Posts Tagged Pension Reform

Reforming Canada’s Pension Plan (CPP)

Recent plans to reform Canada’s Pension needs careful attention. I want to quote a few points made in the news today.

Since being reinvigorated in 1997, the CPP has provided Canadians with a highly efficient and secure way of saving for retirement that has also been affordable for employers and the employees who ultimately benefit.

The Pooled Registered Pension Plans may be an advantage over what is now available to small-and medium-sized firms and people who are self-employed, but they cannot hope to match for efficiency in terms either of low administration fees or spreading risk and maximizing return offered by large company plans or the CPP. (Source: Vancouver Sun)

No way should it be like RRSP. As the Toronto Star article have mentioned:

The CPP investment would yield a pension approximately 80 per cent greater than an investment in RRSPs. This result is consistent with a British study by Mamta Murthi, Michael Orszag and Peter Orszag that in the U.K. individual pension accounts result in a 40 per cent reduction in pensions when compared to a public pension fund.
Another consideration that Robson ignores is that the individual cannot know how much one needs to save for retirement. This is because the individual does not know how long he or she will live. And, in addition, the rate of interest on annuities may be based on government bond rates of say 16 per cent (as in the early 1980s) or just 3 per cent (as is the case now). But the large pension funds like the Canada Pension Fund can estimate quite accurately the life expectancies of the large numbers of its members. Thus the CPP is a far more efficient pension scheme than any individual RRSP or defined-contribution RPPs.


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