Canada News Wire
As the most significant change in Canada’s retirement income system in half a century, the announcement of a Canada Pension Plan (CPP) expansion raises questions around whether the proposed changes are for the better.
In response to the announcement, Morneau Shepell’s Chief Actuary, Fred Vettese, has released the report “The Canada Pension Plan: Part 1 – Past and Present,” outlining the history behind the CPP and possible drivers for the proposed enhancement.
In the report, Vettese revisits the circumstances surrounding the birth of the CPP and how the situation has evolved since then.
“There are evident parallels between the resistance that greeted the original CPP implementation and present-day arguments against expansion,” said Fred Vettese, Chief Actuary, Morneau Shepell.
“This provides an opportunity to assess the events that are now unfolding from an historical perspective.”
Seniors approaching retirement advocate for expansion, despite seeing minimal benefits
In the report, Vettese sees seven factors that drove the reform, including pressure from labour groups, shortcomings in Pillar 3 savings, government intent to bring the standard of living for retired workers closer to what they enjoyed while working, and Canada’s falling behind international benchmarks.
Another driver was the growing population of seniors. According to Statistics Canada, the ratio of seniors to the working population has doubled since 1966 from 13.3 per cent to 26.5 per cent, and will rise to 40 per cent within 20 years.
Working population fails to recognize individual responsibility for retirement saving
Even though many of the reasons that were cited for CPP enhancement were questionable, there was still a good case to be made for some enhancement.
Vettese explains the CPP reform announced by the finance ministers is a reasonable and appropriate move towards a public pension system that better meets the needs of the middle class.
“If Canadians were far more comfortable in dealing with financial matters surrounding retirement, then maybe CPP enhancement would not have been necessary,” said Vettese.
“That, however, is not the case and a bigger CPP is the simplest way to mitigate future problems. Once we get used to the bigger CPP, we expect it will become an integral part of Canadian culture.”