Taking care of granny and gramps.

When the Canada Pension Plan (CPP) was launched in the 1960s, the country had more employed people than retired people. But, the oldest members of the post-war baby boom are over 50 now and huge numbers of them will retire soon. That, combined with longer life expectancies and more disability payments, means the money going into the CPP is not enough to cover future costs.

In most pension plans, an individual's contributions paid today become benefits in the future. The CPP is a pay-as-you-go system. The contributions made by workers and their employers each year go to current retirees, along with widows and disabled people. The system works when there are more workers contributing to the plan each year than there are pensioners collecting benefits.

But, as things stand, the plan is going broke. Already, CPP pays out more in benefits than it takes in from contributions. This is eating into the system's $40 billion reserve fund, which was expected to stay at a level equal to two years worth of benefits. By 2015, the fund is expected to run out of money. So, there's big trouble ahead unless workers start paying more into the system and benefits are reduced.

The fund has been badly managed. If CPP premiums had been set high enough back in 1980 to put more money abide, the reserve, or surplus, would be equal to about. 30 years of future benefits instead of two.

The deterioration in the plan's finances has been sparked primarily by a surge in the number of new disability cases. In the five years between 1989 and 1994, they doubled for women and increased 48% for men. To stop the fund running out of money by 2015, it's been estimated that contribution rates will have to go up every year and reach a level of 11.8% of pensionable earnings by 2016; compare that with 5.4% now. Long-term rates would eventually level off at 14.2% of earnings by 2030, when population aging is expected to stabilize.

But, Ottawa and the provinces announced in June 1996 that they wanted to keep the maximum contribution to 10%, combined with lower benefits to fewer people. Officials talked about spreading the increase over six to eight years to catch the baby boom generation in its peak earning years.

British Columbia caught everybody's attention in September 1996 when it suggested expanding the program rather than cutting it back. Reforming the CPP requires the joint agreement of the federal and provincial governments. But, agreement has become more a federal dream than reality, despite Ottawa's insistence that the issue is an urgent one.

B.C.'s finance minister has proposed lifting the $35,400-a-year ceiling beyond which contributions and benefits are not calculated. Doing so would mean taking more from middle-class earners In the near term, which would allow the plan to build up enough surplus in the next decade or so to carry it through the worst of the baby-boom bulge.

The battle of the bulge continues.

SUGGESTED ACTIVITY:

The CPP pays pensions to 3.5 million retired and disabled Canadians. Another million Quebeckers receive benefits under the sister Quebec Pension Plan. Some of the provinces have objected to the reduced benefits they say Ottawa wants. They say the hardest hit people would be the most vulnerable. Talk to as many working people as you know about how they feel about paying more into the system. How do you feel about contributings say 10% of your future earnings to pay for benefits for your parents, generation?