There are some flaws in the Canada Pension Plan, but the general concept has a lot of value at a time when people aren’t saving as much as they used to and household debt levels keep rising.
A lot of critical commentary about the CPP fails to make this distinction. You’ll hear about the CPP’s faults, without recognition of its importance in providing retirement income to Canadians. An example of this was a recent op-ed piece that caught the eye of Leo Kolivakis, an economist and pension consultant who writes a blog called Pension Pulse. Mr. Kolivakis reprints this critical take on the CPP, and then offers a much-needed rebuttal. I encourage you to read it if you wonder whether you’re getting good value from your contributions to the CPP.
Mr. Kolivakis actually agrees with some of the criticisms raised by the writers of the op-ed piece. For example, unlike most other pensions, the CPP can’t be bequeathed on death. Spouses get just partial benefits if a partner dies, and there are limits even there. “This is something which needs to be rectified,” he writes.
Still, Mr. Kolivakis says the CPP beats “crummy RRSPs” because it delivers what he believes a pension needs to work effectively: “It needs to be mandatory, you need to force people to save, and it needs to be made clear to them that under no circumstance can or should they take the money out.”
His overall message is worth repeating as well: “the evidence is clear, the CPP is a great deal for Canadians.”
Subscribe to Carrick on Money
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
Rob’s personal finance reading list...
Debt doesn’t just hurt your finances
All about how debt can damage your mental health and lead to more debt: “it’s so easy to get trapped into a downward spiral of debt when you’re already there. Your situation feels pointless and hopeless, so why bother trying to get out of it?”
Tech sector stars and dogs
Tech stocks have struggled lately, but some of them have been phenomenal wealth-builders over the years. Others have been wealth destroyers. Which is which? Check out this infographic showing how much $1,000 invested in the initial public offering of 50 tech companies would be worth today.
What to buy at Trader Joe’s
OK, this is a U.S. chain. But I have come across many Canadians who have visited U.S. cities and come to love Trader Joe’s for its huge selection of cheap and cheerful house-brand food products. Here’s a list of 15 items to check out at Trader Joe’s, including tomato paste in a tube.
A new reward card for travellers
Budget travel expert Barry Choi reviews the new Scotiabank Passport Visa Infinite Card, which is unique among big bank travel reward cards in not charging foreign transaction fees.
Today’s featured financial tool
This infographic offers a list of tax credits and deductions for the 2017 tax year.
The question: “I’ve been told that registered education savings plans are the way of the past. Our daughter is currently two years of age. I was thinking about saving through a long term GIC. I would like to know your thoughts on this matter.”
The answer: “RESPs the way of the past? I don’t get that. Contributions to an RESP bring a matching 20-per-cent federal grant that tops out at $500 per year and $7,200 in total per child (slightly more is available for low- and middle-income families). That’s basically an automatic 20-per-cent return on a $2,500 RESP contribution. With a self-directed RESP at an online brokerage, robo-adviser or advisory firm, you can hold pretty much any type of an investment in an RESP. A long-term GIC is an option. But a two-year-old child won’t need the money in an RESP for 15+ years. That’s long enough to benefit from some exposure to the stock market through diversified mutual funds or exchanged-traded funds. If your child doesn’t want to attend college or university, many training programs qualify for RESP funds.”
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length.
A great take from an investment adviser on why renting a home isn’t throwing your money away.
What I’ve been writing about
- Forget falling stock markets. These are the things in life you really should be worried about
- How to get the second opinion you’ve always wanted for your portfolio (for Globe Unlimited subscribers)
- 2018 ETF Buyer’s Guide: Best Canadian dividend funds (for Globe Unlimited subscribers)
More Carrick and money coverage
For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group. Send us an e-mail to let us know what you think of my newsletter. Want to subscribe? Click here to sign up.