The Canada Pension Plan and the Great Generational Theft Caper

Can you afford to part with an extra $1000 a year in taxes? How about a family with two wage-earners making that amount, who might be looking at parting with an extra $2000? I don’t know about the rest of you, but personally paying out nearly an extra $2000 each year to the government would be far more injurious to me than the abolition of the long form census.

Given that, it surprises me that we have yet to hear more during the course of this general election about the changes to the Canada Pension Plan supported by both of the major opposition parties. Both M. Mulcair and M. Trudeau support some form of mandatory increase in the Canada Pension Plan. Phrased another way, both of the major opposition parties propose a large regressive tax increase that will bite far deeper into the take-home pay of individuals of an average or below-average income than it will those of the rich.

I didn’t just generate those numbers out of the air. We have a good model for just what such an increase would look like in the form of the Ontario Retirement Pension Plan rolled out by the government of Kathleen Wynne. Under the ORPP workers and their employers without an existing defined benefit pension plan will pay an additional 3.8% of the individual’s pay to fund a supplemental pension benefit. Half of that would be paid directly by the employee (and, of course, it doesn’t take much thinking to realize that the other half will be borne directly by them as well) and the other half would be paid by the individual’s employer.

Some people will argue that I’m wrong to characterize this as a tax increase. After all, in theory this money (and then some) will eventually be paid back in the form of increased pension payouts. This, I would suggest, is highly-conjectural nonsense for many of us. I won’t reach the age for taking Canada Pension Plan payments until the year 2048. The youngest voters in October will reach the current retirement age in 2062. We live in a world of so much change and filled with so much economic peril that the promise of future pension benefits is wholly-theoretical. Indeed, such fiscal storms are on the horizon that I personally am doubtful as to whether currently-promised pensions and other benefits will still be around at the middle of the century, let alone any frivolously introduced fantasies added now or in future.

Why am I doubtful as to the future solvency of our government? The answer lies in the very people most likely to benefit from the proposed pension “enhancements.” Now, I’m sorry, but to explain this I’m going to have throw some math at you. All of this comes from Statistics Canada.

As of 2013, some 15.3% of the Canadian population was over the age of sixty-five. This means that for every one hundred people between the ages of fifteen and sixty-four there are 22.3 people over the age of sixty-five. Using medium-level projections this will be radically transformed by the year 2063 (the year after the people voting for the first time this year reach the present retirement age). In 2063 some 25.6% of the population will be over the age of sixty-five and there will be 43.4 persons over the age of sixty-five for every person between fifteen and sixty-four. These numbers, I should add, are based upon expectations of only relatively modest increases in life expectancy over the next half-century. Should this change, these numbers could become even more daunting.

To simplify the math: by the time that the young people of today, upon whom the costs of increased pension contributions will disproportionately fall, the percentage of the population eligible to collect these benefits will be roughly two-thirds higher than it is today and each person of working age (loosely defined, I might add) will have twice as many aged persons to support via their taxes.

Everyone should understand these numbers because they will become one of the most vital political issues of all of our lives. The Baby Boomers are rushing into retirement and most of them can count on enjoying many years of it. They vote in large numbers and so politicians are eager to pander to them. If the present trend is allowed to continue, then paying for their demands will bankrupt us all. That may sound dramatic, but it is nevertheless very true. Even paying for current benefits as the retired percentage of the population waxes and the working percentage wanes will be ruinously expensive. To imagine that the working population may bear both the costs of existing benefits and those of future enhancements is delusional.

Indeed, the future that awaits us if we continue on the present course is perfectly clear. Those working over the next few decades will bear the ruinous cost of the benefits that previous generations have voted for themselves without fully paying for and will, by the time that any of us reach retirement age ourselves, not be able to receive anything nearly so lavish because the state will be teetering on the edge of insolvency.

We need to be worrying about how we’re going to fund essential benefits that have already been promised, not inventing new ones. The responsible course of action is to ensure that benefits are affordable, that they reflect the realities of modern life (such as that sixty-five in 2015 is not what it was eighty years ago), and to means-test as many benefits as possible so that struggling Millennials aren’t left toiling their entire lives to pay for state benefits for octogenarian millionaires.

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