Canada’s pension system is working just fine, thanks

BY BRIAN LEE CROWLEY

The warning that ‘Canadians are not saving enough for retirement’ has been repeated enough times that many unquestioningly accept inadequate retirement savings as a fact.

First, there is nothing wrong with the way pensions are run in Canada, and much that is right. Only two major OECD countries, France and Germany, have pension systems that give their average retiree a higher percentage of average pre-retirement disposable income.

The Netherlands, Sweden and even the U.S., with their much more generous state schemes, end up giving retirees less, relative to average disposable income, than Canada’s impressive 91%.

Canadians held $2.4 trillion in pension plans in 2011. The value of these plans did tumble 12% (or $200 billion) during the 2008 financial meltdown, but their value has more than recovered since.

Of course, these pension assets might be poorly distributed, with a few people having lots and many having too little. So if there’s a retirement saving problem, where is it to be found?

Canada has essentially solved the problem of poverty among the elderly. The Canada Pension Plan (CPP), together with the Old Age Security (OAS) and Guaranteed Income Supplement (GIS), puts a floor below which the pension income of most retirees won’t fall.

So if there is a problem, it would be among the middle class.

But public sector workers have, if anything, overly-generous pensions plans. They certainly don’t need the government to force them to save yet more for their retirement.

So we are now down to middle class workers on private sector payrolls. There is evidence some middle income earners are not saving enough to generate the 60 to 70% of pre-retirement income considered suitable for a comfortable retirement.

This shortfall may be due to poor data that do not capture all sources of retirement income and therefore may be misleading.

So if there is a problem of inadequate retirement savings it is a narrow one. Of the two broad approaches to fix this potential problem – an across the board expansion of the CPP, or pooled workplace pensions – which is better fitted to the actual problem?

Advocates of a Big CPP, like trade unions, some provinces and the outgoing head of the CPP, are aiming a howitzer at a gnat. The problem with big universal solutions to narrow-targeted problems is they increase taxes and benefits for people who don’t need them, like public sector workers, the rich, and those on low incomes who get the full panoply of CPP, OAS and GIS. Pooled pensions, by contrast, focus tightly on those who may actually need help accumulating retirement savings.

The Big CPP proposal aims to force all Canadians to save more for their retirement by raising premiums and benefits. They make the easy assumption that if you force people to save, they’ll have more money for retirement.

Canadians who participate in registered pension plans are forced by those schemes to save. If the equation “more forced savings equals higher retirement incomes” held true, RPP participants would have higher retirement incomes than non-participants. Inconveniently for the Big-CPP advocates, they do not. Higher forced savings may lead them to reduce voluntary savings elsewhere, including in home equity.

Our future middle-class retirees now have an array of vehicles available to help them save. RRSPs are quite widely used in Canada. And the removal of the foreign property rule allows Canadians to diversify investments and hence their risk more than ever before.

The introduction of the tax-free saving account has added an important new saving vehicle whose impact we cannot begin to measure. And, finally, Ottawa has introduced pooled pensions which add a valuable targeted tool.

Pooled pensions are a thoughtful supplement to an effective system and can make an efficient and low-cost workplace retirement saving plan available to the majority of private sector workers who currently have no such plan.

Brian Lee Crowley (twitter.com/brianleecrowley) is the managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa.

Just Posted

Oh What a Night! celebrates iconic American legends

Frankie Valli and Andy Williams honoured during Red Deer show

WATCH: Hundreds come out to annual Red Deer Lights the Night

Celebration featured lighting of City Hall Park and Red Deer’s Christmas Tree

Santa Claus comes to Bower Place

Dozens line up Saturday to have photo taken with Jolly Old Saint Nick

Bruce Buruma enters the UCP nomination race for Red Deer South

Vote for candidate takes place early in the New Year

Trudeau offers to help Pacific islands face climate change impact

Prime Minister Justin Trudeau met with the leaders from the Pacific island nations on Saturday during the APEC Summit in Papua New Guinea

B.C. asking for tips on ‘dirty money’ in horse racing, real estate, luxury cars

Action follows a Peter German report on money laundering in B.C. casinos

Canadian dead more than a week after plane crash in Guyana: Global Affairs

Global Affairs said it couldn’t provide further details on the identity of the Canadian citizen

Privacy concerns over credit card use for legal online pot purchases

Worries follow privacy breaches at some Canadian cannabis retailers

Death toll rises to 76 in California fire with winds ahead

Nearly 1,300 people remain unaccounted for more than a week after the fire began

Trump says report on Khashoggi death expected in a few days

Jamal Khashoggi was a columnist for The Washington Post who was slain Oct. 2 inside the Saudi Consulate in Istanbul

CUPW requests mediator as deadline for Canada Post offer expires without deal

Prime Minister Justin Trudeau weighed in Saturday night with a last-minute plea to the two sides

Trudeau says he won’t negotiate in public on future of LGBTQ rights in USMCA

Legislators urged Trump not to sign the agreement unless the language was removed.

Grande Prairie RCMP charge 19 men, ranging in age from 23 to 69, in prostitution sting

Three-day operation targets sex activities in the downtown area

Most Read