Article content continued

Once again, this is quite encouraging since raising the ceiling is the most effective change we can make to the CPP. To explain why, we can use the results from LifePaths, a sophisticated computer model developed by Statistics Canada which, among other things, estimates the income replacement rates of retirees. Most people want a replacement rate of 100% meaning they could maintain the same standard of living after retirement as while they were working.

Because so many big expenditures vanish by retirement, we can have much less income after retirement than when we were working and still achieve a 100% replacement ratio. With this in mind, the LifePathsresults show the retirement problem is really concentrated within one income group.

Consider first those who earn less than half the average wage. Almost all of them will enjoy replacement rates of 100% or more, thanks to Old Age Security and the Guaranteed Income Supplement (GIS) alone. They won’t even need CPP to get there and higher CPP benefits would reduce their GIS income.

Those who earn between half and one times the average wage (i.e. $25,000 to $50,000) are doing nearly as well. Over half of the recent retirees in this income group have replacement rates of at least 115% while only 1 in 10 has a replacement rate below 85%.

The next income group consists of individuals who earn one to two times the national average wage, i.e. $50,000 to $100,000. These are the middle-income earners and about a third of them will have a replacement ratio less than 85%. Certainly they could be helped by increasing the benefit accrual rate (see below) but that would be overkill for the lower-income groups.