Bursting the Bubble on the Canada Pension Plan
Perhaps you have heard that the Ontario Retirement Pension Plan (ORPP) is dead now that an agreement to make changes to the Canada Pension Plan (CPP) has been announced. A recent poll was just published saying more than two-thirds of those polled nationwide — 68 per cent support increasing the CPP.
Since CPP is a payroll deduction, you can’t opt-out and thus Canadians must accept what the government says is required. Politicians would have you believe it’s wonderful but I prefer to do my own research and share with my readers.
One thing that personally annoys me about the CPP is how they no longer provide a written annual statement and if you get one online, it only shows your contributions over the years and your entitlement. Nothing about rate of return. Would you invest more money in something when you didn’t know how well it had performed in the past?
Bursting the Bubble
In May 2016, the Fraser Institute published an analysis on the Rates of Return for the Canada Pension Plan and it’s not a pretty picture!
So what is the return history. There’s good and bad news.
- First the good news! If you were born in 1914 (age 102), your payout rate is 21.4%. I personally don’t know anyone who is 102.
- If you were born in 1940 (age 76) your payout rate is 5.4%…not too shabby.
- Now the bad news! For those born in 1972 (age 44), the rate stands at 2.1% i.e. horrifically bad.
So in summary, the returns are terrible for those still working and contributing but like it or not, the CPP is changing. Do you know what your estimated monthly payment will be? Click here to find out.
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