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Data expert proposes boosting CPP payouts, given lack of pensions in the workplace

Writing in the Journal Pioneer, columnist Don Mills reveals a surprising fact – the current maximum payout for the CPP is well below the poverty level.

Mills begins his op-ed piece by noting that increased life expectancy leads to a question – are Prince Edward Islanders “financially prepared for retirement?”

He then observes that only 34 per cent of the workforce in Canada “has employer-sponsored pensions,” with that number dropping to 30 per cent in his native PEI.

“The rest of Canadians must save for retirement or depend on the Canada Pension Plan (CPP) and/or Old Age Security (OAS). While CPP is healthy in terms of sustainability at current payouts, it’s only available to those who have contributed to the plan – and maxes out at $1,100 per month. Without other resources, those relying on CPP and/or OAS are facing a life of poverty or a significantly diminished standard of living,” writes Mills.

He notes that the general “rule of thumb” for retirement is that you should have income that equals 70 per cent of what you made at work. “If a household’s income leading up to retirement was $100,000 per year with two incomes, $70,000 is needed after retirement to maintain current standards,” he explains in the piece. But given the relatively modest payout of CPP, Mills notes that “a two-income household with no other retirement savings would receive less than $30,000 from CPP and have a $40,000 shortfall to maintain previous standards of living.”

He notes that while defined benefit pension plans are still common in the public sector – the type of plan that provides “guaranteed payouts that increase with inflation,” only large private sector companies have such plans. The rest, he says, have defined contribution plans which don’t guarantee a set payout (the amount contributed is what is defined, not the payout), if they have any plan at all.

“Few small- or medium-sized companies have the capacity to fund pension plans for employees – meaning only 25 per cent of those who work in the private sector have a pension. The percentage with a defined benefit (inflation protected) plan has decreased from 61 per cent to 40 per cent in the past 10 years,” he explains.

Mills says that the government needs to take steps to ensure that those without indexed DB plans also get some income guarantees in retirement.

“The federal government must commit to substantially increasing CPP payouts by committing tax revenue to this purpose, the same way taxpayers help fund public sector pensions. This includes increasing the contributions by those working and from the federal government by allocating more taxpayer money for that purpose to the CPP and OAS. At minimum, the government should guarantee a retirement income at least above the poverty line in Canada – currently $20k for an individual and $28k for a couple in P.E.I., where 10 per cent of residents currently live below the poverty line, according to the latest census,” he writes.

Mills’ column underscores the little-known fact that benefits from CPP and OAS are modest – and that if that’s all you have to live on when you retire, it is going to be tough sledding. There is also the Guaranteed Income Supplement for low-income earners which helps those without savings or workplace pensions.

Mills is correct – more and more people lack a workplace pension and must depend on CPP and OAS, which were never really designed to be the main source of retirement income, but were considered supplemental income. When these programs were launched in the 1960s, most workplaces offered pensions; as Mills notes, nearly two-thirds of workers don’t have such coverage today. This is a problem that could lead to future senior poverty.

If you don’t have a workplace pension, or want to supplement it on your own, an excellent do-it-yourself product is available through the Saskatchewan Pension Plan. You decide how much you want to contribute, and they’ll invest it for you – efficiently and at a low cost – so that your savings grow as you approach retirement. Then, they have a wide array of options for you to convert those savings into a lifetime income stream.

Written by Martin Biefer
	Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22