The CPP provides full coverage, inflation protection and portable benefits. These are taxable and allow the government to recover some tax revenues. A reserve fund has been established to supplement contribution revenue. CPP legislation requires that the fund maintain two years' worth of benefits just in case. A contribution to the CPP entitles you to a tax credit instead of a deduction. This results in taxpayers receiving the same tax benefit for the same amount of contributions regardless of income level.
"The CPP guarantees a retirement pension related to lifetime earnings and years of contributions to the plan. An RRSP or mutual fund investment does not guarantee any particular benefit."
Chapter 2: The push for privatization as the answer to an aging population
If public pensions were ever replaced with individual savings accounts, Canadians would be at great risk of ending up with insufficient income in retirement. Individual accounts offer very little security and absolutely no guarantees. Many countries have experimented with privatized pension plans.
"In Chile, it is estimated that more than one third of amounts contributed to the privatized AFPs goes into commissions and fees; in the Netherlands, which also has a partially privatized system, administrative costs for individual pension plans are estimated to be 24% of contributions; in Britain, administrative costs of personal pensions are estimated to be 22% higher than the costs of running the state earnings related pension plan. In contrast, the cost of running the CPP is 1.3% of contribution revenue."
Chapter 6: Replacing the Canada Pension Plan with individual accounts
Financial planners and others selling RRSPs are telling people that the CPP is on the verge of becoming bankrupt. The Canada Pension Plan is well funded and is being attacked by organizations that want it converted into a for-profit plan.
Monica Townson has served on the Canada Pension Plan Advisory Board, and was a consultant to the United Nations Economic Commission for Europe.