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Are the Winds of Change Blowing Across Canada’s Pension Plan?

by John Brian Shannon | June 2, 2016

Canada Flag made with red maple leaves on snow1

Canada Flag made with red maple leaves on snow.

The Canada Pension Plan (CPP) is at a unique point in its history. Mandatory for all Canadians, the CPP allows working Canadians to retire with a minimum income in addition to their company pensions, life savings and real estate equity.

The plan itself is in good financial shape due to sound institutional investing over many decades and it presently earns 1.1% more than it needs in order to meet all foreseen liabilities.

But that could change.

A severe recession could drive the plan into negative territory, necessitating a rise in the premiums that workers and employers pay — without making any changes to the benefits that retirees receive from the Canadian Pension Plan.

Alternatively, during a severe recession the government could simply lower the monthly benefit payment by a fractional amount in order to keep the CPP fully-funded — without making any changes to the premiums that workers and employers pay to fund the Canadian Pension Plan.

So, with a bit of wind in the sails (but not that much) why are we looking at possible changes to the CPP?

1) There is a minor political suggestion to take advantage of the 1 percent profit the plan presently generates and lower CPP premiums by some fraction. It looks like honest stewardship of public accounts on the part of the government.

However, by reducing worker and employer contributions the plan could soon find itself in jeopardy during an economic downturn and at the worst possible moment for Canadian workers and business it would need to raise premiums to meet future liabilities.

It’s a nice idea and if the investment was generating 10 percent or 20 percent more than its expected future liabilities, it might be worth a look. But it’s not. So let’s file that suggestion until such times as the CPP investment pool is earning outrageous profit and workers demand lower premiums.

2) Another suggestion that has been floated, and that is to slightly increase CPP premiums in order to increase the monthly benefit (the payment) which is paid to Canada’s senior citizens. In such cases, the benefit would increase after a minimum 3-year delay in order to ‘build-up’ enough capital to cover the increased benefit amount.

Which is a tempting idea, actually. The costs of living anywhere, but especially in cities like Vancouver, Toronto and Montreal are skyrocketing, and senior citizens who live on a fixed income might find that an extra $100. per month (for example) can make the difference between eating well and paying for their herbal supplements, walkers, or other health-based assists that may be helping them, or not being able to afford them.

As the cost of living continues to rise over the decades, shouldn’t we at least think about increasing the CPP premiums by 1 percent that workers and employers pay? After all, eventually every one of us will retire and some or much of our retirement income may come from CPP.

Those retirees without company pensions, significant savings or real estate holdings, would really benefit from the extra monthly benefit amount, while those who are financially well-off may reject the idea that they should pay an extra 1 percent towards their CPP payroll deductions during their working years.

It’s an absolute no-brainer for those in the bottom two economic quintiles while those in the top three quintiles may scoff at the suggestion that a (for example) 1 percent premium increase which would result in higher monthly benefit amounts paid to them after their retirement, needs to be legislated into existence.

3) The third suggestion is for provincial pension plans that work in conjunction with CPP, the federal retirement plan. Quebec has its own plan, Ontario has just passed its own plan and other provinces are watching with interest.

Province Passes Ontario Retirement Pension Plan Act – June 1, 2016

Strengthening the retirement income system is critical to the future prosperity of the province. Studies show that many of today’s workers are not saving enough to maintain their standard of living in retirement. Pension coverage is also low for many Ontarians, with only one in four younger workers — aged 25 to 34 — participating in a workplace pension plan. — Province of Ontario | Newsroom

For retired people who have lived in the bottom 2 quintiles for most of their life and may not have a generous company pension, or do not have significant life savings, or do not have valuable real estate holdings that they can liquidate in order to live a fulfilling life, receiving a provincial monthly benefit in addition to Canada’s CPP benefit would dramatically improve their retirement.

It’s not such a big step as some may imagine. Provinces and the federal government charge and collect sales taxes, both levels of government have their own income tax system, and in many ways both the feds and the provinces work together to assure the health and safety of Canadians.

All that needs to be done is to write the necessary legislation (or simply photocopy Ontario’s system) and enact it in each province.

While retirees may not end up receiving two identical monthly benefit payments, even an extra (for example) $500. per month from a provincial pension plan, when coupled to their CPP pension monthly benefit payment, can make all the difference in the world to tomorrows retirees. Especially for seniors whose life partner (and co-payer) has passed away, an extra monthly payment can really make a difference in their lives.

4) Finally, no matter which way it goes with regards to the above points #1, #2, and #3, I hope federal government policymakers take this next suggestion seriously…

During retirement years it is expected that one spouse will pass away before the other — leaving the other to not only grieve, but to also suddenly face a major change in their monthly income.

I respectfully suggest that CPP legislation be changed to ease the suffering of suddenly widowed pensioners by allowing their (deceased) spouse’ normal monthly benefit payments to continue for a full 12 months following the death of their spouse.

That way, the remaining spouse won’t have to face both bereavement and a possible address change due to the sudden drop in income.

Canada could show that courtesy to recently bereaved pensioners now — and it wouldn’t even cost .1 percent — let alone a full 1 percent of the profit that the CPP investment pool presently generates.

We are indeed fortunate to live in this great country, and looking after our senior citizens — the very people who helped to build this great land into what it is today, should always be our first priority.

Let’s always treat our Canadian seniors with the kind consideration they deserve. They’ve earned it.

Recommended Reading:

Bonus Graphic:

Canada Pension Plan (CPP)

Canada Pension Plan (CPP) policymakers must factor-in global trends.


Paddling in Different Directions: Today’s EU

by John Brian Shannon | April 14, 2016

Today’s EU is functioning like 31 people in a small boat, and each one of them is paddling in a different direction and at a different cadence. But when a crisis occurs, they all paddle furiously (towards Greece, for just one example) to deal with the issues there.

Upon arriving in Greece, some deal with the economic problems, some hit the other paddlers over the head with the oars, while others try to paddle the boat away from Greece — and then, united in common cause, they all blame Greece for their trauma.

It’s exactly the way a team functions whenever there is no grand, overriding vision.

And it’s exactly the worst way to operate a political union.

The EU will continue to act this way until someone arrives on the scene with a huge, bold, and all-embracing vision who will lead the masses over the carcasses of the fallen elite. Just as in 1939.

EU member nations in 2016.

EU member nations in 2016. Image courtesy of commons.wikimedia.org

That’s the fate of the 28-member EU, plus the EC, the ECB, and the Eurozone, unless that destiny is superceded by a better vision.

Let us pay our respect to visionaries in this very short, shortlist: There would’ve been no Apple Computer without Steve Jobs. There would’ve been no NASA Moon landing without JFK, there would’ve been no Marshall Plan without General Marshall, and no Ford Motor Company without Henry Ford.

And without a ‘visioneer’ to scope out a grand vision that a vast majority of European Union citizens can enthusiastically embrace, there will be no EU.

Here’s a worthwhile model to consider. One with a proven track record.

Read: The Secret of Norway’s Success

It’s so easy when you know how…

Related Articles:

The Most Profound Metric of All

by John Brian Shannon | Apr 3, 2016

I’m glad we live in a world where more than one country has a Minister of State for Happiness.

Ohood bint Khalfan Al Roumi, Minister of State for Happiness in the United Arab Emirates.

Ohood Al Roumi, Minister of State for Happiness in the United Arab Emirates.

In contrast, the absence of a reasonable level of happiness means that all of our striving would ultimately prove to be in vain. It would be an unsustainable world where people spend their entire lives ‘fighting the good fight’ only to receive little or no reward at retirement and at points along the way towards retirement.

Why Hope for happiness? = Why Try? + Why Work?

Workers in the former Soviet Union used a phrase to illustrate this point; “As long as they pretend to pay us, we will pretend to work.”

And so, due to a lack of national happiness (caused by economic hardship) eventually the whole corporation formerly known as the USSR, collapsed.

The example of the former Soviet Union should serve as a warning to leaders of every country that the final and most profound metric for human beings is happiness — everything from worker productivity, to corporate profit, to the ambient level of law and order throughout a given society, to the success of our entire civilization — all of this hinges on the happiness metric.

So far, only Bhutan with their decades-old Gross National Happiness (GNH) index, the UAE, Venezuela, and the United Nations have given this profound societal element any serious consideration.

Read: The Story of Gross National Happiness

Very recently, the state of Madhya Pradesh announced that it will be the first state in India to create a Department of Happiness.

Read: Madhya Pradesh creates a Department of Happiness

We employ ‘reverse engineering’ to our study of (all states of) matter in the universe, to the study of time, and to the study of the various lifeforms on this planet — shouldn’t it follow that we use reverse engineering to study and measure the societies and cultures within our civilization?

By ‘working it back’ regardless of the (pro tempore) results, Bhutan, the UAE, Venezuela, and the Indian state of Madhya Pradesh gain a huge and ongoing advantage by exploiting the data from the most profound human metric of all — Happiness!

Isn’t it interesting that the ‘Happiest Nations’ also lead the world in so many categories, including productivity, per capita income, the arts and sciences, and quality of life.

Bonus Graphic:

Social Progress Index 2015

Social Progress Index 2015. Click on the image to visit the Social Progress Imperative website.