Planned payouts not as certain as most believe
A paper released today by William Robson of the C.D. Howe Institute challenges the achievability of doubling the Canada Pension Plan (CPP) benefit, a recent goal of Canadian unions.
In “Don’t Double Down on the CPP: Expansion Advocates Understate the Plan’s Risks” Robson argues that the CPP is too often viewed as a defined-benefit plan with guaranteed payouts. In reality, promised benefits have changed in the past and may be changed again in the future.
Robson states that “the CPP is a gamble, not a guarantee” and argues that the projected four per cent real return on investments may not be attainable. As a benchmark, he uses the federal real return bond rather than the mixed portfolio of investments that the Chief Actuary of the CPP does.
He further argues that the CPP is not fully funded in the sense that most Canadians understand that term: it does not currently have sufficient assets to pay out all its projected benefits. The CPP’s solid reputation may be well earned, but it should not be over-sold. In Robson’s view, the current benefit goals are not guaranteed and, even with contribution increases, bigger pension payouts would be even more uncertain.