The Old Man and the CPP

I plan to retire sometime over the next ten years. I say, ‘retire’. Will I be able to? What does it mean? Will I be able to leave my career and have enough saved to feel comfortable in my golden years? I worry about such things. Apparently I should be happy since I have just found out the Canadian Government is also worried on my behalf and will make sure that after a lifetime of employment I will be able to truly  rest at 65. I know the government is worried on my behalf since it has just announced it will increase the Canada Pension Plan to cover up to 33% of my pre-retirement income rather than the initial 25% I had expected. I ought to feel grateful. Not many countries in the world care this much for their citizens, for those like me who will retire in 10 years.

Except, well, as we often hear, the devil is in the details. And like others, I would rather not get into the details, just collect the 33% instead of the 25% I had been expecting. But having lost faith long ago in many of the promises politicians make just to get themselves re-elected, I have found myself always having to get into the weeds when a new plan is announced.

So how will this work, really? Well, it’s complicated. Apparently there is a phase-in of premiums of an extra 1% I will be forced to pay between 2019 and 2023 (my employer will be taxed another 1%, increasing the cost of my labour without increasing my productivity). But it gets worse. Between 2024 and 2025 there will be an additional 4% demanded for many of those about to retire and their employers whose income is above the YMPE but below a NUEL (don’t even ask). You may wish to ask your provincial premier and federal MP to explain this to you as I am sure they would not sign off on this unless they understood its benefits and could explain them better than I. But from a selfish point of view, all this extra would seem a small price to pay (I hope my employer feels the same way) for the windfall I will get when I retire. Or so the government seems to want me to believe. But how will it work really?

Alas, the government has been up to its old tricks. Bait and switch. Promise me more for little or nothing to get buy-in, then when payout time comes due, tell me, sorry, you misunderstood what had really been promised all along.

For someone like me who will retire in 10 years, I have found the caring government actually does not much care for me at all. The windfall will never happen. The actual payout will be less than I would have received had I been allowed to invest the extra premiums on my own. Apparently it will take about 40 years of paying increased premiums before the full benefit promised by the caring government kicks in. I will be effectively taxed extra between 2019 and 2025 to help pay for someone else’s retirement, at some time in the unforeseeable future.

For those I am about to help out, those who will collect the maximum on the full faith and credit of a caring government in 40 years’ time, good luck. If the current promises made are as good as government promises past, just remember the federal income tax was promised as a temporary measure, not 40 years ago, but almost a hundred. Maybe under the new CPP plan, if history is any guide, you will be able to collect the full amount being promised. But it will probably take you another 100 years, not 40, to see the full benefit. And then only if the government keeps its word.

If you’re like me and you prefer to manage your own retirement, please sign the petition to stop CPP in its tracks.

This is my perspective from someone close to retirement. Here are a couple of great articles from a Gen X and millennial perspective.

Nathan Mean completed his undergrad and law degrees at Dalhousie University. He loves to help CFIB counsellors ensure small businesses succeed in his role as Director, Business Resources at the Canadian Federation of Independent Business. Over the course of his 16 years at CFIB, Nathan has helped hundreds of members overcome unfathomable regulations and government-imposed expenses, solve issues that relate to day-to-day operations and, most recently, hosted webinars for CFIB members and the small business community on important business issues.