“The UPP recommended by CARP is a mandatory enrolment plan as is the CPP10. To make the idea of additional enforced savings more palatable, some have recommended a single opt-out window either unconditionally or if the employer or employee already has a workplace pension plan. However, if
only a relatively small number of people opt out, then the costs of administering the opt out process could outweigh the advantages. If a large number of people opt out, then the
objective of a large broadly based, and
therefore affordable, plan may be lost.”

I have to completely disagree with the need to make it manditory. I think that what we already have should be enough to supplement retirement. This should not be a persons only source of income.

I should not have to put anymore of my money into the government program. I think that if people want the option to do so, then set it up as an optional program.

In my opinion adding more taxes to business is just going to stop businesses or at least limit how much hiring they do.

Rocky

As explained hereafter, the employee’s portion of contributions for the CPP expansion would be 6.0% rather than 7.7%, which would bring the employee’s portion for the expanded CPP to 8.83%.

Here is the total (employer plus employee) amount of CPP contributions required in 2009 terms for someone with annual employment earnings amounting to $75,000:

1. Existing CPP
9.9% of the difference bwetween $46,300 and $3,500 = $4,237.20 (or 5.65% of $75,000)

2. CPP expansion
(a) 9.9% of $46,300 = $4583.70
(b) 15.4% of the difference between $75,000 and $46,300 = $4,419.8
(c) Total for CPP expansion = $9,003.50 (or 12% of $75,000)

(employee’s portion = 50% of 12% = 6%)

3. Expanded CPP
$4,237.20 + $9,003.50 = $13,240.70 (or 17.65% of $75,000)

(employee’s portion = 50% of 17.65% = 8.83%)

In their discussion paper (http://www1.carp.ca/PDF/Universal%20Pension%20Plan%20FINAL.pdf),CARP thoroughly substantiates that the CPP expansion shall be mandatory. So do I.

I am enjoying your conversation here. But my big question would be in what you are proposing would this CARPesque plan be mandatory or would it be optional.

Thanks,

Rocky

As I far as I know, CARP is also proposing increases in OAS and GIS benefits. Therefore, their global proposal would benefit all Canadians.

Getting back now to the figures.

1. Contribution rate for the existing CPP:

9.9% of the portion of salary between the YBE (constant $3,500) and the YMPE ($46,300 for 2009, $47,200 for 2010)

2. Estimated contribution rate for the proposed full-scale expansion of the CPP:

9.9% of salary up to the YMPE (no YBE)
plus
15.4% of salary from YMPE to the ITA limit ($122,222 for 2009) applying to RPPs

3. Total contribution rate for the fully expanded CPP (existing + expansion):

9.9% of salary from YBE to YMPE
plus
9.9% of salary up to YMPE
plus
15.4% of salary from YMPE to ITA limit

4. This means that the estimated contribution rate for the expanded CPP would not exceed 19.05% of salary, which would be the case if salary equals YMPE. For a salary equal to the ITA limit it would be 16.78% and for a salary equal to $25,000 it would be 18.4%. Therefore, about 18% on average.

Thank you for the clarification and further information. I agree that the CARP discussion paper and other materials on their web site never specifically say that benefits for current retirees should be increased. However, the paper says “The majority of the CARP ActionOnline
subscribers are CARP members between the
ages of 65 and 74,” and it speaks of “providing an adequate level of
retirement security for all Canadians.” I think most CARP members would be shocked to learn that CARP seeks to improve the lot of young Canadians, but not those currently retired or near retirement. I would be pleased if CARP were more specific about what changes they would like to see. Perhaps I will try asking Ms. Eng about this.

Please indulge me while I try to add the various numbers together to make sure I haven’t misunderstood something. The plan you described earlier involved CPP contributions totaling 19.8% of earnings between YBE and the YMPE, and 15.4% from YMPE to ITA limit.

If we add in an immediate increase in CPP payments so that every current and future retiree gets 70% of their CPP average adjusted pensionable earnings, the current cohort would pay about 30% on all earnings between YBE and the ITA limit. This would be reduced somewhere in the vicinity of 25% contributions on all earnings between YBE and the ITA limit if we coordinate OAS and GIS benefits so that the total with CPP hits the 70% of pensionable earnings target. Presumably, this 25% of earnings contribution level would have to go up further if we were to try to base the benefits of all current and future retirees on their actual pre-retirement earnings (below the ITA limit) rather than basing it on their pensionable earnings that were limited to YMPE.

While I can’t foresee a scenario where CPP contribution rates could climb quickly to 25%, 30%, or more on earnings between YBE and the ITA limit, these percentages are lower than I would have guessed.

Thank you for your help.

Michael James

Thanks for pursuing this interesting and important dialogue.

Yes, you are right, the amount of CPP expansion-related benefits payable to an individual would be depend on how long (and how much and some other factors) he/she contributed at the additional expansion-related contribution rates. Still, the expansion would have no effect whatsoever on contributors already in receipt of a CPP retirement pension upon the expansion date.

I might be missing something but I do not see that the CARP’s proposal is advocating an immediate increase in benefits. You might consider contacting Susan Eng (S.ENG@carp.ca) in this respect.

If there were to be an immediate increase in CPP payments so that every current and future retiree gets a total of 70% of their CPP average adjusted pensionable earnings, the active contributors would then have to pay about twice the estimated cost of the CPP expansion (I could explain upon request). However, this doubled cost would apply only to the cohorts of contributors aged between 18 and 65 upon the expansion date. All younger/later cohorts would pay the “regular price”.

If the 70% CPP benefit rate were coordinated with (encompassing) OAS and GIS benefits, then the estimated contribution rates for the CPP expansion (9.9% of salary up to YMPE plus 15.4% of salary from YMPE to ITA limit, i.e. $122,222 for 2009) would be reduced by maybe (very rough approximation) 30% and 10%, respectively, thereby reducing them to about 7% of salary up to YMPE plus 14% of salary from YMPE to ITA.

Thank you for the analysis. What you describe sounds like a sensible plan. To keep the new system operating on an advanced-funding basis, I assume that the benefits an individual receives would be some sort of blended amount based on how long they contributed at the higher rates. In particular, current retirees would not be affected at all. Is that right?

I suspect that the members of CARP would not be happy with the plan you describe (not that I’m agreeing with them). With the first step phased in over 5 years, and the second step phased in over a later period, most baby boomers would miss out on almost all of the increased benefits, and current retirees would get nothing extra. I would be interested in knowing the cost of more radical approaches. For example, many CARP members would assume that CARP is advocating an immediate increase in benefits. See their discussion paper:

http://www1.carp.ca/PDF/Universal%20Pension%20Plan%20FINAL.pdf

Suppose that in addition to the plan you describe, there is an immediate increase in CPP payments so that every current and future retiree gets a total of at least 70% of their pensionable earnings from a combination of CPP+GIS+OAS. Can you comment on how much CPP contribution rates would have to rise to accommodate such a plan?

More radical proposals can be inferred from CARP’s discussion paper. I’m sure that some CARP members would be unhappy with 70% of pensionable earnings and would want 70% of pre-retirement income (up to a new YMPE of $122,222) immediately for all current and future retirees. I’m interested in what this would cost as well to get an idea of what is possible and what isn’t.