{"id":3624,"date":"2018-04-04T09:57:03","date_gmt":"2018-04-04T13:57:03","guid":{"rendered":"http:\/\/business.financialpost.com\/?p=1569052"},"modified":"2018-04-04T23:02:00","modified_gmt":"2018-04-05T03:02:00","slug":"the-canada-pension-plan-is-a-worse-deal-than-its-investment-managers-let-on","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2018\/04\/04\/the-canada-pension-plan-is-a-worse-deal-than-its-investment-managers-let-on\/","title":{"rendered":"The Canada Pension Plan is a worse deal than its investment managers let on"},"content":{"rendered":"

Misconceptions plague the public\u2019s view of the Canada Pension Plan. Mark Machin, CEO of the Canada Pension Plan Investment Board (CPPIB) \u2014 the organization tasked with investing Canada Pension Plan contributions \u2014 recently hit the road<\/a> in a cross-country effort to clear up the confusion. Unfortunately, Machin\u2019s lack of clarity on key issues may have muddied the waters even more, giving the impression the Canada Pension Plan (CPP) is a much better deal for Canadians than it actually is.<\/p>\n

Machin told Canadians that the CPP is financially sustainable. But this wasn\u2019t always the case. The CPP was overhauled in 1997; reforms included the creation of the CPPIB to invest pension contributions. That money, taken from working Canadians, is well in excess of the benefits paid to retirees in a given year.<\/p>\n

As Machin himself admits, most Canadians don\u2019t know much about the CPP\u2019s investment arm. But its existence gives the impression that the money Canadians pay into the CPP will eventually fund their individual retirements, the way things work with private pension plans. But that\u2019s not how it is. CPP premiums paid today are still largely used to pay benefits to already-retired Canadian workers (referred to as a \u201cpay-as-you-go\u201d plan). So, in reality, the CPPIB only invests a portion of our contributions. The rest is income redistributed to existing retirees currently receiving CPP benefits.<\/p>\n

The CPPIB has seemingly done well in recent years. According to the last annual report<\/a>, the five-year inflation adjusted rate of return earned by the CPPIB is 11.8 per cent. Does this mean the CPP is a great deal for Canadians? Simply put: no. The benefits Canadians receive from the CPP do not directly depend on the CPPIB\u2019s investment performance.<\/p>\n