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How Much Is Enough Retirement Income?canadian Finance Ministers To Consider "Modest CPP Expansion" by Michael Wolfson
How Much Is Enough Retirement Income?canadian Finance Ministers To Consider "Modest CPP Expansion" by Michael Wolfson
This principle has been central to the design of private pensions, and the advice wealthy individuals get from their financial planners. It was also well understood by the framers of the CPP when it was introduced in 1966. The CPP, and the parallel Quebec Pension Plan, were not designed, though, to provide full continuity of consumption for everyone. They were introduced simultaneously with the GIS; the OAS and increasingly generous RRSP tax incentives were already there; many employers already offered company pension plans; a substantial majority of Canadians reached age 65 owning their own homes, usually free of mortgage, and the wealthy were expected to look after themselves.. The trouble is we have known for decades that this collection of programs and individual initiatives has not been working well for many middle income Canadians. During the great pension debate, the Federal Governments Green Paper on pension reform in 1982 gave detailed estimates showing that anywhere between 20 and 50% of Canadians would fail to achieve full continuity of consumption, depending on whether one was talking about a 5 or a 25 percentage point drop. The business community even arranged for a leading private sector actuary to audit the complex underlying analysis; they found no flaws. But the CPP has not been enlarged and workplace pension plans have shrunk, though RRSP contribution limits have been greatly expanded. Yet, as noted above, the drop in consumption now projected after retirement is even greater. There are many crucial judgements involved in determining whether a specific proposal for enlarging the CPP, with its projected impacts on future retirement incomes, is modest or mere tokenism. For example, should Canadians be expected to sell their house in order to finance their retirement? Is it OK to face a 10% decline in consumption after retirement; what about a 40% drop? So far, ministers of finance have published nothing of their officials analyses, let alone follow the example of the 1982 Green Paper where a leading actuary was allowed to peer review the analysis. This lack of government transparency a hallmark of our time means Canadians are left in the dark not only on the general outlines of the modest CPP expansion being discussed, but also, more fundamentally, the underlying judgements as to what an adequate retirement income means. What has happened to open, accountable and evidence-based government? Michael Wolfson is an adviser with EvidenceNetwork.ca, and Canada Research Chair in population health modeling/populomics at the University of Ottawa. He is a former assistant chief statistician at Statistics Canada, and has a PhD in economics from Cambridge.