{"id":32562,"date":"2026-05-05T10:53:07","date_gmt":"2026-05-05T10:53:07","guid":{"rendered":"https:\/\/www.europesays.com\/canada\/32562\/"},"modified":"2026-05-05T10:53:07","modified_gmt":"2026-05-05T10:53:07","slug":"ottawas-plan-to-lower-cpp-premiums-today-may-be-regretted-tomorrow","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/canada\/32562\/","title":{"rendered":"Ottawa\u2019s plan to lower CPP premiums today may be regretted tomorrow"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

The Carney government\u2019s plan to cut Canada Pension Plan premiums was announced in last week\u2019s spring economic statement.Sean Kilpatrick\/The Canadian Press<\/p>\n

Daniel Kahneman won the 2002 Nobel Prize in Economics despite being a psychologist who had never taken a course in economics. His 1979 article, Prospect Theory, co-authored with Amos Tversky (also not an economist) is by some measures the world\u2019s most cited<\/a> and most influential economics paper. <\/p>\n

The researchers identified and detailed loss aversion, a cognitive bias that seems to be hard-wired into our brains. Economists had always found it easiest to assume, or pretend, that human beings were infinitely rational calculating machines. But it turns out that the average investor feels more pain for a loss than they feel pleasure from an equivalent gain, and is more fearful of losing a dollar than they are excited by the prospect of gaining one. <\/p>\n

Three ways the spring economic update affects your wallet<\/a><\/p>\n

These insights forced economists to begin incorporating the quirks of actual human psychology into their models. <\/p>\n

But you know who has always incorporated the quirks of actual human psychology into their models? Politicians. <\/p>\n

Every politician knows that if the government gives something to the average voter \u2013 a tax break, a new program, whatever \u2013 they\u2019ll gladly take it. They may also forget about it in five minutes.<\/p>\n

But take away that same thing and they\u2019ll scream bloody murder. They may vote you out in the next election.<\/p>\n

Which brings me to the Carney government\u2019s plan to cut Canada Pension Plan premiums, announced in last week\u2019s spring economic statement. <\/p>\n

I fear that this will eventually be regretted. I direct you to Mr. Kahneman\u2019s insights \u2013 and four decades of bruising empirical evidence from Canadian pension<\/a> politics.<\/p>\n

Ottawa intends to lower the CPP base premium from 9.9 per cent \u2013 split evenly between employer and employee \u2013 to 9.5 per cent, as of 2027. This would be the first premium cut in CPP history.<\/p>\n

The $3-billion-a-year move got barely got any news coverage. For those few voters who heard about it, this gift has already been mentally pocketed and forgotten.<\/p>\n

Someone earning $70,000, which is just below the maximum contribution level, will see premiums drop by $133 a year, as will their employer. That\u2019s $2.56 a week. If the Liberals are hoping for a political payoff, they\u2019re going to be disappointed.<\/p>\n

But imagine if Ottawa had announced a $3-billion premium increase. The lamentations and rending of garments would just be starting.<\/p>\n

The Carney government can make this move because the CPP\u2019s actuarial report <\/a>indicates that it is adequately funded until at least the end of this century, and can finance promised pensions at a lower contribution rate. <\/p>\n

Retire Rich: Do Ottawa\u2019s public-service pension talks have you rethinking your retirement plans?<\/a><\/p>\n

To be clear, I have no reason to disagree. Based on reasonable assumptions about future investment returns, and the future of the economy and population, a premium cut is not unjustifiable.<\/p>\n

What worries me is what happens if things change. <\/p>\n

The CPP\u2019s history is marked by reasonable assumptions that proved overly optimistic. Premiums had to be raised \u2013 which was and is the political equivalent of climbing Everest.<\/p>\n

When the CPP launched 60 years ago, retiree pensions were to be paid by current workers, with the contribution rate set at 3.6 per cent. These were reasonable assumptions. Then people started having fewer babies and living longer.<\/p>\n

In 1980, the plan was solvent at a contribution rate of 2.72 per cent. But just five years later, CPP was cash-flow negative, with more money going out in pensions than coming in through premiums. By 1989, the contribution rate required to keep the plan solvent had risen to 5.89 per cent \u2013 well above the actual contribution rate. <\/p>\n

That forced the politically painful decision to start raising premiums. By the mid-1990s, they were over 5 per cent, but it still wasn\u2019t enough. <\/p>\n

That led to the decision \u2013 once again politically fraught and unpopular \u2013 to address demographic reality by building up a surplus. Some premiums would be invested to pay future pensions. By 2003, the contribution rate had been set at 9.9 per cent \u2013 nearly triple the level thought to be adequate in 1966.<\/p>\n

And in the early 2000s, another assumption began to look wrong. The CPP was intended to offer a pension worth 25 per cent of the average person\u2019s working-years income. The assumption was that most workers would also have generous workplace pension plans.<\/p>\n

Charting Retirement: At long last, more Canadians are waiting until 70 to start their CPP pensions<\/a><\/p>\n

But as the ecosystem of workplace pensions shrank, it raised questions about what might happen to the standard of living of the next generation of retirees. I argued, as did many others, that CPP pensions needed to be bulked up. Which meant higher premiums.<\/p>\n

That set off years of debate, and Conservative-Liberal and federal- provincial wrangling, over proposals for and against. The fight ran from the Harper government into the Trudeau era.<\/p>\n

It was ultimately agreed in 2016 to phase in modestly higher CPP payments \u2013 boosting them over decades from 25 per cent of the average working income to 33 per cent \u2013 financed by a small premium increase on the base amount, plus an additional 4 per cent on slightly higher incomes. <\/p>\n

Upping premiums is only ever possible if someone in power is willing to spend their political capital in a painful fight. Cutting premiums, in contrast, is always easy and quick. The asymmetry should concern you.<\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: The Carney government\u2019s plan to cut Canada Pension Plan premiums was announced in…\n","protected":false},"author":2,"featured_media":32563,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[164,224,238,214,212,239,17,211,230,231,227,213,210,235,171,234,143,222,249,215,216,229,225,226,219,240,220,244,245,247,242,246,94,61,243,217,142,233,113,232,241,223,236,237,228,221,218,248],"class_list":{"0":"post-32562","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-ottawa","8":"tag-alberta","9":"tag-arts-news","10":"tag-bc","11":"tag-breaking-news","12":"tag-breaking-news-video","13":"tag-british-columbia","14":"tag-canada","15":"tag-canada-news","16":"tag-canada-sports","17":"tag-canada-sports-news","18":"tag-canada-trafficcanada-weather","19":"tag-canadian-breaking-news","20":"tag-canadian-news","21":"tag-economy","22":"tag-education","23":"tag-environment","24":"tag-federal-government","25":"tag-foreign-news","26":"tag-globe-and-mail","27":"tag-globe-and-mail-breaking-news","28":"tag-globe-and-mail-canada-news","29":"tag-government","30":"tag-life-news","31":"tag-lifestyle","32":"tag-local-news","33":"tag-manitoba","34":"tag-national-news","35":"tag-new-brunswick","36":"tag-newfoundland-and-labrador","37":"tag-northwest-territories","38":"tag-nova-scotia","39":"tag-nunavut","40":"tag-ontario","41":"tag-ottawa","42":"tag-pei","43":"tag-photos","44":"tag-political-news","45":"tag-political-opinion","46":"tag-politics","47":"tag-politics-news","48":"tag-quebec","49":"tag-sports-news","50":"tag-technology","51":"tag-travel","52":"tag-trudeau","53":"tag-us-news","54":"tag-world-news","55":"tag-yukon"},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/posts\/32562","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/comments?post=32562"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/posts\/32562\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/media\/32563"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/media?parent=32562"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/categories?post=32562"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/canada\/wp-json\/wp\/v2\/tags?post=32562"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}