The Canada Pension Plan (CPP) provides a low rate of return for younger Canadian workers, according to a new study released by the Fraser Institute.
“It’s easy to see how average Canadians could confuse the rates of return earned by the CPP fund with what they actually receive via their CPP retirement benefits. The reality is that Canadians born after 1971 are receiving modest returns from the CPP,” said Jason Clemens, executive vice-president at the Fraser Institute and co-author of Rates of Return for the Canada Pension Plan.
CPP retirement benefits are determined by the number of years a person works, their annual contributions (up to a maximum of $5,088.60 this year, based on earnings), and the age they retire.
The study finds that anyone born after 1955 (retiring in 2021 or later) will receive a return on their contributions of 3.0 per cent or less. Any CPP-eligible Canadian born after 1971 (retiring in 2037 or later) who worked full-time will receive an annual return of just 2.1 per cent in retirement.
By contrast, eligible Canadian workers born between 1905 and 1914 (retired between 1970 and 1979) enjoyed a rate of return of 27.5 per cent.