Huge benefits to Canadians and Canada

Standard pension protocol demands a surplus distribution when a pension fund has a mere 25% surplus. That is why, as professors at Ryerson University in 2000, my colleagues and I received as much as $20,000 each, when our pension fund had a mere 18% surplus. The CRA demanded this surplus distribution. Please compare Ryerson’s 18% surplus to the CPP’s 464% surplus. A CPP surplus distribution is long overdue.

HOOPP, the Healthcare of Ontario Pension Plan, like CPP Investments, has had outstanding investment success. On January 1, 2018, their Board of Trustees gave all their pensioners a $4,900 annual pension increase. The CPP does not have a Board of Trustees. 

The benefits are huge…and there is no downside

If the surplus is now $257 billion above what our Chief Actuary requires for stability, and growing exponentially, there is near zero risk in conservatively distributing, for example, $170 billion to deserving Canadians. Consider the benefits:

• Fourteen million working Canadians would receive an average of $9,000 each, $126 billion in total.

  Three million pensioners would receive an average of almost $15,000 each, $44 billion in total. Many seniors desperately need this boost in income because the pandemic has exacerbated their situation. Two million low-income seniors now barely exist on roughly $21,000 per year. Two thirds are women. Such a payment could reduce depression, reduce loneliness, increase quality of life, and increase longevity. Instead of being handcuffed at home, they might be able to pay for a cellphone, travel, dine out, buy a car, golf, play tennis, visit grandchildren, etc. Studies state that a higher income will increase seniors’ longevity and improve their quality of life.

• An injection of $170 billion into the hands of Canadians might increase Canada’s sputtering GDP by 6%. Businesses, buffeted by COVID-19, would greatly appreciate this injection. We need such a stimulation. The OECD reported that, from 2020 - 2030, Canada will average an annual GDP increase of only 0.7%. Of all 39 OECD countries, Canada scored lowest on forecasted GDP increase.

• With Canadians having $170 billion more to spend, economists estimate 200,000 more jobs would be created.

• COVID-19 has resulted in Canada’s debt increasing by roughly 50% to $1.1 trillion. Higher taxes will soon be necessary. By distributing $170 billion to Canadians, the government will collect substantial income tax and HST. And the need for social assistance will decrease. Our deficit would be reduced by roughly $50 billion, reducing the need for higher taxes.

• It is very likely that CPP Investments will continue to achieve a 10% return. This means it will annually have a $35 billion surplus to be added to today’s $257 billion surplus. If this annual surplus were distributed annually, roughly 20% of all the benefits described above would occur annually.

• If just 1% of this $170 billion windfall gain were given to charity, donations to charity would increase by roughly 15% or $1.7 billion.

Income inequality could be somewhat solved

Income inequality in Canada is getting much worse, exacerbated by COVID-19 and the growing divide between wealthy homeowners and low-income renters. At age 65, most homeowners will be millionaires while most renters will have no assets and spend their final years living near the poverty line, as one third of today’s seniors now live.

Canada desperately needs a solution to income inequality. The solution should consider the following:

• CPP Investments, with its high profits, low risk, and simplicity is the probably the best investment vehicle in Canada. Any solution to income inequality should take advantage of this national treasure that we all own.

• Wealthy Canadians already have several financial advantages. The Canadian Centre for Policy Alternatives states

  “Out of the 64 tax expenditures, 59 of them provide more benefit to the top 50% of income earners than the bottom half, with the largest share going to the richest 10%.”

  Low-income Canadians need and deserve their own financial advantages.

• If voluntary contributions to CPP Investments were permitted, not enough low-income Canadians would invest, because of a lack of cash, a lack of understanding, and suspicion. The low participation rate of low-income Canadians in the voluntary TFSA confirms this.

• Any solution to income inequality should give all Canadians increased wealth, not just the wealthy, clever or those with available cash. The TFSA, intended for low-income Canadians, has been exploited by the wealthy and substantially ignored by the poor.

• Any solution to income inequality should not have a severe impact on Canada’s powerful financial industry.

There is a solution that meets all of these criteria.

Every Canadian’s mandatory first $1,000 in annual contributions to the CPP, combined with his employer’s matching $1,000, could be directly invested with CPP Investments. For example, a worker grossing $20,000 per year now contributes roughly $1,000 to the CPP, matched by his employer, for a total of $2,000. In Ontario, for example, using the minimum wage of $15 per hour and a 35-hour week, a worker will earn $27,300 per year. This means almost all Canadians (except Quebecers under the QPP) between age 25 and 65 will contribute at least $2,000 per year to the CPP.

The CPP now gives us a 4.3% investment return on our contributions. This means the CPP will give a 25-year-old a CPP pension of $12,000 in 2062, based on just his first $2,000 in contributions.

Conversely, his first $2,000 in contributions every year could be directly invested with CPP Investments’. Using their likely 11% return, a 25-year-old would have $1.4 million in his personal fund by age 65. Moreover, at age 65, presuming an ongoing 11% return, he would have an income stream of $155,000 per year until his passing, when his personal fund would still contain $1.4 million. The graph below illustrates this.

Inflation averaged 1.6% before COVID. If it averaged 1.8% per year for the next 40 years, it would make this $155,000 income stream worth $77,000 in 2022 dollars.

Almost all 25-year-olds would thus have at least a $77,000 CPP pension, in 2022 dollars!

The widening income inequality gap, the homeowner/renter wealth gap and the anxiety Canadians are voicing about retirement concerns could all be substantially reduced.

There is another big benefit. Social assistance costs to older Canadians is forecast to skyrocket. This policy would reduce GIS and OAS social assistance for seniors by billions of dollars per year.

There is little downside. For example, even if CPP Investments only averaged a 2% per year return over 40 years, the 65-year-old would receive exactly the same pension as he is now scheduled to receive from the CPP.

Almost all 45-year-olds would also benefit by age 65. At no additional cost to them, they would have an additional $100,000 available at age 65.

They could either withdraw their additional $100,000 or enjoy a pension increase of roughly $11,000 more per year.

Peace of mind for anxiety-ridden young Canadians

Millions of younger Canadians are feeling left out because they cannot afford to buy a house, which would easily make them millionaires by age 65. They futilely watch as almost all of their pay cheque goes towards paying for day-to-day expenses and skyrocketing rent. For most, saving for retirement is difficult and not happening. Moreover, as an average Canadian, they can only expect an $8,000 CPP pension, in 2022 dollars. The poverty line is an income of roughly $21,000 per year. Their concern is palpable.

However, with the knowledge that $2,000 more of their money is being annually invested for them by the best pension fund investor in the world, their peace of mind will improve considerably as they watch their personal CPP fund increase to $1.4 million by age 65, as the graph above demonstrates. Studies indicate rates of anxiety and mental health problems are increasing rapidly in younger Canadians.

A win for millions of Canadians and Canada

To summarize, this surplus distribution of $10,000 each, on average, to 17 million deserving Canadians and $2,000 per year invested directly with CPP Investments would be a win/win/win/win/win/win/win/win for

• millions of working Canadians,

• millions of pensioners,

• over one million Canadian businesses,

• the sputtering Canadian economy,

• unemployed Canadians seeking work,

• low-income Canadians,

• the spiraling deficit,

• skyrocketing GIS and OAS payments for seniors,

• charities,

• tomorrow’s seniors.

Only the wealthy would lose. 

Will CPP Investments continue with its amazing investment success? Very likely. To illustrate, roughly $100 billion of their $550 billion portfolio is invested in private equity.

For the 12 months ending March 31, 2021, their $100 billion private equity portfolio had a 37.3% return on investment!

For example, CPP Investments owns 40% of 407-ETR. It is a toll road that many Ontarians need to use but resent because it costs them $30 to travel just 100 kilometers. In 2019, before COVID, 407-ETR achieved a 30% profit margin. CPP investments has many other profitable private equity investments like 407-ETR worldwide.

CPP Investments has many other considerable investment advantages over most Canadians that make an ongoing high investment return very likely. Moreover, the high risk that comes with conventional investing is virtually zero when investing with CPP Investments.

So why are we not doing this?

Several actuaries, economists, and politicians have been exposed to the above information. None have given any viable reason to NOT proceed with these policies. Instead, three powerful industries have the motivation and the resources to conceal the surplus and deprive deserving Canadians of all the benefits described above. Please see the top-line menu choices under Three complicit industries - The actuarial industry, The financial industry and The media industry for an explanation.

Even the Regulations demand a surplus distribution

Canada’s Pensions Benefits Standard Regulations states that, after any surplus distribution, the plan must be left with

“two times the employer’s contribution to the normal cost of the plan”.

In 2021, employers’ total contributions to the CPP will be $29 billion. Two times $29 billion is $58 billion. Please compare $58 billion to the CPP’s current surplus of $257 billion or, arguably, $464 billion. This regulation makes a $170 billion surplus distribution safe, appropriate, and deserved.