Canadian_Retirement

40% of existing CPP contributions go to fund current recipients

Published On November 10, 2013 | By Joseph (Ken) | Economy, Government, Personal tax, Retirement

Baby boomerAn interesting bit of information in the article An early look at what ‘Big CPP’ will look like

“First, the ministers agreed that any improvement should be “fully funded and focus on today’s workers. “

“This phrase strongly implies that any improvements will apply only to future service since an increase in existing benefits would not be fully funded for generations. If the ministers really mean “fully funded,” younger workers especially should be relieved. We have already seen what happens when we decide to grant ourselves benefits without paying for them. The current CPP benefit is worth only 6% of pay but is costing us 9.9% into perpetuity because the previous generations did not pay enough.”

So basically 40% of existing CPP contributions go to fund current recipients.

With this in mind, I have a hard time believing that “any improvements will apply only to future service” considering the following information from Statistics Canada.

“The number of seniors aged 65 and over increased 14.1% between 2006 and 2011 to nearly 5 million. This rate of growth was higher than that of children aged 14 and under (0.5%) and people aged 15 to 64 (5.7%).”

The rate of seniors retiring and collecting CPP/OAS (aged 65 and over) increased 14.1% where as the rate of non-seniors funding CPP/OAS only increased 5.7%.

“Seniors accounted for a record high of 14.8% of the population in Canada in 2011, up from 13.7% five years earlier.”

“Among the working-age population, 42.4% were in the age group 45 to 64, a record high proportion. Almost all people aged 45 to 64 in 2011 were baby boomers.”

If we consider the fact that baby boomers are a record high proportion of the working-age population, and are beginning to retire, and seniors already account for a record high percentage of the population, how will non-baby boomers afford the ever increasing financial burden of CPP and OAS?

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About The Author

Joseph (Ken)
(Ken) is a Registered Public Accountant with over 25 years of public practice experience in the accounting profession. Ken specializes in accounting information systems, taxation and financial reporting.

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