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Expanding the Canada Pension Plan: A poisoned gift for taxpayers?

Montreal, June 21, 2016 – While most of the provincial finance ministers have agreed to move forward with a gradual expansion of the Canada Pension Plan (CPP), with the exception of Quebec and Manitoba, the MEI points out that such changes will have significant costs for workers.

Indeed, revamping the CPP will lead to an increase in premiums deducted at source, both for workers and for employers, which will reduce Canadians’ disposable income.

“Not only will middle class households see their disposable income fall during their working lives, but it is to be expected that they will reduce their voluntary saving as a result, for instance their RRSP contributions,” argues Youri Chassin, Research Director at the MEI. Those who have difficulty saving, or who barely manage to make ends meet, will find themselves in an even more precarious situation.

The desire to expand the CPP comes from the belief that Canadians are not saving enough to maintain their standard of living in retirement. This notion, however, is completely false.

  • The standard of living of the poorest households is well-protected in retirement. Canadians who are less likely to maintain their standard of living after age 65 are mostly found among the upper middle class and the well-off, who already have the means to see to their own savings.
  • Families include their houses as part of their retirement savings. In Canada, this non-financial asset represents over $1.8 trillion, which is much higher than the sum of all RRSPs and TFSAs.
  • Canada continues to distinguish itself among industrialized countries with a below average elderly poverty rate.
  • The poverty rate among the elderly is also lower than among the Canadian population as a whole.

“Why the desire to make changes to the CPP at all costs when it already does a good job of reducing poverty among the elderly?” asks Michel Kelly-Gagnon, President and CEO of the MEI. “Instead of making saving mandatory for all workers, the federal government should make targeted changes aimed at those who really need help. It could also encourage Canadians to work longer by indexing the retirement age.” * * *

The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.

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Interview requests: Pascale Déry, Senior Advisor, Communications and Development, MEI / Tel.: 514-273-0969 ext. 2233 / Cell.: 514-502-6757 / Email: pdery@iedm.org

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