It comes as no surprise that the Fraser Institute discourages improvements to the Canada Pension Plan in a report released this week. The right-wing group argues that increases in contributions lead to decreases in voluntary savings.
And private savings are better, it maintains, because they offer more flexibility, including self-directed investing and the ability to cash-in early if the money is needed.
Leaving aside the confirmation bias, the potential for riskier investments and the option of raiding the cookie jar, the report ignores the reality that the people most likely to depend on CPP are precisely those who can’t or won’t set aside money for their retirement years … if they ever come.
About two-thirds of Canadian workers don’t have a company pension plan. In fact, about a third don’t have any retirement savings at all – about 30 per cent of eligible workers didn’t contribute to an RRSP last year, for instance.
For those who have no savings of their own, relying only on government sources, retirement will be a meagre affair. Or simply put off altogether.
The CPP provides 25 per cent of a worker’s average annual earnings – hardly enough for a comfortable retirement, which is where programs like Old Age Security and the Guaranteed Income Supplement come into play.
That level has been consistent since the program was introduced five decades ago. Payments for current recipients come partly from invested reserves and partly from contributions from today’s workforce. In order to ensure a more stable system and to provide a decent retirement income, we’ll have to start boosting CPP contributions.
Ideally, that 25 per cent figure would become 70 per cent, the figure most often cited as the level of income needed to preserve our standard of living in retirement.
Much higher contribution levels should have been ramped up years ago, but better today than not at all – that’s the rationale for Ontario’s proposal for a pension plan of its own, though undermined by the fiscal incompetence of Kathleen Wynne.
While there’s a kneejerk reaction to equate contributions to taxes – that’s not the case – and to fret about the drag on business costs, the benefits trump those concerns. Moreover, governments truly interested in the long-term welfare of the people would seek to reduce expenditures – staffing costs being paramount – to allow for commensurate reductions in tax rates, with the bulk of the cost savings redirected to useful infrastructure projects with long-term benefits (the “useful” being a necessary qualifier given governments’ penchant for spending vast sums on useless projects, a very long list that includes the current Pan Am Games and the LRT right here).
Even more concerning, almost 60 per cent of those on the cusp of retirement (55-64 years of age), and a little more than 40 per cent of those aged 65-plus report that they have not put enough money aside. Women and those with lower levels of household income were even less likely to have put money aside.
More than a third of Canadians say they don’t know when they’ll be able to retire, while some 40 per cent of employers believe their employees are overly optimistic in their assessment of when they will be able to retire.
As spending priorities go, there are few things more important than financial security and the stability of a well-funded pension system. But long-term thinking – and the public good – is in short supply among those making decisions.
