Increasing the room allowed for Canada Pension Plan (CPP) contributions could help middle- to higher-income earners, according to a report.
A report published by The School of Public Policy, University of Calgary, examined four potential options for expanding CPP: doubling the current replacement rate to 50%, a plan recently proposed by Prince Edward Island, the “wedge” proposal offered by economist Michael Wolfson and doubling the maximum pensionable earnings room allowed for CPP contributions.
The authors, Kevin Milligan and Tammy Schirle, argue that the Wolfson wedge and the P.E.I. plan do a good job of targeting the expansion where it might be needed most: middle- to higher-income earners.
However, their analysis indicates that the simpler reform of doubling the year’s maximum pensionable earnings (YMPE) to $102,200 would perform very similarly to the P.E.I. plan but would do so without the complexity of three separate CPP replacement-rate ranges.
The report notes that government can take either a hands-on or hands-off approach to helping this segment of the population save for retirement. If hands on is the chosen course of action, numerous options are at the government’s disposal. But the question remains whether an individual who averages a lifetime yearly income of $100,000 should be getting a boost in CPP benefits.
“Whether leaving relatively advantaged workers to suffer the consequences of their own investment decisions, or whether we require government intervention to protect them with an expanded CPP, hinges very much on just how paternalistic we expect our policy-makers to be,” the authors write.
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