Canada's Retirement Income System Isn't Good Enough
Mar 12, 2014
For the first time in more than a generation, questions about the adequacy of Canada’s retirement income system (and how to address it) have managed to move to the forefront of the national policy debate.
In Risky Business: Canada’s Retirement Income System, Hugh Mackenzie of the Canadian Centre for Policy Alternatives (CCPA) points to the move by the provinces towards relative consensus with regard to the “impending retirement crisis” as further evidence of the newfound attention to this issue.
Macdonald goes on to review the Canadian retirement system and finds it lacking in some areas. However, he starts by suggesting that two of the pillars of the Canadian retirement system – the Canada (or Quebec) Pension Plan combined with the Guaranteed Income Supplement and Old Age Security – have made significant contributions to the reduction in poverty levels among seniors, particularly senior women.
But Macdonald reserves his condemnation for the third aspect of Canada’s retirement income system – private workplace pensions – which he describes as a “conspicuous failure.” Pension coverage never even reached half the workforce. Although governments adopted and supported the concept, defined benefit pension plan coverage in the private sector peaked at 28.6 percent of the workforce in 1982, and currently sits at a little over 11 percent.
And the private individual retirement system, which has primarily consisted of RRSPs, has not filled the gap left by the collapsing pension plan in the private sector. The Federal Government’s proposal for Pooled Registered Pension Plans (PRPP), in Mackenzie’s words, “adds absolutely nothing that hasn’t been tried – and found not to work – before.”
RRSPs, which were always targeted at middle-class Canadians, have not delivered. Only a quarter of Canadians who earn $40,000 - $60,000 contributed to an RRSP in 2010. And, more significantly, the lower the income of the individual, the less likely they are to contribute to an RRSP. For most Canadians, they are a bad investment.
The study concludes that RRSPs/PRPPs are profitable only to mutual fund managers and fall short on their promise to Canadian retirement savers. So while the Canadian retirement income system may be working well for the mutual fund industry, for individual Canadians, “not so much.”
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