The Canada Pension Plan is often and mistakenly referred to -- as its title
indicates -- as a pension plan. Wrong. It is less that than a redistributive
social welfare program, though that's not meant to be a disparaging comment.
The CPP is valuable in that it and other programs lifted many Canadians out
of poverty in their later years; as such it should continue. But the CPP was
designed as a Ponzi scheme and a Ponzi scheme it remains. The younger one
is, the worse of a deal it is.

For example, and unlike contributions to a registered retirement savings
plan or a company or union pension, the more mature the CPP recipients, the
less they paid into the plan at a rate necessary to fund their own pensions.
Contrary to myth, the CPP pensions of the very first retirees cost them
little relative to their contributions. For those born in 1930, the real
rate of return on CPP contributions is almost five times that which will
accrue to those born in 1990 or 2000 -- 9.4 per cent, versus two per cent.

It's critical to remember that the Canada Pension Plan was created when the
demographic makeup of Canada allowed for low CPP tax rates but high benefits
(relative to contributions). That's why in 1966 at the beginning of the
plan, tax rates could be set at 3.6 per cent of contributory earnings, split
between employee and employer.

It's also why CPP taxes were tripled over the past two decades; current
taxpayers were forced to make up for too-low contributions from the earliest
contributors.

And this is why the CPP has been called a Ponzi scheme, where those first in
do quite well, but part of whose pensions were and are ultimately paid by
later contributors. It should be noted that the recent CPP tax hikes have
made the plan actuarially sound (for now), but that hasn't changed the
inherent unfairness in generational returns

So, how to correct that imbalance? One option is to raise the retirement age
gradually to match the increased life expectancy we've witnessed over the
last four decades. Ottawa and the provinces have been happy to triple CPP
taxes, but have refused to address the cost side of the program, that is, a
raise in the official retirement age.

Is there justification for a raise? Absolutely. In 2001, males who reached
age 65 could expect to live to 82.3 years, almost four years more than in
the early 1960s. Women can expect to live 4 1/2 years longer.

Some will oppose a delayed retirement age and claim that because those in
retirement paid for the education of the young, it is only just that when
the young grow to adulthood and pay taxes, that they should pay for those in
retirement.
" We paid for your education; you pay for our retirement -- that's the deal"
is the explicit claim.

However, what should be noted about this claim is that it sets up a false
set of responsibilities and burdens that are not unique to one generation;
every generation must pay for the education of the young. However, not every
generation also pays for unusually large government debt repayment,
larger-than-usual health care expenditures as a percentage of the economy,
and a total tax burden much higher now than in 1966. (Back then, total
government receipts were 30.7 per cent of the economy, compared to 41.9 per
cent in 2002.)

I'm not arguing CPP benefits or the retirement age should be changed for
those already in retirement. Instead, the retirement age should be gradually
raised over 16 years at the rate of four months annually. Remember: all that
would do is merely match the CPP's retirement age increase to the life
expectancy increases that have already taken place, never mind the increases
we will see in the future.

Are there precedents for this? Norway has a retirement age of 67, the U.S.
is moving to that age (and without public kerfuffle), and full pensions are
not earned in Iceland until age 70.

The benefit of a delayed retirement age is that the savings could be
redirected to current contributors in the plan, in the form of guaranteed
portions of the assets of the CPP Investment Board's portfolio. This would
help younger Canadians save for their retirement and offset part of the
actuarial unfairness built up in the CPP over the decades.

Similar to how many Canadians argued that deficits place an unfair burden on
the young, the $443 billion liability in the CPP is being paid off by
current contributors.

Raising the retirement age over time wouldn't completely remove the
historical imbalance in the CPP, but it would remove some of the worst Ponzi
aspects of it.