Voluntary CPP Premiums A Hot Topic

Knowledge Bureau’s June opinion poll elicited a larger-than-average number of responses from readers, with 341 people casting votes on the following question: The federal government is considering making additional contributions to the Canada Pension Plan (CPP) voluntary. Do you think this is a good idea?

This question really seemed to hit a nerve. Not only did it inspire many of you to vote, it also provoked a larger number of comments than usual. The majority ruled against this idea, with 193 (56.6%) casting a NO vote; but the YES side was close behind, drawing 148 votes (43.4%) for voluntary contributions.

Here’s what just a few KBR readers had to say in defense of their position on the matter:

For the YES side, here’s what Debbie had to say:  “The Federal government should double contribution levels and make it mandatory.  That way everyone will be forced to save for retirement.  Not enough people save now and most do don’t save enough. And the expense of operating a large pool is cheaper than a lot of smaller pools of money.”

“I think the option should be available to anyone who wants to use it. Contributions should still be tax deductible similar to an RRSP. CPP Investment Process is superb, and access to that should be a plus. I can see this as a good investment option for many people who do not want to worry about investment choices. It would also be better for many who leave their money in savings accounts collecting dust! For more savvy and more sophisticated investors with more assets, then all other options are available. This move should be coordinated with the provincial governments who are working on their own pension plans.” — Aly

“An excellent idea! Any increase in contributions to the CPP ‘well’ will have the most direct benefit to those that will be withdrawing currently or in the near future, i.e. Baby Boomers. As a Baby Boomer myself, I welcome the opportunity to receive a higher income in retirement. The CPP system only works when the number of contributors is far greater than the number of those withdrawing, since individual contributions are far greater than individual withdrawals. When the number of those withdrawing exceeds the number of those contributing, as is the case with the majority of Baby Boomers now entering retirement, something has to give.” — Ross Birney

The NO side, in the majority, elicited equally strong response.  Some samplings:

“People already have adequate choices for voluntary retirement savings.  There needs to be a federal-provincial review of CPP to ensure it is providing the base pension that was intended when it was set up 50 years ago.  The feds want to dictate their views without consultation and seem unwilling to discuss this important issue with the provinces.” — DABFCA

“An investment in the Canada Pension Plan does not come with a guaranteed, pre-defined return on your investment. If you live beyond the average life expectancy, you will have a handsome return. But an early death may leave you (or your heirs) with a very poor, if not negative, return; whereas all amounts that were intelligently invested inside a TFSA, or inside an RRSP/RRIF account, should likely be fully recoverable together with interest, dividends and capital gains received thereon.” —Dawson Pednault

“Another voluntary retirement plan will not increase savings; and the disadvantages of CPP make it an even worse option (limited benefits to surviving spouse/family/estate).” — A. Markmann

“People are far better off putting their money into a TFSA (or RRSP, depending on their income bracket and age). If you die earlier than the average, you would lose a lot of that extra [CPP] money. If you die before you are old enough to receive CPP benefits, you lose it all (unless you have a spouse, but there are limits on what they would receive). Other than receiving the minimal CPP death benefit, there is nothing for your beneficiaries. No one knows for sure that they are going to live well into their 80s or 90s so is it worth the risk when you could keep it in a TFSA and know, whether you live long or not, the money is yours and can be passed on? Even with an RRSP, it would be taxed at death but there is money that would still roll into the estate. . . . For those who do have extra money and put extra money in a TFSA, it can build tax-free for years and you will be able to pull out far more money (after tax) in the future to supplement your income than with CPP. . .furthermore . . .CPP benefits are taxable every year you receive them as opposed to a TFSA withdrawal.” — R Anne

“A TFSA would probably work better, with less administration costs, and you could contribute or withdraw to your heart’s content. Seems the more choices taxpayers have, the less they can commit to any scheme.” — Ken

Thank you  very much to all who contributed votes and strategic thought to the issue.  Please participate in this month’s and tweet to your followers.  This month’s question is: Do you think most Canadians are ready for a tax audit? Please comment on your pet peeves about record-keeping and what could make compliance easier. Vote here.