Workers juggle higher CPP bills, weaker value-added returns, and tighter savings flexibility
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.”
