How pension system destroys our society 

We are obliged to pay into CPP (Canada Pension Plan) from 18 years old. We are not eligible to withdraw from CPP until 65. Naturally, we want to know what is the return from our CPP contribution.

CPP often touts the high return of its investment fund. However, it is evasive about the actual return ordinary people get from their contribution. This return can be deduced from our contribution and benefit levels. Currently, we contribute 10% of our pensionable income before 65 years old and receive 25% of our pensionable income after 65 years old. Adjusted for inflation, we contribute 10 dollar each year from 18 to 65, in exchange for 25 dollar each year after 65 years old. 

We will contribute for 65-18=47 years. On average, Canadians live to 82 years old. We will receive benefit for 82-65=17 years. The amount we contribute is 10*47=470. The amount we receive is 25*17=425. What we receive, on average, is less than what we contribute. Our return from CPP is negative, adjusted for inflation. 

Some might say the average number of years we receive benefit is higher than 17, as the expected lifespan at 65, when we retire, is higher than 82. This is certainly true. However, some people who contribute to CPP may die before 65 years old, without receiving any CPP benefit. There are other minor adjustments as well. However, it won’t be inaccurate to state that right now, the return from CPP contribution is around 0%, inflation adjusted.

 Furthermore, the deduction occurs at our young age, when we need resources most to support our fledgling families. Several years after CPP deductions implemented, Canada’s fertility rate dropped below replacement rate. CPP, a nation wide scheme affecting every working individual, systematically reduces our ability to raise children.

CPP and other deductions are heavy burdens to the young working people. Why were they implemented? Why do they persist so long? They were implemented because the return for early participants were very attractive. They only pay 3.6% of their pensionable income, instead of today’s 10%. Like any other Ponzi scheme, or pay as you go scheme, early participants get great deals.

At any time, most people over 40 already contribute heavily into CPP. They are better off if the CPP program continues and expands. So there is little public outcry. CPP is not the only program that ushers the long term decline and destruction of our society. However, it is a good example to illustrate how such programs started and why they are difficult (impossible?) to stop.