Don’t be misled—expanding the CPP won’t help financially vulnerable seniors

Federal Finance Minister Bill Morneau will soon meet with his provincial counterparts to discuss expansion of the Canada Pension Plan (CPP)—a move that would involve increasing mandatory contributions (payroll taxes) on working Canadians to provide increased benefits in retirement.

In the lead up to this meeting, a false message is being spread that expanding the CPP will help financially vulnerable seniors. This is false partly because a considerable share of low-income seniors (20 per cent) do not receive any CPP income to begin with, so expanding the program will do nothing to help them.

However, even for low-income seniors with some CPP income, expanding the program may provide little or no net increase in their retirement income. In fact, some low-income seniors could end up with a lower net income if the CPP is expanded because increased CPP income could result in a reduction in other federal and provincial government-provided transfers.

Take, for example, the Guaranteed Income Supplement (GIS), a federal program that provides cash-transfers to low-income seniors. A single (unmarried) senior can receive a maximum cash-transfer of $774 per month from the GIS, while married seniors can each receive $513 per month.

Critically, this cash-transfer is reduced as other sources of income increase, including CPP income. A two dollar increase in CPP income could result in a one dollar reduction in GIS benefits.

Single seniors receive an additional “top-up” transfer. Depending on their income level, a four dollar increase in CPP income could shrink the top-up transfer by one dollar. All told, single seniors could see their total GIS transfers decrease by three dollars for every four dollars of CPP income.

There’s also the potential for reductions in provincial transfers targeted at low-income seniors. For example, Ontario’s Guaranteed Annual Income System (GAINS) provides an additional transfer to seniors receiving GIS, which is reduced at the same rate as the main GIS benefit (one dollar for every two dollars of other income). Adding together the reductions in GIS and GAINS, low-income seniors in Ontario could gain nothing from an expanded CPP.

Saskatchewan’s Seniors Income Plan (SIP) is another example. SIP provides an additional transfer to GIS recipients, but it’s reduced by $1.42 for every two dollars of other income. This higher reduction rate means that, along with the GIS reduction rate, the recipient could have a lower total income after expansion of CPP retirement benefits.

And remember, CPP income is taxable, a fact that further erodes the relatively small net gain—or in some cases, an actual loss—from the expansion of CPP retirement benefits.

Finally, an expanded CPP would require higher mandatory contributions from working Canadians, meaning low-income seniors will pay higher payroll taxes during their working life in exchange for little or no financial gain in retirement.

It’s fundamentally misleading to present an expanded CPP as an effective way to help financially vulnerable seniors.

If Canada’s finance ministers are truly interested in helping financially vulnerable seniors, then they should consider reforms to existing programs targeting low-income seniors. This would be a better use of their time instead of debating CPP expansion.