Retired Economist Advocates CPP Expansion
Jul 06, 2011
Over the past 40 years, Canada’s retirement income system has provided satisfactory pension incomes for increasing numbers of retirees and has served to reduce poverty among seniors. Although it has performed impressively, there has been pressure of late for systemic reform. Almost a third of middle-income Canadians are not saving enough to avoid a significant drop in their quality of life after retirement.
Making this even worse are that current trends – increasing longevity and a concurrently aging population, lower expected rates of return on investment, declining coverage of employer-sponsored registered pension plans and weaknesses in RRSP saving - are expected to exacerbate these shortfalls.
Keith Horner, a former economist with the Department of Finance, has authored a report that takes a comparative look at some of the proposals being discussed for addressing these pension issues. In A New Pension Plan For Canadians: Assessing the Options, he examines mandatory defined-benefit (DB) plans and defined-contribution (DC) plans under different scenarios. He also reviews the so-called pooled registration pension plan (PRPP), which Canadian finance ministers have endorsed and which would provide a voluntary pension savings plan for the self-employed and those who do not have a workplace plan.
Based on his comparative analysis, Horner concludes that the best route to pension reform in Canada is to expand the Canada Pension Plan (CPP) rather than to adopt any of these other options. He makes the case that a modest expansion of the CPP would provide higher benefits to Canadians for every dollar contributed.
As he writes in the report, “It appears that the greatest benefits to participants and to the economy would come from the introduction of a national DB plan, such as enrichment of the CPP/QPP (Quebec Pension Plan), provided that the scale of the new plan leaves most participants with room for individual choice in the level and timing of their savings.” As for the PRPP, Horner argues that it would be “considerably less effective” than the other options in generating new net savings or reducing the savings gap for retirees.
Horner proposes that the CPP program be increased sufficiently that it would provide income in retirement (when combined with old-age security) equal to about 52 percent of pre-retirement earnings for an average worker making $45,000 per year. That’s an increase from the current 38 percent replacement of pre-retirement earnings.
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Proving once again that just because you call yourself an economist, it doesn't mean you're smart. Increasing CPP is a thoroughly dumb idea. Let me know if you want to know why.
don - 2011-07-09 20:41