For all it’s worth, I have already given the recent Canada Pension Plan enhancement a passing grade. As I noted in our firm’s July report on the CPP, “a larger enhancement would have been strongly opposed by businesses while a smaller enhancement might have led to the balkanization of Canada’s retirement income system.”

It might, therefore, come as a surprise that the CPP enhancement seems to do so little to ensure that future generations have an appropriate level of retirement income. That’s the startling finding of an ongoing research project that received the support of the Society of Actuaries, the Canadian Institute of Actuaries and Morneau Shepell. We also used the expertise of Bonnie-Jeanne MacDonald, an actuary and academic researcher in Halifax, to revive LifePaths, a sophisticated simulation model that was the brainchild of Statistics Canada.

With this simulation model, MacDonald projected the retirement income of Canadians who would be retiring after the CPP enhancement was fully phased in, which won’t happen until 2070. The simulation showed that without the CPP enhancement, just 33 per cent of middle-income Canadians would retire with income in the ideal range.* With the enhancement, that percentage barely budges; it goes from 33 per cent to 35 per cent. The other nearly two-thirds of the middle class will still be outside the ideal range, retiring with either too little or too much pension. How can that be?

Read: Despite complexities, expanded CPP the right call

There are at least three reasons for this counter-intuitive finding. First, the government will claw back some of the enhanced CPP pension in the form of smaller old-age security and guaranteed income supplement benefits.

Second, the CPP enhancement will push some people out of the ideal range and into the realm of having an excessive pension. What counts as excessive? In the study, we defined it as having sufficient income to improve one’s living standard in retirement by at least 15 per cent. We did assume that some employers would reduce benefits under their workplace pension plans to offset the bigger CPP benefit, but not everyone will do this, nor will they reduce workplace plan benefits dollar for dollar. Many plan sponsors will take the path of least resistance, which is to do nothing. As a result, most participants in workplace plans are likely to end up with bigger pensions (from workplace plans plus the enhanced CPP).

Read: How can employers prepare for the CPP expansion?

The third reason is that the CPP enhancement isn’t that big. You wouldn’t know it from the complaints from small businesses about the extra payroll cost, but we shouldn’t have expected that an extra percentage point of contribution from employers and employees would change the world.

Is the CPP enhancement still worthy of a passing grade? The answer is still yes. If the OAS pension continues to decline in real terms, as expected, we’ll be happy we have a bigger CPP. In addition, the vast hordes of private sector employees without workplace plans will be a little better off in retirement than they would be otherwise (see chart below).

As for employees in very generous workplace plans who end up with excessive benefits, we can’t blame the CPP enhancement if some plan sponsors choose not to trim back the promises under those plans to a reasonable level.

So will the provinces go back to the drawing board? This is highly unlikely for quite a while since we’re all suffering from pension reform fatigue. I would give it 10 years before we take another look at the issue of pension adequacy. By then, we might also factor in how rising retirement ages affect the result.

The first part of our report on the CPP, which detailed the history of the CPP, is available here. The second part, including details on the above analysis, will be available in early September.

Read: CPP expansion will do little to boost rate of return: report

*In our study, we assumed the ideal level of retirement income would produce the same disposable income that a person had on average in the 15-year period before retirement. To estimate net-replacement ratios, we reduced gross income by income tax, payroll deductions, retirement savings, mortgage payments and child costs.


Copyright © 2021 Transcontinental Media G.P. Originally published on

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Jim Cochrane:

Fred good article but I disagree with your conclusion. Formulaic evaluations of whether the CPP will appropriately enhance retirement for future retirees negect the human condition and ability to appreciate and adapt to changing circumstances.
Over 50% of future retirees will receive substatially less than the maximum benefit for a multitude of reasons and yet will still adapt to the circumstances and appreciate an extra 100 a month due to.
1 Extensive periods of no or little employment exceeding the carve out, and
2 sharing their retirement income with one or more previous spouses, and
3 Retiring early due to unemployment, or disability and, other circumstances not covered by CPP

These have occurred at significant rates in todays retirees and they are coping with it magnificently…Of course many of them lived through or are intimately familiar with the Great Depression and its lessons.

The Conclusions drawn from Government or Institutional research is often influenced by for example, your expectations to continue a lifestyle with little financial change well into retirement, no divorce, no death, no loss of relatively good health. As my son in-law often tells his adult kids ” sh*t happens, Its called life” and one of my Mother inlaws favorite expression was “growing old aint for sissies”. And she survived the London Bombing Blitz.

My gross income 10 years prior to retirement was just into the 6 figures as audited by two exams for discovery of previous wives lawyers. At age 50 everything I owned or even thought I did, went to Wife No 1, along with a five year inome that matches my current retirement income ( but doesnt have near the purchasing power 20 years later. She also received all my RRSP half of my CPP and all my savings . Additionally I had to borrow 30,000 from family as banks are reluctant to lend to assetless applicants who have foolishly remarried, especially ones whose wives have taken everything and then married a senior VP with his bank.
I remarried, divorced, and retired in the next 10 years due to an undiagnosed disability. That was at age 60. My annual retirement income from OAS and CPP and investments and annuities* has never exceeded 35K since then.
All this is to preface my remarks with proof that I have lived the retirement dream you aim for, at less than 20% of my pre retirement income, and quite frankly am enjoying it.
To summarize, penniless and in debt at age 50 with 0 rrsp room I saved enough in the next ten years to retire. I survived the 2007 to 2009 investment debacle and learned how to thrive on a much lower income level. This story is not unique and many of my friends have survived and are thriving on much less. and face much bigger hardships.

The next generation, the consuming baby boomers, do not have that 30s intimate relationship to guide them, but they do have the financial lessons from the first decade of this millenium. As small as that increase is, it looks tantalizingly big next to a 500/mo CPP benefit.

A recent study reported on these pages, claims that spending habits of retirees excluding travel, decline dramattically after 75. Given that they also did at retirement, I think the human condition will survive this so called inappropriate new CPP level of replacement income exceptionally well. More importantly I believe most will be very pleased with the extra income produced from this change.

It took almost 30 years after the 30s depression for confidence to return to the markets, for mortgage interest rates to climb over 5% and for the great consumption and risk taking boom to start a 40 year inflation fueled rise and fall of interest rates.

I don’t expect anything less from this cycle. Why I heard just the other day that business was so confident, that raises this coming year will exceed an average of 2%. That translates to less than 1% for the vast majority of workers on whose backs these record levels of business retained profits and earnings are built.
It is encouraging to see that for the first year in decades, their income will rise almost as fast as inflation and so will their future CPP.

And if those awful wages rise even faster we can bring back those real wage and imaginary price controls. After all Pierre sold them to us in his 1979 and 80 speeches. Surely Justin can do the same.

Friday, August 26 at 3:28 pm | Reply

Joe Nunes:

“It might, therefore, come as a surprise that the CPP enhancement seems to do so little to ensure that future generations have an appropriate level of retirement income. There are at least three reasons for this counter-intuitive finding….”

No surprise here – just another example of a government rushing ahead to do something so they can say they did something and then doing the sound analysis after the fact. So we spend $70 million on the ORPP just to get to an expanded CPP just to learn that we are helping very few people and at the same time are over-helping government workers.

Good work government!

Saturday, August 27 at 1:19 pm | Reply


No surprises here. People who have had the contributory means (i.e. pre-contribution income), the mechanisms (i.e. sponsored pension plans) and the discipline, will come out with higher then needed replacement rates. So what? The contrib. limits aren’t integrated—something most of us have forgotten–so the logical outcome is an intuitively mathematical forgone conclusion. No simulation required.

I think we are missing the forest for the trees. As a result of the CPP enhancements, the eco-demographic map 30 years hence will look like this:
-a significant minority retiring with very high post-employment incomes
– the majority retiring with approximately adequate post-employment incomes
-all contributors to all plans-CPP and sponsored plans-contributing at rates that approximate future dollar accrual values, owing to negligible long range returns
-a sizeable minority of life long unemployed–the lost generation–retiring on a combo. of OAS and income supplements because the work they were able to secure paid them destitution wages equating to very low CPP benefit accruals…. funded at higher contrib. rates.

The CPP enhancement is a needed measure and it will help many, but it also crystallizes the bigger looming crisis, which is that the long term reality that the present value of $1 of future pension income has never been closer to the value of the contrib. required to fund it.

In other words, pension plans have become true deferred income plans. Calling them that will bring acceptance of their costs. Otherwise the entire sponsored plan system will collapse under its own weight, in which case the enhanced-mandatory-CPP will be the only thing saving a millions of people from lives of hardship in their advanced years.

Monday, August 29 at 11:46 am | Reply

JP Laporte:

When I first wrote about creating a Supplemental CPP back in 2004, the idea was to allow those who wanted to take advantage of the architecture of the CPP to invest up to the RRSP limit using the scale and sophistication of the CPP Investment Board. It was not to have a mandatory but very minimal increase to the existing CPP. Of course, those who advise the government ended up discarding true reform with this minor enhancement. You can bring the horse to water, but you can’t force it to drink, as they say…

Friday, December 23 at 8:49 pm | Reply

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