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Improve Canadian pensions now

Across the country Canadians are discussing the ways to and benefits of improving Canadian pensions. The majority of informed opinion strongly favours expanding the universally accessible, public Canada Pension Plan (CPP) and increasing the Old Age Security (OAS) and the Guaranteed Income Supplement (GIS). The influential minority, mostly those in alliance with the private financial services sector, favour continuing reliance on private sector solutions.  Opinions aside, the hard evidence strongly favours expanding the CPP rather than continuing to rely on the private sector, whose results have paled in comparison to the results produced by the CPP.

Now 45 years old, the CPP has proven itself to be a very efficient and well managed universal pension plan available to all employed Canadians.  Earned pensions are based on accumulated years of payroll contributions, paid on a 50/50 basis by employees and employers.  No tax money goes into the CPP.  Despite its efficiency CPP pensions are simply too low to provide a reasonable standard of living, due primarily to the restrictions placed on its initial design.

Prior to the enactment of the CPP in 1965, there was a lively debate between labour and progressive political voices, who argued for a more compehensive public plan, and the financial services sector and conservative voices who argued for a more limited public plan.  It was, and is, generally agreed by all sides that a person needs to set aside approximately 7% of their income to create a pension which can replace 70% of their working income and ensure that their standard of living can be carried into retirement.

The financial services sector argued that, while the public CPP pension payouts would be modest, restricted to replace just 25% of the Year’s Maximum Monthly Pensionable Earnings (YMPE - currently set at $47,200), the remainder of the necessary 35% would, they enthused, be made up by the growth of workplace pension plans and the expansion of private investment vehicles such as RRSPs and mutual funds. Those monies, they said, would be competently managed by the private financial services sector, for reasonable fees and a profit, of course.

History has proven that the rosy projections of the financial services sector and their political friends were wrong.  Today, only 38% of Canadian workers are covered by workplace pension plans and that number is falling, and unlike the CPP, when an employee changes jobs, for whatever reason, their workplace pension plan does not follow them into the new job.

Only 31% of Canadians who are eligible to contribute to RRSPs can afford to do so, and a high percentage of those who do  contribute are higher income earners.  Yet the average amount held in Canadian RRSPs is just $55,000, enough to produce only about $250 per month at current rates.  

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