Thursday 21 February 2013

A Tipping Point in the CPP Expansion Debate?

Surprise and initial disbelief was my reaction upon reading the headline "Canadians should be allowed to contribute more to CPP to ‘reignite a culture of savings,’ urges CIBC chief" yesterday in the Financial Post. But it's true - the head of one of Canada's banks has come out in support of an idea that has been portrayed by some as the stupid notion of an ill-advised anti-business left-wing labour movement but which actually makes a lot of sense (as I have blogged about comparing CPP to RRSPs and the like, in relation to retirees' needs, comparing to the proposed PRPPs). It is quite significant when a major bank head publicly expresses support. After all the banks make a lot of profit from RRSPs, mutual funds and would do so from PRPPs that are the private sector alternative to CPP. So kudos to CIBC and CEO Gerry McCaughey for saying something that may not be in their narrow best interest but which is good for Canada and average Canadians.

A fine but critical point of potential disagreement with what McCaughey said is that the voluntary participation in the expanded CPP should be made the default option i.e. people should be automatically included though they could opt out if they deliberately chose to leave it. That way, just about everyone would be in it. To offer participation as a voluntary opt in, where you have to take action to join, would be next to useless as too few people would join. People need a Nudge as Thaler and Sunstein tell us in the eponymous book.

Disclosure: I own bank shares directly and in ETFs (and so does just about every Canadian in their equity mutual funds or ETFs) and I will be getting CPP, though not any expanded benefits if it is expanded on a pre-funded basis as I believe it should be done.


Michael James said...

I was surprised by these comments as well. I liked your remark about pre-funded benefits. When I talk to current retirees, they often think that expanding CPP will give them more money, which likely won't be true.

CanadianInvestor said...

Hi MJ, I don't know either how current retirees could imagine they should expect to get lots of benefits they have not saved for or earned. It sure wouldn't be fair to the next generation, your kids and mine, who would have to pay for such extras.

Frugal Guy with Balance said...

I am surprised at the comments as well.

I feel we should leave the CPP plan alone!

Let us educate are kids while in school that we need to put something away for that rainy day.

Education needs to part of the solution!

CanadianInvestor said...

Frugal, I agree that "savings culture" needs to be resuscitated. Life would be fine for those who take its message to heart. The issue is those who don't. Is it fair for the savers to be required later to pay for the non-savers? I think we need a new 21st century version of the three little pigs story ( - not the one where the two unwise pigs get eaten, nor the one where they end up living in the wise pig's house. We need expanded CPP (pig financial house building codes) and wolf-control (financial system reform).

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