org
    @FraserInstitute