Wednesday, 9 December 2009

A Good Idea - Liberals Propose Option for Individuals to Invest More in CPP

The Liberal party has proposed something that makes sense to me - an option for individuals to invest extra savings for their pension with the CPP. I could hardly disagree since I said more or less the same thing last year at the end of my review of the investing lessons of the CPPIB. Not only does the CPPIB seem to have been doing a fine job, it pursues worthwhile strategies no individual investor could hope to do on his/her own.


Michael James said...

To decide whether to contribute extra to my CPP, I'd need to understand how CPP payments are calculated. I've struck out in trying to find this information, even with Wikipedia. I've learned that the payout is adjusted for inflation, that it is designed to give 25% of average annual pensionable earnings, and that it gets adjusted up or down if you start payments after or before age 65. But, I haven't found any place that actually describes the calculation for the payment amount. I understand that the formula is probably too complex for most people to bother with, but surely it isn't so complex that it can't be described for those who want to know. Have you ever seen such a description?

Michael James said...

Oops, forgot to click box to get emailed followups. Done.

CanadianInvestor said...

Michael, actually I'd just like it if somehow it could work like a mutual fund where I could buy units, instead of extra CPP contributions. It's the investment performance I like, not necessarily the CPP contribution and payout formula. Maybe a separate fund that CPPIB manages exactly the same as the CPP investment portfolio?

ghostryder said...

Not sure what the point is to this other than to try and score political brownie points.

People who can't be bothered to contribute to their RRSP's & TFSA's are going to voluntarily contribute more to CPP?

I suppose it is a benign option. Those that choose to contribute additionally can, if you don't so what.

CanadianInvestor said...

ghostr, political brownie points, hmm, maybe they could appoint me to the board of the CPPIB ... of course, that depends on the Liberals getting back into power and is that likely to happen anytime soon?

The government could force people to save more by bumping up CPP rates and benefits.

To make optional savings rates go up, a simpler, more flexible program helps I believe. The TFSA is better that way than the RRSP and TFSA has been very successful in its first year in terms of the number of people taking advantage. But it is true, as you say, that a major challenge is the behavioural one of getting people to "getaroundtoit". Maybe behavioural fixes a la "nudgers" like Richard Thaler / Matt Sunstein would help?

Meantime, I'd be happy to put some of my own money in a CPP Power Fund.

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