Happy with your Canada Pension (CPP)?

Canadians who are working, are required to pay into Canada Pension Plan (CPP) and are I believe they are entitled to a fair benefit which maintains its purchasing power over time. One of the criticisms of the Canada Pension Plan is that the survivor’s benefit is too small yet there is another shortcoming that is usually ignored by the recipients.  

Many of us who receive the Canada Pension Plan (CPP) are happy that the payment we receive increases every year. The CPP has a built-in inflation adjustment which is supposed to help keep the spending power of the plan the same as when you first received it. This indexing is a critical aspect of CPP due to the impact of the ‘compounding effect’. Therefore, it is important that the annual CPP adjustment be sufficient to maintain purchasing power.

The annualized returns on CPP investments over the last 10 and five years and for fiscal 2018 are 8%, 12.1% and 11.6% respectively. In addition, CPP is projected to be self-sustaining for at least 75 years even with the index.

According to the experts, the annual inflation adjustments made to CPP retirement benefits aren’t sufficient to cover the rising cost of household spending. The index is used by calculating the Consumer Price Index (CPI), which is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.

"The CPI" is a bit of a misnomer. There are actually several CPI measures. Statistics Canada's all-items CPI (the latest monthly update of which is being released Friday morning) is the most widely used. The CPI refers to changes in the price of an average household basket composed of 12 broad categories of goods and services. The CPI basket weights are mostly based on StatsCan’s Survey of Household Spending (SHS).

The SHS basket is broader than the CPI basket. It includes additional components that are not considered "current consumption."

The "all-items" CPI basket is neither as comprehensive as the SHS basket nor does it measure their common items the same way. The difference between the two baskets is because of how items under the shelter cost component are measured.

The CPI basket excludes mortgage principal, opting instead for a much lower expenditure weight to reflect long-term housing depreciation. Also, the CPI basket either partly or entirely excludes current costs of land, renovations, condo and lot fees, indirect taxes and transaction fees for primary residences, and most current costs for secondary residences.

The "core" CPI, excludes even more: The costs of fruits and vegetables, gasoline, fuel oil, natural gas, intercity transportation, tobacco and mortgage interest, as well as all indirect taxes.

The differences between the CPI and SHS baskets are not arbitrary. The all-items CPI exclusions seek to limit costs to net household spending on shelter. The additional exclusions seek to further reduce price index volatility. With this view, food, fuel and transportation are excluded, as their prices are mostly determined by relatively volatile international commodity markets. And mortgage interest is excluded because higher mortgage costs are both a cause and an effect of higher CPI.

CPI includes eight broad expense categories: Food, Shelter, Household Operations, Clothing, Transportation Health, Recreation, and Alcohol. Each category includes several sub-components. These sub-components are supposed to reflect typical Canadian consumer spending. The basket is updated every four years based on the average daily spending of a fixed basket using the retail cost goods and services. Unfortunately, many government-provided goods and services for which there is no market or comparable retail price are excluded.

The Federal Government’s Survey of Household Spending (SHS) is a more inclusive indicator of consumer retail spending which is also used to measure inflation. SHS would be a better benchmark for adjusting CPP annually but it too has its shortcomings. For example, SHS uses longer reference periods for goods and services that are more expensive or, purchased irregularly.

SHS is also used to calculate such key statistics as GDP and CPI and is used by federal and provincial ministries and departments to develop social and economic policies. While not a perfect measure, SHS would appear to be a more appropriate measure for determining the annual CPP adjustment.

Some experts I have read believe that an annual increase of 1 to 2% in the CPP benefits in addition to the index, could easily be covered by CPP investment earnings at no additional cost to taxpayers or the government. This increase would help seniors who have been retired for 20 to 30 years and who are faced with the high cost of ageing.  According to a senior who wrote to the Prime Minister, “there seems to be no regard for people who have been retired for 20 or 30 years”. “They have been marginalized or forgotten. It is quite true that their pensions are increased yearly to account for inflation. But inflation is one thing, AGING is quite another.”  

One thing is clear: A great deal of what's in the average Canadian household's annual shopping cart is not in the CPI basket. And that difference in basket composition has resulted in a divergence in their respective trends. Between 1997 and 2011, the years for which SHS data are available, household spending increased an average of 3.4 percent annually. Over the same period, the all-items CPI increased 2.0 percent a year. A 1.4 percent difference may not seem like a great deal of money but over time that will add up. Over the 14 year period, for example, an average pensioner earning $7, 000 a year in 1997 would have lost over $1,500 in spending power.

Be yourself

So very much can happen, in a lifetime, or even on a single day
of any lifetime. Yet I can assure you that whatever has or will happen in yours, no matter what chasms you cross, heights you scale, or how many people you love and are loved by when all is said and done and you take that final look over your shoulder, what will humble you the very most, will be that you got to be yourself

Dreams small and large

Considering your grandest and most glorious dreams. When your thoughts and visualizations pertain to the "hows" (how they will come true), or when they include an insistence upon unimportant details (virtually all details are unimportant; think of them, yes, but just don't attach to them), or when they require specific people to behave in specific ways... at the very best, your efforts will only increase the likelihood of your desired dream coming to pass.

Whereas, when your grandest and most glorious dreams are BIG-picture items, like rocking abundance, total fulfillment, amazing health, vivacious happiness, and the like, the floodgates of success begin to powerfully tremble and your manifestation becomes inevitable. Interesting is it not?

Retirement age should it be increased?

On February 1st an article appeared in McLean's Magazine, called  The retirement age in Canada is too low—and that’s a growing problem, it was written by Peter Shawn Taylor and its lead is the following:  The Liberals reversed a plan to push the eligibility age for retirement benefits to 67. It goes against global trends and economic reality.

What is the global reality today? Canada and the United States are two of the countries in the world where workers have to work longer before they retire. According to a study done byAperion Care, the average age of retirement in most countries hovers around the 62-65 age range, there are a handful of countries that plan for workers to leave the workforce even earlier. The United Arab Emirates (UAE) boasts the lowest official retirement age at 49 years old, though the age is 60 for expats (non-UAE nationals). 

The African continent hosts several countries that have low retirement ages. Senegal, Mozambique, and Madagascar are the lowest at 57.5, while most hover around 58-60 years of age, such as Egypt, Tunisia, and Morocco.  There isn’t much information about social services, government programs, or workforce stats but considering so much of workforce is involved in agriculture and labour, over time, a person’s ability to work is affected by the physical toll it takes on their body, and earlier retirement might be necessary.

Other countries, like Russia, Japan, and India, have retirement ages closer to 60, and with large populations of older or retired people. Family obligations, limited opportunity, and rampant poverty keep these large older populations from travelling away and keep them in the workforce longer to be able to make a living.


In Norway, 67 has been the official retirement age since the 1970s and there currently are no serious proposals to raise the retirement age. In 2011, Norway established “flexible retirement” for earnings-related pensions, meaning that Norwegians can draw pensions as early as age 62. Some social science data suggests that Norwegians preferred to retire at 61, then the age rose to 64 in 2013.

In the article, Mr. Taylor states that "According to the Organisation for Economic Cooperation and Development (OECD), Canada’s decision to revert to age 65 bucks a global trend. “Many countries are increasing their retirement age,” the OECD observes."

This argument is that contributing more and for longer, especially by postponing retirement as life expectancy increases, is the best approach to face the challenges faced by increasing longevity. The argument is that the best way to address the problems posed by improvements in life expectancy is to maintain the ratio of years saving for retirement to years in retirement constant, increasing contribution periods as life expectancy increases; or to increase overall contributions. This position is being bought by governments as many countries have responded to population ageing by increasing the statutory age of retirement. Some have linked retirement age to life expectancy.

The fairness of this solution, however, can be questioned when we look beyond the average. Gains in life expectancy have not necessarily been distributed equally across society. A skilled executive, for example, can expect to enjoy nearly four additional years in retirement compared to a manual labourer; this assuming that “retirement” begins at age 65. 

Inequality becomes more apparent when considering the period before retirement. Not only can the manual labourer expect to receive his pension for fewer years, but he can also expect to have made contributions to the system from an earlier age, as the highly skilled worker likely spent a number of years in higher education and began working later. Given the same retirement age, the unskilled labourer pays relatively more into the system to receive his pension for a shorter amount of time.


Automatically linking retirement age to increases in life expectancy across the board may, therefore, be regressive. Life expectancy, time of entry in the labour market and improvements in life expectancy are not homogenous across the population, they vary across different socio-economic groups (e.g., low skill, low-income groups). Hence, the best approach may be to link the number of years contributing to life expectancy. Unfortunately, the data needed for this is not available across all countries and the application across different socio-economic groups may be far from straightforward but it is a better method than adding years of work before people can get their pensions.

Mr. Taylor concludes his article by saying, "In other words, Canadians may now be stuck with a retirement age that gets more out-dated with each passing year. Age is just a number, of course. But 65 stopped being the right number for retirement a long time ago." Around the world, there is some pressure to increase the age of retirement with the average age of retirement being between  62-65, but I believe Canada should not be in a hurry to move it that direction as our retirement age is already higher than most countries in the world.

Watch for more articles and studies that will take the position that we need to raise our retirement age. These positions are a response to the risk of living longer. Demand for protection against longevity risk will only increase as individuals are expected to live longer, and the sustainability of pension funds and annuities providing this protection for individuals has to be ensured. 

Sufficient provisioning for longevity is essential to guarantee that future payments will be met, and the ability for providers to manage and mitigate this risk will allow them to continue offering protection in the future.