Don’t Double Down on the CPP: Expansion Advocates Understate the Plan’s Risks

Advocates of an expanded Canada Pension Plan as a response to Canadian concerns about low incomes in retirement too often promote it as a plan with guaranteed benefits that are fully funded. The CPP looks like a defined-benefit plan, but it is not. Most of its benefits are targets contingent on its financial condition, and past and upcoming revisions – including lower pensions for those taking them up before age 65 in both the CPP and its sister Quebec Pension Plan – show that governments can change the targets. Adverse economics and demographics, combined with disappointing investment returns, are now forcing the Quebec Pension Plan to trim benefits and raise contributions. The same has happened to the CPP, and too few Canadians realize it is likely to happen again. The CPP is a gamble, not a guarantee: expanding the plan would raise the stakes on a bet most Canadians do not know they have made.