How much is the Canada Pension Plan worth to Canadians? It depends…
Tammy Schirle, Professor in the Department of Economics, has spent a large part of the past 20 years analyzing Canada’s retirement income system. The federal government’s Canada Pension Plan (CPP) contributions and benefits tend to be more complicated than most people realize, as various provisions designed to insure Canadians against uncertainty over their lifetime effectively result in some Canadians getting a bit more out of the CPP than others.
In her recent article “Federal and Provincial Income Support Programs for Seniors in Canada”, she explores these provisions by presenting what young people today might expect to pay into CPP over their lifetime and what they can expect to get as benefits in retirement.
From this article, one could imagine the life of the average university-educated woman in Alberta. When working, she will expect her earnings to be higher than most other women across Canada and she’ll make the maximum contributions to the Canada Pension Plan. But she expects to spend several years not working – as Alberta women have relatively high unemployment rates and longer spells of unemployment compared to women in most other provinces. She also expects to have more children, which also takes her away from paid work. CPP provisions will account for all this when calculating benefits, so that (effectively) some of her benefits are being covered by the contributions of other Canadians that didn’t have as much time away from work. Add to this the fact that Alberta women have higher-than-average life expectancy, so that she expects to receive CPP benefits for more years than many Canadians do. Effectively, her longer-lifespan’s worth of benefits are being subsidized by the contributions of people who might not live as long. For this woman, CPP is looking like a relatively good deal. This is indicated by the relatively high ratio of CPP lifetime benefits to contributions for Alberta women shown in figure 7.
With the support of Laurier’s Centre for Economic Research and Policy Analysis (LCERPA) and funding from the Canadian Institute of Health Research, Professor Schirle was able to involve one graduate and two undergraduate students from Laurier’s economics programs as research assistants on the project. They assisted with the data analysis and explored programs that the provinces offer to support low-income seniors. A key finding was that while many programs successfully reduce senior poverty rates, program design makes it difficult for seniors trying to work to get ahead. For example, in Ontario some seniors who work to earn an extra $10 will see their federal Guaranteed Income Supplement benefits reduced by $5, their provincial Guaranteed Annual Income System (GAINS) benefits reduced by $5, and may see their access to other supports reduced, making them worse off than they were before.
This research demonstrates that Canada’s “complex web of policies” while successful in reducing poverty among seniors can also result in significant differences in lifetime benefits and contributions depending on work history, gender, level of education, life expectancy, and province of residence. While it is challenging to design, and evaluate, policies that ensure Canadians can enjoy their retirement years, Schirle concludes that there is still scope to redesign and improve these policies, particularly for seniors who are able and wish to continue to work during their retirement years.