[Ed. Note: America’s insolvent Social Security system isn’t unique. Chris Horlacher exposes the fraud and misappropriations of the Canada Pension Plan (CPP).]
A staple in the diet of modern socialists is a deep love for public pensions. Without them, they say, the streets would be filled with poor, starving elderly people aimlessly wandering around looking for spare change. Even beyond that, there seems to be an overarching positive attitude towards pensions in general, but also the Canada Pension Plan in particular. The standard advice from parents and grandparents is ‘get a good job with a good pension’. To all of this I say nonsense and I’ve got the numbers to prove it.
To understand how all of this works it’s important to understand the time value of money. If we are to sacrifice spending today, we want to be able to spend an even greater amount in the future. This is our reward for abstention and investment. Accountants have devised a number of formulae to calculate what different streams of payments will be worth in the future, and also what a future stream of payments is worth right now. These concepts are known as future and present value, and they play a huge factor in the decisions of business at large. Unfortunately, many individuals don’t seem to be incorporating this knowledge into their personal financial decisions. Otherwise they might feel quite differently about being forcefully herded into pension schemes like the CPP.
In making a decision whether or not to enroll in a pension plan you have to ask yourself ‘What am I getting and how much am I giving up?’ Present and future value calculations provide us with the perfect way to evaluate this. Let’s start with what you get from the CPP, I’ll also be generous and assume that our imaginary person will be getting the maximum retirement benefits they possibly could, which equates to $960 per month according to the 2010 press release. Assuming that a person applies for and begins receiving CPP at age 65 (the age most people become eligible) and that this person lives to the ripe old age of 80 (the average life expectancy of a Canadian), their benefits are worth $98,605 in a market returning a modest 8% per year.
So what did this person have to give up so that they’re eligible to receive that $960 per month for 15 years? Since it was the maximum possible benefit package under the CPP, it would be reasonable to assume that this person would also have to contribute the maximum amount possible for the majority of their lifetime. Considering the fact that anyone grossing more than $48,300 per year is already making the maximum annual contribution, it’s not a huge stretch to say that a vast amount of Canadians are in this ballpark (though whether they actually receive the maximum benefits they logically should be entitled to is another story completely). Assuming that a person starts work at age 25 and works right up to retirement age and makes the maximum annual contribution, those contributions are worth an enormous $574,484 in a market returning the same, modest 8% per year.
“But the CPP will provide so much more than just retirement benefits!” cries the socialist, “You get disability, survivors and death benefits!” Fortunately, we can also do the math on those as well. If you collected disability on top of your retirement benefits the entire time, the lump sum value only rises from $98.6k to $118.5k. The death benefit is worth only $788. Assuming your surviving children were born the day you before you died, their benefits are worth only $22.4k. That’s still over $430,000 short of the mark under even the most ideal of circumstances.
And it gets worse.
You see, you aren’t making all of the contributions to your CPP account that you think is really going in, your employer foots half of the bill. So the real value of all those contributions is $1,148,968. Imagine being able to opt out of CPP and take the money you and your employer were originally forced to hand over to the government, and invest it yourself. Do you think you can earn an 8% average return on your investments? Do you think you could use an extra million or more at retirement?
Apart from being a complete waste of your money, the CPP is being used to finance government deficits. The CPP fund is worth $123.8 billion as of their last set of financial statements, over $30 billion of that is invested in government debt. What an insidious way for the government to get your money without calling it ‘taxation’! At least the fund is still solvent according to the actuarial evaluations. The USA’s Social Security Fund is invested entirely in government debt and is underfunded to the tune of $17.5 trillion (it needs that amount of money, right now, just to break even) as of the end of 2009 with no end in sight as to how deeper into debt it will slide.
No wonder there has been such vociferous opposition from certain groups against the forced enrollment of citizens in these ‘pension’ schemes. In some cases, they’re even allowed to exempt themselves. This is something that everyone should be able to do for any reason. After all, since these pensions are clearly being run to the detriment of everyone made to participate in them, nobody can claim that society needs them.
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