Freschia Gonzales of Pensions and Benefits Monitor
reports CPP ‘enhancement’ leaves workers paying more for less:
Ottawa’s
latest Canada Pension Plan hike will raise contributions for an $85,000
earner by nearly 80 percent over eight years, even as active management
by the Canada Pension Plan Investment Board trails its own benchmarks.
According to Matthew Lau in the Financial Post,
someone earning $85,000 will face combined worker and employer CPP
contributions of $9,292.90 in 2026, once the newer “CPP2” layer that
began in 2024 is fully in place.
Lau
calculates that as an annual CPP tax increase of 4.9 percent, more than
double the current 2.2 percent inflation rate, and a cumulative
increase of 79.1 percent in nominal terms over eight years, or about
42.1 percent after inflation.
Lau
writes that Ottawa brands this as “the CPP enhancement,” and notes that
in 2017 the federal government justified the changes by saying they
would help Canadians “meaningfully reduce the risk of not saving enough for retirement.”
He argues, however, that higher CPP taxes today do not mean workers are directly saving more for their own retirements.
Instead,
current contributions fund benefits for today’s retirees, with the
expectation that the next generation of workers will fund future
benefits alongside investment returns from the Canada Pension Plan Investment Board.
On
investment performance, Lau points to the CPPIB’s shift from passive to
active management in 2006. As per his article, expenses “exploded” and
head count rose from 150 to more than 2,100.
Citing
the CPPIB’s Annual Report 2025, he notes that “over the past five
years, the Fund earned a net return of 9.0 percent, compared to the
Benchmark Portfolios return of 9.7 percent.”
Over
the full period since active management began, he writes that “the Fund
generated an annualized value added of negative 0.2 percent,” which he
describes as a “sizable erosion of Canadians’ retirement savings” when compounded over 19 years.
In the Financial Post, Lau also links some underperformance to what he characterizes as political decision-making.
He
notes that in early 2022, the CPPIB “committed to transitioning its
operations and investments to net-zero emissions by 2050,” and that it
has “since abandoned that commitment.”
On
the policy rationale, Lau frames the CPP’s premise as the idea that
some Canadians would not save enough for retirement on their own, so
government should compel everyone to contribute to a public pension fund to reduce under-saving.
To
challenge that logic, he uses an analogy: because some Canadians are
overweight, the federal government could impose a “CEE (Canada Exercise
Equipment) payroll tax” to send exercise equipment to every household to
deal with “under-exercising.”
He
asks why, if the state can dictate a minimum level of retirement
saving, it should not also decide how much people spend on “groceries,
shelter, electronics, transportation, travel and so on.”
According to Lau, higher mandatory CPP contributions reduce workers’ ability to save elsewhere.
He
argues that higher taxes and smaller paycheques leave less money for
TFSAs, RRSPs and other investments, so a higher CPP tax “may not
actually increase overall retirement savings.”
To
support this point, Lau cites the Fraser Institute’s 2016 publication
“Five Myths Behind the Push to Expand the Canada Pension Plan.”
He writes that Fraser Institute economists concluded that “any increase in the CPP will be offset by lower savings in private accounts,” based on a study of CPP tax hikes between 1996 and 2004.
He
lists four other “myths” from the same report: that Canadians do not
save enough for retirement on their own; that the CPP is a low-cost
pension plan; that it produces excellent returns for workers; and that
its expansion would help financially vulnerable seniors.
Lau also emphasizes design and flexibility. He notes that those saving privately can draw down assets for a down payment on a house, but cannot access CPP contributions.
He
raises the case of someone with a terminal illness who is not expected
to live to retirement age and questions whether it is sensible for
government to force such a person to save for retirement “especially
through the CPP.”
In that scenario, private savings can pass to family members; CPP contributions, he argues, do not provide the same benefit.
Lau
concludes that “the CPP hurts workers” because individuals, not the
federal government, have the best information and incentives to manage
their finances.
In his words, “personal finance is, after all, just that: personal finance. It is not, and should not be, government finance.”
Let's read Matthew Lau's article published in the Financial Post where he advocates to shut down the tax-financed Canada Pension Plan:
In 2026, for the eighth year in a row, Ottawa is whacking workers with a
Canada Pension Plan tax hike. For someone earning $85,000, the combined
worker and employer CPP tax in 2026 is $9,292.90, including the
government’s new “CPP2,” which was imposed beginning in 2024. That’s an
annual tax increase of 4.9 per cent, more than double the current
inflation rate of 2.2 per cent. At $85,000 annual earnings, the
cumulative tax hike over eight years is 79.1 per cent in nominal terms,
or about 42.1 per cent after accounting for inflation.
The government calls its tax hike “the CPP enhancement” and back in 2017 justified
it by saying it helps Canadians “meaningfully reduce the risk of not
saving enough for retirement.” But by paying a higher CPP tax, workers
today are not actually saving more for their retirements. They are
paying for benefits to retirees today, with the expectation that when
they retire they will receive benefits funded by CPP taxes on the next
generation of workers, plus any investment returns from the Canada
Pension Plan Investment Board (CPPIB).
But even if workers were able to directly fund their retirements through
CPP taxes, it would still be a bad, wasteful government program. The
CPP’s premise is that some Canadians would not save enough for
retirement on their own, so everyone should be forced to pay into a
pension fund to reduce these people’s under-saving. By the same logic,
since some Canadians are overweight, the federal government should
impose a CEE (Canada Exercise Equipment) payroll tax to fund shipments
of exercise equipment to everyone’s house to mitigate the problem of
under-exercising.
For that matter, if the government needs to force everyone to save a
certain amount for retirement each year, why not also have it decide how
much everyone should spend on groceries, shelter, electronics,
transportation, travel and so on?
Higher
taxes and smaller paycheques mean workers have less money to contribute
to TFSAs, RRSPs and other investments, so a higher CPP tax may not
actually increase overall retirement savings. In a 2016 publication
“Five Myths Behind the Push to Expand the Canada Pension Plan,” Fraser
Institute economists argued
that “any increase in the CPP will be offset by lower savings in
private accounts,” which was the conclusion of an earlier study on CPP
tax hikes between 1996 and 2004. The other four CPP myths? That
Canadians do not save enough for retirement on their own; that the CPP
is a low-cost pension plan; that it produces excellent returns for
workers; and that its expansion would help financially vulnerable
seniors.
In
recent years, these arguments against expanding the CPP have only
gotten stronger. Since switching from passive management (i.e., tracking
broad market indices) to active management in 2006, the CPPIB’s expenses have exploded
and its employee head count has increased from 150 to more than 2,100.
Canadians forced to pay into the CPP have not benefitted from this
increased cost. “Over the past five years,” according to the CPPIB’s Annual Report 2025,
“the Fund earned a net return of 9.0 per cent, compared to the
Benchmark Portfolios return of 9.7 per cent.” So with the CPP, Canadians
have paid more to get less.
Measuring
the performance of the CPP since the inception of active management by
comparing its return to the benchmark portfolios, “the Fund generated an
annualized value added of negative 0.2 per cent.” Compounded over 19
years, that is a sizable erosion of Canadians’ retirement savings. Some
of this underperformance might well be attributed to playing politics
with Canadians’ savings: in early 2022, the CPPIB committed to
transitioning its operations and investments to net-zero emissions by
2050. Thankfully, it has since abandoned that commitment.
In
addition to its financial underperformance, the CPP gives Canadians
less flexibility and less choice than private options. If someone wants
to buy a house, they can draw down their private savings to make a down
payment, but they cannot withdraw from what they have paid into the CPP.
Or suppose someone has a terminal illness and is not expected to live
to retirement age. Is it sensible for the government to force this
person to save for their retirement — especially through the CPP? Upon
their death, their private savings can be passed down to their family.
Not so the money they were forced to pay into the CPP.
The
CPP hurts workers because individuals themselves, not the federal
government, have the best information and incentives to manage their
finances. Personal finance is, after all, just that: personal finance. It is not, and should not be, government finance.
Wow, lots of misinformation here, almost all of it is pure rubbish.
I've seen these articles over the years and they're typically hit jobs that pander to Canada's large banks, mutual funds and insurance companies which detest the CPP and CPP enhancement.
Why? Well, as the author states it in his article, more CPP contributions (not taxes!) means less money to spend on RRSPs, TFSAs and taking out bigger mortgages to buy a big house which Canadians can't afford but banks love as they make a killing off them.
Also less money for mutual funds and wealth management outfits which is an important and growing source of revenues for big banks.
Right-wing research centres like the Fraser Institute pander to Canada's financial services industry so I take everything they publish with a shaker of salt.
And to be clear, I'm right of centre in my politics and economic views but I can't stand reading right-wing and left-wing nonsense, it irritates me.
This article is complete nonsense which not surprisingly the Financial Post published without any editorial scrutiny.
Let's start off with why enhanced CPP was introduced in the first place and why it's critically important for future generations.
A year ago, Canada Life published an excellent comment on enhanced CPP which you can read here.
Please note this part:
Why is the CPP enhancement necessary?There are many reasons why the CPP enhancement is necessary:
How the CPP enhancement worksUntil
2019, the CPP replaced 25% of your average work earnings. The federal
government determined this average based on yearly annual pensionable
earnings (YMPE) from employment or self-employment up to the maximum
earnings limit in each year.
The enhancement means the CPP will begin to grow to replace 33.33% of the average work earnings you receive after 2019. The maximum limit of earnings protected by the CPP will also increase by 14% between 2024 and 2025.
The
CPP enhancement will increase the maximum CPP retirement pension by
more than 50% if you make enhanced contributions for 40 years.
So, CPP enhancement will not impact retirees or Canadians close to retirement, it will mostly impact those entering the workforce this year.
Importantly, the main reason why CPP enhancement was introduced was because policymakers recognized that more needed to be done to bolster the Canadian retirement system.
Too many Canadians are retiring with too little savings, have no defined-benefit plan and then become reliant on programs like Old Age Security and Guaranteed Income Supplement to retire on and that's simply not enough and these programs are pay-as-you-go and place fiscal pressure on the federal government as more Canadians retire with little to no savings.
The other problem? The housing market has become the de facto national retirement policy for many Canadians betting housing prices can only go up and their houses will sustain them into their old age through CHIP reverse mortgage programs and others similar to it.
But housing prices don't always go up and this isn't a sound retirement strategy, it lacks diversification.
Then there are RRSPs and TFSAs which are mostly used by high income earners as most Canadians can't afford to put the maximum allowable amounts every year and even those who do, the onus falls on them to make wise investments for their future.
Having a professionally managed national pension fund with experts who invest across public and private markets globally isn't cheap, you need to pay these people, but it offers all Canadians the opportunity to pool their contributions and in return, get a safe, secure, inflation adjusted benefit for life when they retire.
Keep in mind, most Canadians working in the private sector have no access to a gold-plated defined-benefit plan, their CPP benefit is the closest thing they have to that and this is why policymakers decided to enhance the CPP.
And as more Canadians retire in dignity and security, they spend more in retirement, and that's good for the economy and governments that collect sales taxes. It's good for the Canadian economy.
All this is totally lost on Matthew Lau, he thinks the answer is to allow Canadians to keep their money to spend it on what they want, to invest more on RRSPs and TFSAs even though this is a miserable failure and will not make a dent in their retirement.
Let's be crystal clear, TFSAs, RRSPs are good for savings but they do not match what CPP Investments does with CPP contributions and do not offer the same guaranteed inflation-adjusted income for life as CPP benefits.
Again, you have a national pension fund which is highly diversified investing and co-investing with the best public and private equity managers all over the world, including hedge funds, and we take all this for granted but it's a national treasure, other countries would kill to have such a professionally managed nation pension fund with world-class governance.
What about Lau's claims that the CPP Fund has underpeformed its benchmark over the last 5 years and since introducing active management back in 2006? That may be true but the benchmark they had originally was impossible to beat because it was 85% MSCI World Index/ 15% Canadian Government Bonds.
I personally always hated that benchmark and thought it was terrible because it's easy to beat in down years but hard to beat in roaring bull markets like the one we are in now.
It also distracts from the fact the CPP Fund has more than enough assets to meet future liabilities over the next 75 years according o the Chief Actuary of Canada and that's what ultimately counts the most.
CPP Investments' CEO John Graham is a huge believer in diversification and truly believes the Fund's diversified approach across public and private markets is the right one over the long run and he's absolutely right.
There will always be critics who claim passive indexing is the way to go but they don't get it, public markets are too volatile, contribution rates need to be stable and the right approach over the long run which also includes bear markets is a more diversified approach, that's the responsible thing to do.
And again, pension funds are not there to beat the S&P 500 year in, year out, they are there to make sure they have more than enough assets to cover long-dated liabilities.
What else? Lau writes this:
Or suppose someone has a terminal illness and is not expected to live
to retirement age. Is it sensible for the government to force this
person to save for their retirement — especially through the CPP? Upon
their death, their private savings can be passed down to their family.
Not so the money they were forced to pay into the CPP.
I admit the CPP isn't perfect and needs more flexibility but he also fails to understand CPP's death benefit and survivor's pension.
Most Canadians don't have a clue about these programs and I blame the federal government for not doing a better job explaining them to them not just through websites but YouTube tutorials etc.
Anyways, take everything Matthew Lau writes against CPP enhancement with a shaker, not a pinch of salt, he a hack and I would ignore him and the Fraser Institute (all hacks for Canada's powerful financial services industry).
Below, are you confused about the recent Canada Pension Plan (CPP) enhancements? In this episode of the Steadyhand Coffee Break Series, David Toyne interviews Jason Yee, an advice-only financial planner, to break down the changes and their impact on your retirement planning. Learn about the recent enhancements to the Canada Pension Plan (CPP) and how they impact your retirement, who benefits most, and what it means for employees, self-employed individuals, and employers.
Also Owen Winkelmolen, certified financial planner, discusses the benefits of CPP2 (enhance CPP), explains CPP, OAS, GIS and provides an excellent breakeven CPP analysis.
Lastly, what happens to CPP when you die? Watch this excellent video clip to understand the death benefit, the child's benefit and the survivor's pension.
HOOPP announced on LinkedIn that Chris Holtved was recently appointed Senior Managing Director and Head of Global Real Estate: 
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