EOM 3 Task 1 Wage inflation

[MathinTucson]

In order to calculate the CPP covered earnings and maximum pension earnings over time, you need to make an assumption about the growth in average Cascadia wages over time. We aren't given this figure, but the input in the spreadsheet seems to assume 4.0% (lower than the Chocolate factory). Since we were asked to check the calculations and not the inputs, I'm going to leave it as is. Anyone disagree?

Also, the CPP covered earnings and max pension earnings grow at different rates in the spreadsheet. I didn't see anything in the assignment description that would indicate that this is correct. Did I miss something?

[jraven]

Originally Posted by MathinTucson

Also, the CPP covered earnings and max pension earnings grow at different rates in the spreadsheet. I didn't see anything in the assignment description that would indicate that this is correct. Did I miss something?

I agree -- since the rates in the spreadsheet are currently such that the max pensionable earnings end up growing at a slower rate than the CPP covered earnings it isn't technically a problem [the assignment only states that the private plan's max pensionable earnings must be at most 4 times the average Cascadian income (hence twice the CPP limit), but seems to leave open the option that it could be less]. But it seems strange to me, especially since the assignment makes no mention of it.

Just one more thing to tweak on the spreadsheet.

[jraven]

Oh, and another thing wonky with the spreadsheet -- the assignment states "An individual's covered earnings under the CPP many not increase by more than inflation during the final ten years of employment." This makes sense, since otherwise employer's could game the system by handing out massive raises to their lower paid employee's just before retirement, thereby boosting their CPP pension benefit for little cost to the employer.

But that's not what the spreadsheet does. The spreadsheet limits the CPP maximum covered earnings to grow at the rate of inflation in the final ten years (age 55+) -- but as long as the individual's covered earnings stay below that cap it grows the individual's covered earnings at the pensionable earnings rate, which exceeds inflation for ages 55-59. [Specifically, at inflation + 0.5% for ages 55-59.]

There are so many things screwed up with that worksheet.