How much would you get?

Canadians may not understand the distinction between the CPP fund and the general government account which, in Fall 2021, is $1.2 trillion in debt. The CPP fund solely belongs to individual Canadians. Any government that dared to extract from the CPP fund to pay down their debt would create an uproar and risk losing millions of votes.

For most of its 20 million members, the CPP is not trivial. If you are in your twenties today, by age 65, your contributions may total as much as $250,000.

The CPP is very aware of your annual contributions, matched by your employer, to the fund. The CPP is also aware of any pension payments you have received if you are a pensioner.

Your contributions do not sit idle. They are invested by CPP Investments. Because the fund is now roughly double what was specified by our Chief Actuary, your personal CPP account has twice as much money in it than is needed to supply your pension.

What is the fairest way to determine your share of the surplus? It relates to how much you had contributed to the CPP when CPP Investments started on their run of outstanding investment success in 2010. This means a 35-year-old in 2010 would deserve roughly a $5,000 surplus payment today. However, a 25-year-old in 2021, has probably not contributed much to the CPP yet and hence would not deserve much, perhaps $1,000.

The CPP is a pay-as-you-go pension plan. This means only some of your contributions were invested with the remainder used to pay pensioners. Consider older Canadians, for example, in 2010, when the fund was in perfect balance. They may have contributed $100,000 by 2010 but only $25,000 was invested and $75,000 was used to pay pensioners. This $25,000, achieving CPP Investments’ 11.6% investment return is worth $93,000 today. At the Chief Actuary’s specified 6% return, it would only be worth $50,000 today. This means some older Canadians’ contributions have grown to $43,000 more than is needed to fund their pension. A cautious surplus distribution might give them half of $43,000, $21,500.

The size of your payment also relates to the size of your contributions. For example, assume you and a friend are the same age. Every year, you earned twice as much as him and thus contributed twice as much as him to the CPP. You would then receive twice the CPP pension at age 65 and twice the eventual surplus payment.

With the CPP, the government has forced most of us to contribute 10% of our lifetime earnings to the CPP. In return, we expect our CPP to be treated like any other pension fund – a surplus belongs solely to contributors and pensioners and, when it is 25% above target, it must be distributed. The CPP’s surplus is now, arguably, 464%.

The goal of all pension fund managers is generational equity or equal treatment for all members of the plan. Even before the CPP’s surplus accumulated, the CPP was failing miserably at generational equity. Pensioners in their eighties are now receiving five times what they contributed while all Canadians under 70 are scheduled to receive 2-3 times what they contributed. A surplus distribution could help rectify this unfairness.

There is no telling how our Chief Actuary might allocate a $170 billion surplus payment. This is yet another reason we need a CPP Board of Governors, with young, middle-aged, and older members of the CPP as members.

There is a much more serious failure to address generational equity. There are two million CPP pensioners who now live near the poverty line of roughly $21,000 per year. Many are now owed a surplus payment approximating $10,000. It could likely multiply their income remaining after rent and day-to-day expenses by ten. However, roughly 50,000 are dying every year without ever receiving a penny of their deserved surplus payment.

Numerous studies show increased income for low-income seniors will lead to a longer life and a higher quality of life – more travel, golf, tennis, visits to grandchildren, dining out, a car, etc. Tragically, our Chief Actuary, to protect his at-risk industry, is ignoring this catastrophe and national disgrace.

There is another tragedy. If low-income seniors are given a CPP surplus payment, they will only net roughly 35% of it. If, for example, they are sent a cheque for $10,000, their GIS payment next year, as much as $11,000, will decrease by $6,500 because of the GIS clawback. After being forced to contribute as much as 10% of their lifetime earnings to the CPP, after deserving $10,000 because of investment success, our government may give a low-income senior much less than all other Canadians. All other Canadians will pay a tax rate much lower than 65% on their deserved CPP surplus payment.

Prime Minister Trudeau has stated he wants to “improve seniors’ quality of life and help them retire in dignity”. By suspiciously ignoring the CPP’s gigantic surplus, he is failing us.