July 17th, 2024

Letter: Too may risks come with pulling out of the Canada Pension Plan

By Letter to the Editor on June 25, 2024.

Dear editor,

I am concerned about threats to abandon the successful, portable and trusted Canada Pension Plan. Pension plans are obviously not as simple as Mr. Younger’s contributions, paying for Mr. Older’s pension. I am not an actuarial authority, (just an opinionated old retired engineer), but my main concern is that many pension plans ultimately risk failure to meet the promised obligations. For example, in the U.S. in 2023, only around 8% of states’ pensions, (four of 51 states), were fully funded.

So, 92% ultimately may become unfunded liabilities. https://equable.org/unfunded-liabilities-for-state-pension-plans-in-2023/

There are many risks involved in switching to an Alberta Pension Plan. First, we must accept that in order for a pension plan to be fully funded, (to meet future obligations), the present value, or the money needed now, must be readily available in the related pension plan coffers. A simple estimate of PV, which only applies to fully indexed, defined benefit pensions, similar to the CPP, can be made by assuming interest rates are equal to inflation indexing, (or COLA, cost of living adjustment).

In effect, inflation indexing negates the assumed interest rates used in PV calculations. The PV then simply becomes the sum of the payments made.

**To illustrate, the PV required to support just one 65-year-old retired male recipient, receiving the 2024 maximum annual CPP benefit of $16,375 (for a 17-year life expectancy) is $278,375, ($16,375 x 17).

Alberta employs 2.5 million people and Ontario around 8 million. Also questionable, based on the large number of provincial contributors, (excluding Quebec), is that Alberta’s share of the CPP assets claimed could be over half.

I’m not an actuarial scientist, so I will assume such estimates are based on many complicated assumptions. However, in the decisive interim, our portable, fully funded, fully indexed and peer-admired CPP is ideal, in my view, and I am pleased and fortunate to be a retired CPP recipient.

**For authentification purposes, I used valueyourpension.com, (Free Pension Present Value Estimator”) which shows a PV of 281,354 vs. the $278,375 figure above. (Using male, born in 1959, age 65, recent 4.8% CPP Indexing figure, and $1,365 a month) PV calculations are sensitive to input and assumptions. The site includes life expectancy and I highly recommended it for those wishing to explore their pension’s present value.

Gordon Briosi

Medicine Hat

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