Are the Hard Working Individuals and Couples Being Shortchanged by the Canada Pension Plan?

Saturday, 22 July 2017

Back in the June 21 issue of the Globe and Mail (p.B11),Frederick Vettese, the Chief Actuary of Morneau Shepell, and author of a book titled The Essential Retirement Guide: A Contrarian’s Perspective, published an article titled Is the Canada Pension Plan Fair?

Much to my surprise, the article does not appear to have had much impact on the readership; no one, including the politicians, thought of making a public issue of it.

I suppose, the Conservatives and the NDP preoccupied with leadership issues were not paying much attention to opinion pieces that had no bearing on the elections.

Vettese addresses his question by examining the way two of the CPP rules operate.

1. The first of these rules concerns the relationship between the lengths of the contributory period to the amount of pension received upon retirement.

The contributory period is ages 18 to 65.During this period one is required to contribute to CPP with respect the employment earnings.

In order to receive the maximum CPP pension one is required to contribute the prescribed maximum premiums for 39 years (and less if one stays home to raise children).

Vettese illustrates to the relationship between the contributions and the amount of pension earned upon retirement as follows:

A starts to work at 18 and works until his retirement at the age of 65 for a total of 47 years and pays the prescribed maximum premiums. Upon retirement, A receives the maximum monthly CPP pension of      $1,114. 00

B starts to work at 26 and retires at 65. Having worked the 39 years and paid the maximum premiums, he receives the same maximum monthly pension as A.

This raises two questions:

First, why should A be forced /required to pay about $18,000 more in today’s dollars and $36,000 more, if he was self- employed, than B, in order to get the same maximum amount?

Second, on what ground(s) can this inequitable treatment justified, having regard to the fact that private and public pensions based on the number of years of employment (up to a specified maximum number of years) multiplied by a specific factor such as x% per year multiplied by the number  of years of service do not produce  a similar discriminatory treatment?

          2. The second rule concerns the draconian cap on the amount payable under surviving-spouse benefit.

Under the CPP, a surviving spouse who is 65 and over gets a survivor benefit of 60% of the deceased contributor’s pension.

However, where the survivor has also been a contributor to the CPP, and is entitled to a pension independently of the deceased spouse, the CPP limits the total amount of pension payable to the survivor to the maximum payable to an individual. 

Hence, a surviving spouse already in receipt of the maximum CPP pension will be disentitled to receive the surviving-spouse benefit.

Clearly, this discriminatory highly punitive treatment of the surviving spouse is unconscionable. In both in the private and in the public sector, a pension plan that provides for a surviving spouse benefit, the fact that both husband and wife  having worked for the same employer are each entitled to a pension in their own right  would not deprive deprived them of benefit in question.

There may well be one or more overriding sound considerations to justify each of these two rules.

Nevertheless, surely the government obsessed with, in the words of our Prime Minister “the well-being of the middle-class and of those working hard to join it”, surely owes the CPP contributors to provide a sound justification for these two rules. And indeed while at it, of all the other discriminatory rules hidden in the bowels of the CPP’s regulatory scheme.  

May be, just maybe, the Conservatives will get off their high horses  obsessed with  the Khadr settlement and move on to  this matter that seems to offer the prospects of a positive outcome  for the benefit of all Canadians.