New proposal suggests letting Canadians use TFSAs to purchase CPP income units starting at 60
In an opinion piece published by The Globe and Mail, a proposal encourages Canadians to consider purchasing more of something already made in Canada and envied globally: the Canada Pension Plan (CPP).
As the public is urged to buy Canadian goods and services, the piece suggests extending this mindset to include additional CPP benefits.
The CPP currently operates by having Canadians contribute about 6 percent of their wages throughout their working life. Employers match this contribution.
In return, retirees receive a pension annuity that approximates 30 percent of their best year’s wages.
Although complex in structure, the system ultimately provides a real inflation-adjusted life annuity that pays out for as long as a retiree lives. This avoids the need for individuals to manage decumulation later in life.
Globally, pension observers have commended the CPP for its design, management and governance.
When UK Chancellor of the Exchequer Rachel Reeves visited Canada in 2024, she spoke with managers from the country’s largest pension plans, including CPP.
Canadians who delay receiving CPP benefits until age 70—referred to as “three-score-and-ten”—see their annuity increase by about 40 percent.
Instead of receiving $1,000 monthly at age 60, retirees who wait until 70 would receive approximately $1,400 a month.
Despite advocacy from financial experts, few Canadians take advantage of this delayed strategy.
To address this, the article proposes allowing Canadians to voluntarily buy CPP “income units” beginning at age 60. These units would activate when the individual turns 70.
For example, on January 1, the CPP could offer units priced at $10 each, providing $1 in annual inflation-adjusted income for life starting at age 70.
To receive an extra $100 monthly—or $1,200 annually—retirees would pay $12,000. Doubling that amount would double the cost.
CPP actuaries would adjust the price of these income units periodically to maintain fairness, but payments would begin only at age 70. Canadians still in the workforce could also buy units.
For simplicity in tax reporting, these units could only be purchased using a Tax-Free Savings Account (TFSA).
This would cap the purchase amount but ensure the additional CPP income remains tax-free and does not trigger Old Age Security clawbacks.
Beyond financial mechanics, the proposal highlights behavioural and psychological advantages. Seeing others buy CPP units may prompt early claimants to reconsider their strategy.
The article notes that “if some people are buying more of this good deal, then why are you selling?”
The units could also function as a form of longevity insurance, protecting retirees from outliving their savings and avoiding dependence on volatile stock market returns.
Moreover, the pricing would help Canadians understand the present value of their CPP benefits.
For example, someone told that waiting until age 70 yields $2,000 monthly could multiply that by 12 and then by the $10 unit price—revealing a pension worth $240,000.
Though the idea might contradict the ideals of economist Adam Smith—who resisted government interference in private industry—the article points out that Canadian insurance firms have largely avoided offering true longevity annuities.
It argues this is a form of market failure, not ideological error. The proposal is more likely to affect investment fund companies than insurance providers.
There is, however, a caution: mispricing these income units could jeopardize the CPP’s sustainability. Still, introducing market discipline might mitigate this risk.
The opinion piece suggests that enabling Canadians to buy more CPP benefits would enhance retirement security at a time when fewer workers have access to workplace pensions.
It even proposes allowing Americans to purchase these units to diversify their retirement portfolios, subject to a modest fee or tariff.
