Jim Flaherty, the Canadian federal finance minister, has posited in a letter to his Ontario counterpart, that perhaps the premiums that all Canadian workers (and their employers) pay should be increased to increase the amount of money Canadians are saving for retirement.
This is a very bad idea.
First, increasing payroll taxes is a known employment killer. Employing people costs companies more, so they have an incentive to reduce hiring.
Second, the CPP is a backstop pension plan. The amount of money I would ever recover from CPP is not really enough for anyone to live on – so no one should rely solely on it anyway.
Third, the CPP is a giant Ponzi scheme ( less now than it used to be). The money I put in is not being invested for my future retirement. Much of my contributions will be used to pay the pensions of the boomers. Work out the rate of return on maximum CPP contributions versus maximum benefit, considering 30 years of paying in and 30 years of withdrawls (assuming long life) – it’s terrible (like <3% terrible), because it’s a scam.
Fourth, while the advent of the CPPIB is an improvement over the true Ponzi scheme it was until the early 2000′s, I do not trust the governments of the future to keep their hands off it. As the CPPIB fund becomes a massive sovereign wealth fund, many politicians will want to use it’s financial power to invest in ill-advised pet projects.
So, Mr. Flaherty – don’t do it. Doubling the allowable RRSP contribution limits would be better.
3 comments
The_Iceman says:
10 June 2010 at 22:53 (UTC -7 )
The problem is that the CPP is likely to crash once all the boomers are collecting their pensions. We can debate whether or not CPP should even exist, but if that’s not an option at some point we are going to have to put more money in that program. I’m not excited about raising any taxes, but I would say that a responsible finance minister should ensure the sustainability of existing institutions.
Taliesyn says:
11 June 2010 at 9:11 (UTC -7 )
The sustainability of existing institutions is not necessarily a good thing. The Spanish Inquisition anyone? The Eugenics Board?
If the CPP is a bad deal, perhaps we should kill it. Politically difficult, yes. But should it be off the table for discussion? I don’t think so.
Cynical Bard says:
11 June 2010 at 9:18 (UTC -7 )
If the CPP is in danger of crashing when more seniors begin collecting their pensions, that is good proof of how well, or poorly, managed and funded it has been over the past 30 plus years.
The first part of any discussion about expanding it should be a proper comparison of how well that fund has done versus a basket of mutual funds, or simply buying the TSX index, or a basket of mortgage funds.
To suggest that the is no better manager of money than the government, without any proof offered, is a bad joke on the taxpayers.