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CPP Was Easy Solution


When the Canada Pension Plan was launched in the mid-1960s, they took the easy way to deal with impoverished seniors, says Malcolm Hamilton, senior fellow at the CD Howe Institute. Speaking in the session ‘Is One Generation's Gain Another's Grief?’ at the Association of Canadian Pension Management’s Annual Conference, he said they could have doubled or tripled the old age benefit. Then, they would not have needed the CPP. They didn’t do it, however, because that would have required a tax increase and the governments believed the working generation had no interest at all in paying taxes to support their parents. On the other hand, by creating CPP, they were saying Canadians were quite prepared to support a program where their children would pay for them. In fact, he said, Canadians never understood how it worked and unfortunately once this kind of system is created, it can’t be reversed. Canada has ignored what he called the “first law of holes” where if “you find yourself in a hole, stop digging.” Dr. Jack Mintz, of the School of Public Policy at the University of Calgary, said when the CPP was created, it looked like a good system. Estimates on the pay-as-you-go program forecast increased population and increased growth, making it somewhat of a Ponzi scheme where new entrants paid for those already in it and more people were needed to sustain it. However, things changed. Fertility rates dropped, people started living longer, women entered the work force, and wages were depressed. Most of the assumptions used then are now wrong, he said, and we are at the point where we are passing the buck.

Courtesy of Benefits and Pensions Monitor website News Alerts

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