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Wednesday, March 29, 2017

Pension Reform is a Bad Joke

Posted by Tim Stobbs on December 22, 2010

If I read just one more story about pension reform I might just have to scream.  Why?  Because the main reason they are looking at it is basically everyone collectively realized many of the boomers have failed to save for retirement.  Yet ironically any of the proposals coming out to either expand the CPP or this new Pooled Registered Pension Plans fail to address the original reason.

Let’s for example look at expanding the CPP.  If you did so, the system is based on a pay as you go model now.  So even if you doubled the benefit (in some extreme proposals) the boomers would see almost no increase into their benefit since they will only pay in a for a few more years.  Only kids just out of high school would ever see the full increase regardless of the increase of benefit chosen.

While I appreciate the idea behind the Pooled Registered Pension Plans (PRPP) and making people default to opt in with them I think the government is is needlessly complicating matters.  Saskatchewan for example already has a low cost, pooled plan that happens to be voluntary and heck even available to non-Saskatchewan residents.  All you would need to do is add on a default opt in for anyone who didn’t have a pension plan in the province and you would have created the same idea as the PRPP’s.  Yet the same problem will occur with the boomers, they won’t put in enough to make any significant difference to their retirements.

Basically the boomers that didn’t save are already fucked.  They will have to work to at least 70 in order to max out any CPP they get and save what ever they can for their last working years and hope to God that a future government doesn’t cut back OAS on them.  It isn’t nice, but it is true: they won’t be saved by any pension reform.  At best we can take the lesson to younger generations to get your act together or have the government force you to save at some point.  Forced savings isn’t nice for those that do have their act together, but the option for governments is starting to look better and better to solve the issue.  The carrot of RRSP’s has failed to partly do its job, now it will be the stick.

So are you sick of hearing about pension reform?  Or have you heard any good ideas yet on what to change?

Comments

8 Responses to “Pension Reform is a Bad Joke”
  1. I agree that there is a disconnect between these proposals and the desire of certain boomers to get more money for themselves without saving more. While most boomers may not have enough savings for the retirement they want, most have enough to retire as well as their parents’ generation. Most people need to scale down their retirement expectations. If I thought the government was going to tax the young enough to give boomers anywhere near the retirement they want, I’d tell my kids to go live in another country.

  2. Kiester says:

    If I may add some perspective to the story.

    My parents are boomers, recently retired. My mother had a very small amount in her RRSP, but spent that on educating my siblings and I.

    They owned a business. They had little savings, no other RRSPs, but own a handful of properties around the world.

    I’m using this example to point out that yes, they had no savings and no RRSP. I’m not even sure that they had a solid plan. But they do have assets which can be liquidated. They do have savings now that they’ve sold their business, and they do have a plan for their retirement years.

    I don’t think that my parents are the average people, but this does point out that there is likely a significant percentage of the population out there who have alternative ‘savings’ which may not be accounted for.

    Personally, overall, I think that our government is behind the ball as you’ve described, but in order to get ahead, they must first catch up.

    I don’t think the general trend of today’s young generations is to save – in fact, it is to spend. I realize that there are people like us out there, but I do think that we are in a vast minority. Personally, I feel that forcing others to save will protect me in the long run.

    Paul Martin was on a a podcast recently, and it came up during the show how he was able to eliminate the deficit because he was able to align with the public’s ideal that they didn’t want to leave it for future generations to fix.

    I think this has similar situation, and will require similar public empathy.

  3. What do you suggest as an alternative to the PRPP?

  4. dilbert says:

    @Kiester – I would replace the word ‘Significant’ with ‘small’ in “…there is likely a significant percentage of the population out there who have alternative ’savings’ which may not be accounted for. “

  5. DLM says:

    What makes me sick is that if you are ill for some years after paying into CPP for many years, the pension is cut, perhaps in half. If that money had been invested anywhere else, it would have increased for all of those years.

  6. A bunch of my family members and some friends have saved nothing for retirement (in their 40’s and 50’s) and I don’t see them waking up any time in the next 10-20 years – fortunately I think they’ll be “saved” via inheritances from parents who did save.
    I’m all for opt-in programs, but people need something more to protect themselves from themselves.

  7. Canadian Dream says:

    @Michael James

    “Most people need to scale down their retirement expectations.” Now that is so true. I can’t tell you the number of times I’ve heard huge retirement income assumptions from people and I just don’t get them. How the hell do you spend $60,000/year in retirement?!?!

    @Kiester,

    I have to agree with Dilbert I think your parents are the exceptional case. There might be 5 to 10% of people like that, but the majority don’t have businesses to sell off.

    @Sustainable PF,

    I’ve actually have to agree with Jacq on this one. The key part of the CPP reform is you can’t get out of saving it. The PRPP is a step in the right direction with opt-in as the default, but the reality is I have my doubts on the amount of fee reduction we will see with these programs. Also the PRPP leaves employers off the hook which I dislike. As such as I agree with DLM from a gut reaction, I think it would be better for the majority of people to have an increased forced savings plan. Yes I get screwed a bit since I am already savings, but otherwise all we end up doing as a society is tax shifting the burden from older generations to younger ones. Some one will have to pay to keep these people with a basic CPP/OSA/GIS and it won’t be the people that didn’t save enough.

    My two cents,
    Tim

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