Canada’s public pension ‘crisis’ isn’t as dire as the provinces contend

Nor is the solution very complicated

Aaron Lynett/CP

Will 2014 be the year of the duelling pension plans?

Last month, Ottawa and the provinces failed to agree on what, if anything, needs to be done about the Canada Pension Plan. Led by Prince Edward Island, the provinces have argued for an expanded CPP to protect Canadians who fail to save enough for retirement. The Harper government has rejected such plans as dangerous to the economy. Kevin Sorenson, minister of state for finance, claims the payroll tax hikes necessary to fund the provinces’ plan “could kill between 17,000 and 50,000 jobs.”

Since changes to the CPP require both federal and majority provincial approval, this difference of opinion has produced a deadlock. Griping that Ottawa’s position is an “unfortunate stall tactic,” Ontario Finance Minister Charles Sousa is now vowing “a made-in-Ontario alternative to protect Ontario workers in their retirement.” His P.E.I. counterpart is thinking along similar lines, creating the possibility of competing public pension plans springing up coast to coast.

It’s a poor start to the new year. Rather than sniping at each other and duplicating programs, Ottawa and the provinces ought to agree on the most obvious flaw in CPP as it is currently constituted and fix that.

To deal with the provinces’ complaints first, the problem to be solved by boosting CPP is neither clear nor pressing. Low-income seniors are already well served by the current system of CPP plus Old Age Security (OAS) and the means-tested Guaranteed Income Supplement. The rate of poverty among Canadians over 65 is the lowest of all age groups tracked by Statistics Canada; those seniors who are poor tend to be widows ineligible for CPP. Boosting regular CPP payouts will not provide a solution to their situation. At the other end of the spectrum, wealthy Canadians obviously need little in the way of additional assistance from federal or provincial governments for their retirement. That leaves the middle class.

As attractive as it may be for politicians to fret about the comfort of the middle class, the vast majority of this group is also saving plenty for their retirement years. At issue is a small share—perhaps 20 per cent—who lack a workplace pension, do not own their own home and are not putting enough aside in RSPs for their golden years. While these folks may not face actual poverty in their old age, they are unlikely to enjoy an income of at least 70 per cent of their working-age earnings, the standard measure for a comfortable retirement. The question facing Canadian policy makers is how to help them without creating a massive new pension bureaucracy or job-killing tax.

This brings us back to the federal stance, and the possibility for common ground.

In 2012 Ottawa raised the age of eligibility for OAS from 65 to 67. This move, to be phased in over the next 15 years, was popularly construed to mean Canada’s retirement age had increased. In fact, the age for accessing CPP was not altered, since this requires provincial approval.

There is tremendous logic in updating the retirement age. Fifty years ago, when the retirement age was set at 65, life expectancy was 72. Today it’s 81. Current problems with the sustainability of public and private pension plans are largely driven by the inexorable lengthening of years spent in retirement and the imbalance between the working and non-working portions of the population. Nearly every developed country in the world has already raised, or is in the process of raising, its public pension retirement age to 67 or 68. Canada, on the other hand, has two retirement ages: 65 for CPP and 67 for OAS. This makes no sense.

Many of the problems identified by the provinces could be solved by simply aligning the CPP with OAS. (And with a similar phase-in period.) The pension plan itself would be placed on a more solid financial footing, which could allow for small enhancements aimed at particular disadvantaged groups, such as survivor benefits. More importantly, those two extra years of income later in one’s working career would greatly improve the opportunity for retirement savings, particularly for those middle-income earners without workplace pension plans who’ve become the focus of the provinces’ attention lately.

Raising the CPP age also reinforces the proper notion that retirement savings should primarily be a private responsibility, especially for those who can afford it. While the state has a role in protecting older Canadians at the bottom of the income range, this duty does not necessarily extend all the way up the ladder. If middle-class Canadians find they need to save a bit more to ensure they can enjoy a long and comfortable retirement, working another year or two seems like a good place to start.




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Canada’s public pension ‘crisis’ isn’t as dire as the provinces contend

  1. We’ll just kick universality to the curb, right? No one will notice we’ve had ‘means testing’ return.

    • It is the old “Cradle to Grave” syndrome mostly with OPM
      (Other People’s Money)

      There is a huge portion of the population that feels they should be entitled to draw out 10 times what they put in.

      • Actually it’s our money.

        And we can spend it how we choose.

        • Yep, but your deity Ottawa is giving you less value money.

      • Other people’s money. Yup,

        How many of those people’s money was made off the work of people who slaved away to make just enough to eat. If they’re lucky.

        So yuh. We’re talking about the money other people have made off the backs of people who are actually *working*.

        They work all day for next to nothing so that you can come on here all pompous and righteous.

        Other people’s money? Other people’s work?

        Truth is that many poor people are ‘entitled’ to only one tenth or less of their labour’s productivity. Somebody is getting rich and it sure as ever is not going to be the people who are doing the actual work.

        In the evening after a round of golf and with a big tumbler of good scotch, you move your money around to make it bigger. Hard work?

        And you feel entitled whereas the people who’ve been slogging away at crappy jobs that break their bodies down? What?

        Wow! Other people’s money.

        Our economic policy legitimizes piracy,theft, and fraud. For want of other more politically correct terms. In this system? You own what you steal.

        Other people’s money. Other people’s work.

        • Modern day taxation has become modern day slavery as the money they steal from us will benefit us so little.

          And statism is the only result of any choice on the ballot isn’t effective democracy. Its the ruse of democracy when the only choice you have is who gets more of your money to return you no real value.

          I really wish I could convince my wife that it is time for us to leave this tax forsaken nation of debt and greed of other peoples money. Canada’s futures are going to be hyper taxation and hyper inflation for less value money. I really wish I could place option shorts in value against the Canadian system say 3 years out.

          • Ideally then, you seem to be saying, you could instead of paying taxes, pay road tolls, contract with a security firm, a fire-protection firm, chip in toi the purchase of fighter planes and military equipment and deployment, pay ‘full price $USD’ for medical care, contract with schools to teach your children, accept that caveat emptor applies to the purchase of food (if it makes you sick then just don’t buy it again – the cool rule)

            I could go on, but it’s clear that you do not understand. You expect to live in a well-ordered, clean, peaceful country without paying a penny for it?! Ok sure, we’re not perfect, but given all the countries in the world, I feel lucky to be living in Canada and I don’t mind paying taxes for the privilege.

            So you could move somewhere where you could personally pay for all the services provided to you as a Canadian citizen, a Canadian taxpayer, and then get back to us about the deal you’ve found.

            Waiting…

        • You’re working from an incomplete picture of productivity. Much of that productivity derives from the capital outlay of somebody else, and the intellectual investment that created a product or system that translates the labour into something of value. Consider the input of somebody flipping burgers at McDonald’s: they have a job flipping burgers because somebody else invented the hamburger; defined how to make, cook, and serve the hamburger efficiently & cheaply; and built a restaurant and developed effective marketing to build a customer base. We haven’t even touched on the supply chain and equipment manufacturers who make that happen. So yes, if you look at what that person is paid compared to the price of the product that’s sold, you might assume that they’re getting screwed on the value chain. Unfortunately, the real question is what that person’s labour would be capable of producing without the benefit of all the above.

        • -
          Bobby boy –
          (1) You don’t understand. People are giving money to the Political Class thinking that is a good investment. This is generally not a good idea. Would you trust young Trudeau or Munclair with money? If you would you must be mad not riled.

          (2) Mexico is not my choice but yes you can purchase everything we need outside Canada including healthcare. We don’t need “Mother Ottawa” to provide us with the basics of life.

          One Third of my work for the past few months has been from Europe and the US. My goal for 2014 is to earn half or more of my income outside Canada.
          My pension is an investment in building a system that allows me make an independent living that can be passed down to my family. I believe that is more valuable than any pension from any country. The more international I can make my client base the stronger the system. It may be small but it is mine. I have no other investments.

          And good luck to you Bobby and your ilk if you depend upon Young Trudeau or Monclair and bureaucrats for your living.
          What you have is HOPE Mr. Bobby – Not a PLAN.

          If you need investment advise talk to Dave777
          He could teach you a lot if you could be wise enough to listen.

      • Yep, and spineless corrupt (all) parties pander to them.

        Part of why I say we need better choices on the ballot that isn’t debt-tax slavery to the huge waste.

        If people want to be managed like chickens, perhaps slavery should be allowed in Canada. Buy a person that can’t manage their life and have them as slave as you manage their lives for them.

    • We certainly don’t need more sexologists, unemployeed teachers, politicians, basket weaving PhDs, BA, MBA, arts and consumption driven useless people.

      Only careers that have jobs waiting with a 90% graduate hiring rate or more should be subsidized as at least it could be argued they will someday pay taxes to help share the burden of a bloated wasteful government statism.

      Hey, if people want a totally useless degree in whining and consumption, fine, pay for it yourselves. Time to stop funding stupidity from the taxpayers wallet.

    • Paul Martin and Lloydd Axworthy very nearly eliminated the universality of OAS in the late 1990s. They had a plan in place to combine OAS with GIS into a single means-tested benefit with a single uniform claw-back rate. It was a far superior model to our current one. Predictably, they backed down at the last minute, due to pressure from those upper-middle income seniors felt they would have lost out on their remaining OAS. It’s a shame they got cold feet, because a lot of work and forethought had gone into those reforms, and they were/are badly needed. And of course, rather than reviving the solid reforms the Liberals chickened out on, the Conservatives opted for a stop-gap measure with minimal electoral consequences, and raised the age of eligibility to 67, 20 years down the road. I’m not sure which is more spineless: Getting cold feet and dropping a good, solid reform package because of political considerations, or ramming through a half-assed measure due to those same political considerations. As much as I disliked Mulroney, he had one thing we haven’t seen since: policical courage to bring in drastic changes when necessary.

      • Well, even if you know all this to be true…..you can’t lead people where they don’t want to go.

        Mulroney did what was right for the country and he’s been villified ever since…..years from now people will appreciate what he did….but that won’t do anything for him.

        • Reforming the old age income supports system would have caused some controversy, just as replacing universal child allowance with the means tested child tax benefit did in 1991 (another Mulroney reform). But the outrage of the end of universal child allowance blew over and no politician would ever change it back again. Had the old age support reforms gone through in the late 90s,we’d have a better system, with no serious risk of ever reverting to the old system. The howlings of outrage would have long since passed.

          • Are you unaware of the child benefit Harper raised?

          • He brought in UCCB to replace the daycare program announced by Martin. It did not, nor will it, replace the CCTB or NCB. He also brought in a $2000 non-refundable child tax credit. Again, this does not replace or reduce the CCTB and NCB, nor will it.

          • It amounts to much the same thing even though Cons persist in the notion that changing the name changes the object.

            We still have a baby bonus.

  2. “updating” … I see what you did there.

  3. This article does not touch on the demographic issues facing Canada as the boomers retire. In isolation, it all sounds fine. It’s missing the elephant in the room. We need boomers to not be a burden on the state (have more savings to draw on), so they don’t end up living for years in nursing homes their incomes do not cover, their fees topped up and health care covered by a smaller number of workers.

  4. “While the state has a role in protecting older Canadians at the bottom
    of the income range, this duty does not necessarily extend all the way
    up the ladder.”

    Did i miss the part where Harper makes up for the lost benefits[ potentially $30000] for those who have to wait 2 more years for the OAS? We’re talking about the truly working poor here, those who may have very little CPP to draw on in the first place. Most likely those who are least able physically able to slog out another year or two on the job, and certainly can’t afford to lose up to $30000 in retirement income. Or is the plan still to down load that to the provincial welfare rolls? Hey, maybe Nigel can cut them all a cheque!
    edit: where oh where did that $30000 figure come from?

    • OAS is maximum just over $500 per month. Which works out to a little over $6000 per year. Which is a maxiumum of somewhat under $13,000, not $30,000. Try not to take your stats from Rabble.ca.

      • Never go near the place – not intentionally anyway.
        I don’t know why that figure stuck in my mind. Maybe it had to do with the misunderstanding that CPP was pushed back two years as well.
        “That is the same age that will apply to Old Age Security changes that affect Canadians who were 53 or younger as of March 31, 2012. The age of eligibility for OAS will be gradually increased to 67 from 65 between 2023 and 2029. Payments for OAS are currently $6,122.52 a year, so a two-year delay will cost a couple $24,490.08, plus inflation.”

        This quote from a GM article seems to bear your point out.

        • CPP/OAS is inclreasing well below inflation, so in terms of value, try living on $6 OAS + $13k CPP as $18k/year is poverty.

        • CPP was not pushed back to 67. Might it be? I don’t know. But not thus far. The Rabble comment was uncalled for. My apologies. Perhaps you heard $13,000 (about right) and just mistook it for $30,000. Or perhaps someone else did and repeated it.
          I don’t oppose raising the age, but doing so was a stop-gap measure that does nothing to reform a system of supports badly in need of reform. Martin & Axworthy a major comprehensive reform ready to go in the late 90s, that would have seen OAS and GIS eiliminated, with the money instead going into a revamped, means-tested benefit with a single uniform claw-back rate. It was better, fairer, more efficient, and would have done a better job targeting those seniors who need the money. But beacuse some middle-income seniors who would have seen a possible reduction in benefits started to make noise, Cabinet lost their nerve and cancelled the reforms. I suspect Chretien vetoed Martin & Axworthy because of pure political considerations, but who knows? It’s a shame. Those reforms are still needed.

          • No problem. It was my mistake.

            The article does seem to say CPP has not been pushed back…interesting?
            Way of the world i guess. One day some smart individual is going to write a fun book detailing the might have beens of the political world, and whether or not we would have been better of living in that world.

      • CPP+OAS == poverty.

        So people better save. If anyone thinks people who make this country work or seniors who have are going to get a fair shake in their false blind trust of corrupt governemtn bloat, they will be disappointed and a envious whiny bunch.

        As Ottawa is all about deceiving people out of their money to buy votes and line friends of government peoples pockets.

  5. …get smart and take your retirement money to a place where it provides you with a decent standard of living. Why pay $6-$8 for a glass of Corona when you can get one for a dollar here in Mexico… you can rent a decent casa for $450 a month….I can get my car repaired for less than 1/5 the price in Canada. and a bottle of nice rum (1 liter) for $8. I’m fed up with paying ripoff prices to a subset of 1%ers and wannabe 1%ers who are privileged to be in a position to rip us off exorbitant amounts for the exclusively sourced goods and services they provide..A dentist in Canada will hose you $200 or more for simple filling…here it’s $50…health care is first class and you don’t have to wait 6 months to get an appointment to see a specialist…you see him or her right away…and you won’t die sitting in a wheelchair waiting in a hospital ER waiting room.

    • When we go to Mexico we go to Walmart and get beer for $10.50 a 24, than 60 cents for a bag of ice…. works out to less than 50 cents a beer with limes too.

      You are right, we are a tax-debt inflation economy of statism as more than 1/2 the cost of your $200 dental filling is in taxes, income/employment/ins/property/city/utility and hidden taxes people know nothing about.

      Only one health care provider and no options for their waste, negligence, corrupt and between bad management and unions, we are screwed.

      I needed car work, CAD quoted cost was $972 in Calgary, had it done in the USA for $531. Going to need tires next year and I will show USA. Even have US accounts and credit cards. So as the CAD falls, I am worth more in CAD as I don’t get the brunt of Ottawa inflation and corruption tax.

      There is a reason Ottawa is worried about offshore investors like me. If I move out of tax forsaken Canada, Ottawa gets NOTHING.

  6. How about you just let me invest this CPP money myself, rather than stealing it from me and my family?

    • LOL no, you’d rather steal it from retirees. The ones who paid for it. Plus your education, healthcare and everything else you’ve benefitted from all these years.

      • EmilyOne… I am really getting bored with your comments. I’ve been reading Macleans for years and it seems that you have something to say about every article, every time. It gets tiresome. Do you really have nothing else to do with your time other than argue all day long? How boring…

        • If you had actually read my comments you’d know I work online, and pop in here on breaks. Of course you’d also know that I don’t comment on all the articles, as most of them don’t interest me.

          Then again, you might even have figured out that you don’t have to read them

          • I read them for the comedic relief. Hard to believe people as ill-informed or close – minded as Emily can actually function without some form of Government assistance.
            as to the topic at hand, I’d simply say retirment savings wouldn’t be an issue for most Canadians if the various levels of Government didn’t take away half of our income every year. As we have seen repeatedly, Governments don’t take as much care looking after our money, as we ourselves do.

          • Don’t you mean goof off on-line? After all I doubt your welfare is for posting articles. Come clean, you are economicall dependant on other peoples money for nothing.

      • No working CPP/EI/income taxpayer is stealing from retireees.

        Government did that over the last 4 decades of CPP mismanagement and debt/currency fraud.

        Add that real inflation is about 7%, but CPP/retired/disabled only get 1% increases, it is a rapidly devaluing benefit that will not be of much value in the future for anyone young or old.

        But hey, far too many have “blind faith” in government.

    • They don’t want you to have control, they want you to be a good compliant tax chicken managed by the corrupt state.

      Consider CPP/EI a tax. As it is a tax. No guarantees and like today, after they get peoples money they change the rules. 67 for less, while governemtn chair mushrooms get retirement 55 with loads of benefits. MPs get 10.4% guaranteed annual returns and out wallets also bailout governemtn and buddy unions.

      CBC has even changed its policy not to allow comments on governemtn fraud any more. We a a manged herd of tax chickens.

      Ottawa is about deception for other peoples money.

    • Because you may save your money properly but a lot of people will not or can not. In addition lots of people live longer than their savings due to things like inflation and market collapses. Do you want these people to starve in their old age?
      Sorry you did not save enough now here is some cat food that you can survive on until you die.

  7. 1. Not all people live to the age of 81. The majority of people die during there working years or near retirement. 2. The surplus of taxes collected by our government is excess. 3. The government has to manage our money better and retire the senate completely.

    • Don’t count on it. Until enough people wake up and vote differently, maybe even for a “Productive Mainstream Peoples Party” that represents them, nothing is going to change as none of the existing options on the statism ballots represents.

    • 1. True, not everybody live to age 81. However, you’re applying the wrong number. That figure of 81 includes infant mortality and young deaths resulting from things like accidents. The number you really need to consider is life expectancy at age 65: http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/health72a-eng.htm
      If you look at this table, you’ll see that if you’ve made it to age 65, the average person is going to live another 20 years! Combine that with the bigger pool of statistics regarding years of life lost, and the statistics say that your contention is completely backwards.

      2. I don’t know what you mean about “surplus of taxes collected by our government is excess.” They’re running a deficit – do you mean that they’re spending too much?

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