As an emloyee for whatever length of time, my paycheck has a deduction towards the Canada Pension Plan(CPP). My employer matches the amount, within some set maximum, which is again deposited with CPP. So effectively, since the deduction is from salary, it is money that I have earned over my period of work.
If I am single, as in I am divorced or a widow/widower, when I turn 60, I become eligible to get pension from CPP, and will continue to get it as long as I live, or at least until I turn 90 I think. If I understand correctly though, if I however die, say as soon as I turn 60, only a lump sum death benefit of a max of around CAD 2500 is paid to and nothing more accrues to my estate. I am not talking of survivor benefits here. I am single and so there is no surviving spouse.
The first question is if my understanding as above is correct.
If it is, then isn’t it rather unfair in the case of someone who is single and dies early. Even if the person has contributed to CPP all his working life, if he dies before or shortly after turning 60, his estate does not get anything at all except for the one time death benefit. In effect, the government is taking my money and not returning it to whoever I would wish it to be given, in the case of my death. How do they justify that?
They justify it by pointing out that if the total amount you’d actually contributed was used up by the payout you received at 83, they’d still continue to payout every month, even if you live to be 110.
It’s not a savings account: put in $100, get out $100. It’s contribute as per the schedule, based on wages, get paid out per the schedule, based on contribution. Until your death, regardless of how many years your contributions would actually have covered.
It’s actually pretty easy to understand. If you take out a million dollar life insurance policy and die after only making three years of payments the insurance company doesn’t get to only payout what you paid in.
I don’t know the detail of the CPP, but what you describe is normal for pension plans, and one reason why people often don’t take them up. The big advantage is the employer’s contribution and some tax benefits - the downside is that you (and your employer) never actually own the investment.
The arguments are complex but it really boils down to your life expectancy. If it is short, you are wasting your money and would do better to invest elsewhere; if you you live to make your century, you will be a big winner.
As far as I know, contribution to CPP is not optional. That is what makes it unfair. Investing in insurance, especially for oneself, is optional. I have a choice. Contributions to the CPP on the other hand are mandatory. Making it mandatory, and then keeping the money in case of my death is in my view not a fair practice.
I might agree with your line of reasoning. But people living to that age is not realistic.
If it is supposed to act life insurance, then investing in it should be optional.
Also, the payouts in terms of pension depend on the individual’s contribution during his time before retirement. So, if I have paid in less, I get back less. It is not that they are ensuring a standard payout determined by specific standard of living. If I have paid in less, then I get a lower amount, implies that at least part of it is my money that is working in payout. Taking away all of it if I die early somehow does not sound right.
Insurance, as we all very well know, is in principal a business and an unethical scam of the biggest order, that plays on -
The fear of people, whether it be falling sick or dying or whatever. It is something that a person is afraid of not being able to handle in case of an eventuality.
The fact that said fear does not turn into reality for all the people who are invested. It is therefore collecting people from a large base and paying out to a few who are unlucky enough to need it and then keeping the rest for yourself, the insurer.
It is a good business and profitable as well. But certainly not ethical.
Well, if you believe all forms of insurance are inherently unethical scams than you will, of course, find this social safety net offensive to your sensibilities. Stands to reason.
But, I think you’ll find that by a vast majority, most people understand how it works, are fine with the structure of it and happy to live in a country with such systems in place. While I’m sure you are not alone in your view, I believe it will always be the minority one, by a very large margin.
The whole point of such government backed compulsory schemes is to ensure that as far as possible, everyone will have enough to get by on after they retire. Without a scheme, people who make no provision during their working life become a burden to the taxpayer. This is manifestly unfair to the more provident.
Similarly, the various provincial health plans look like scams if you never get sick. You live here, you are subject to the laws here and the people have made a collective decision that people should not die for want of health care. And retirees should not have to be homeless paupers because they were not provident enough to save for their old age.
You can no more opt out of it than you can opt out of paying taxes for a war that you opposed.
CPP is not an investment scheme. It is welfare for retired folks payed for by working folks, made more politically palatable by giving it the trappings of an investment scheme. That doesn’t make it a bad thing, but it does mean that trying to analyze it as an investment scheme will get you these “unfair” results.
This is completely untrue. CPP is a true pension plan that holds a wide variety of investments, and current projects have it being actuarially sound for at least the next 75 years. It was underfunded at its inception, but that was corrected over 20 years ago. It is true that a small portion of current contributions are subsidizing older workers and retirees who underpaid their portion, but to dismiss CPP as a simple welfare scheme is doing it a disservice.
They justify it by the fact that those who live longer than the average life expectancy will get more out of the program than they paid into it. It’s the same reason that those who opt to start receiving payments at age 60 get less than those who wait until 65, and continue to receive less for life. You may as well complain at age 65 that you’ve been scammed and you now want to get the same as everybody else. It’s just actuarial science and basic arithmetic.
CPP doesn’t seek to make a profit, but it does have to remain solvent so that it can meet its financial obligations. You may as well also complain about Old Age Security, which you never paid into at all. After all, those who die early collect less than those who live a long time. Those who die before age 65 never get a cent.
Agreed. Canadians should be grateful that the CPP is so well managed and financially solid. If you look at its annual returns it’s effectively among the best investments that many Canadians have.