Differences between CPP and private pension plans

In comparing CPP and private pension plans, it must be considered that there are significant differences between the two. Comparing the two would be like comparing apples to oranges, according to a new study. The research finds private pensions face more regulatory difficulties and as a result, face higher costs. The study conducted by the Fraser Institute examined the different regulations governing the Canadian Pension Plan in contrast to private and public sector pensions, among others.

“You should be aware of this is why your plan might be a little costlier than the CPP, but it’s because you’re getting a better product or maybe a more diverse product or a more… nuanced product than just the plain vanilla CP,” said Moin Yahya, a senior fellow at the Fraser Institute, and co-author of the research.

Canadian Pension Plan is free from many disclosure requirements, whereas private plans are obliged to follow government-imposed regulations such as regular financial statements.

“The regulations governing private pension plans, which can lead to increased transparency and accountability, inevitably also increase costs, but often those same regulations and costs don’t apply to the Canada Pension Plan,” Yahya said. He added that people frequently think that the CPP’s comparatively lower costs are “a function of efficiency”, but in truth CPP avoids the substantial regulations imposed on private plans.

Yahya said that it’s critical to understand what drives the cost differences between the CPP and private pension plans.

Every employees and their employers are mandated to give a portion of their salaries to the CPP, whereas freelancers are required to pay the full applicable contribution amount for CPP on top of their taxes. Upon retirement, CPP will give your pension every month depending on the percentage of your previous contribution. Along with the Guaranteed Income Supplement (GIS) and Old Age Security (OAS), the Canadian Pension Plan is one of the three main government pension plans.

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