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The Cost of Doubling CPP

April 23, 2011

1-minute read

Barrie McKenna's appraisal of party positions in the Globe today wrongly assumes that the NDP proposal to double CPP benefits would require a doubling of CPP premiums.

The current combined employee/employer premium rate of just under 10% of covered earnings was set a few years back to make up for a prior period of under funding when CPP operated on a pure PAYGO basis.

The Chief Actuary in the most recent report pegs the go forward rate needed to finance the program at under 6% of covered earnings, much less than the current premium. The go forward rate  is theincrease that would be needed to double the CPP benefit moving forward on a fully pre funded basis, as is required by current legislation.

Former CPP Chief Actuary Bernard Dussault has endorsed the CLC calculation that premiums would have to increase by less than 60% to pay for a doubled benefit.

Under this proposal this increase would be slowly phased in for employers and workers over seven years, and all increased benefits would be fully pre funded.

Expanding the CPP is by far the best deal pension deal available to workers since premiums paid are matched by those of employers, and since the CPP Investment Fund has managed plan assets well at a very low cost compared to the fees charged by financial institutions.

Consider this. A worker would, at age 65,  have to have set aside about $250,000 at current interest rates to buy a lifetime inflation indexed annuity equal to the maximum CPP benefit.

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