CPP’s pension

Young people
‘pay more than
they take out

Michael A. Walker
Contributing Columnist

I was asked recently to
testify to the House of
Commons Finance
Committee regarding
the proposed changes to
the Canada Pension
Plan.

I generally supperted-<., «
changes as being a move i
the right direction. | also sug-
gested that the changes didn’t
go far enough.

But first, what is the prob-
lem for which the changes are
a solution?

In 1964, when the CPP
was designed, the conctribu-
tion rate was predicted to rise
gradually so that the total
employer and empioyee con-
tribution would top out at
5.11% in 2025, .

When the chief actuary for
Canada did his 1994 calcula-
tions, he discovered that
because of errors in predic-
tions about popvcation devel-
opments, economic growth
and other factors, the rate in
2025 would have-to ve
13.49%, So, instead of look-
ing at 5.11% contributions in
2025 we were looking at a
tremendous esca!.ation, so that

ay would be
paying three tin:e« the cost for
the same benefits under the
CPP as their parents.

Another way of looking at
this is that those who arc
retired now-and who will
retire before 2012 are going
to get more out of the CPP
than they paid. Those born

after 1947 are going to pay in
more than they receive, and
the later they are born the
more they lose.

This is the so-called inter-
generational transter in the
CPP. Tt was never intended to
be a factor. The fact thar it is
built inta the CPP is a mis-
take. The result of the mistake
is that if there are no changes
to the plan, a child Gorn in
1995, say, will pay into the
plan 2.6 times the amount
they will receive, including all
interest. Or will they?

Will the next generation of

workers really be willing to
continue to pay into such an
unfair system?) This is the
central issue about the future
reliability of the CPP. It isa
political rather than an eco-
nomic issue.

The partial solution sug-
gested in the current changes
is to get those who will retire
before 2012 to pay a larger
share of their own pensions.
That’s what is going to be
accomplished by the hike in
rates to 9.9% in seven years.
Because this is a faster rate of
increase than is required to
pay pensions there will be a
surplus, and that is going to
be invested to cover part of
the pensions that will have ro
be paid in the future.

The resule is that those
born from 1980 on will only
pay nvice as much into the
plan as they will receive,
rather than 2.6 times. So,
there will be a smaller subsidy
to those born before 1947
paid by those korn after.

I supported the CPP
changes because it cuts this
subsidy. But the best solution
would be to recognize that
we made a mistake back in
1964.

We would then realize that
the only fair way to deal with

Wednesday, December 3, 1997 — North Shore News — 43
e

north shore news

RUSINESS

this mistake, which we who
were born before 1947 nade,
is to finance the resuiting sub-
sidy from general government
revenues and not on the backs
only of workers and their
entplovers

The result would be, say,
an increase in the income tax
rate and a reduction in the
CPP contribution rate, The
result would be that CPP
contributions would pay only
tor a worker's own pension,
not for that of her parents or
grandparents.

The job-killing effects of
the CPP payroll rax would be
reduced. Finally, and most
importantly, there would be a
possibility to give workers the
choice to have their compul-
sory CPP contributions kept
in a government fund, or pri-
vatized.

— Michael Walker is execn-
tive dircetor of The Fraser
fasticnte in Vancouver, BC.

Selah $7 gt

” Un ite d ect Ait. ay
he Hunared Thousand »

News photo Cindy Goodman

Big bucks

BC Rail employees recently donated a $100.000 cheque to the United Way. Pictured
| are fundraising representatives from BCR, United Way and Cruise Holidays.

Vo)
Poa ed ron Pr |

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