May 29: BEST FROM THE BLOGOSPHERE

May 29, 2023

Canada, unlike France and the U.S., is not dealing with a pension crisis: Keller

In an opinion column for The Globe and Mail, Tony Keller explains why Canada isn’t having a crisis with its pension system like France and the United States are.

In France, he writes, there are protests in the streets and strikes over plans to raise the national retirement age to 64 from 62. In the U.S., he writes, there’s a “quiet… slow motion” crisis as Democrats and Republicans fail to agree on steps to stabilize the U.S. Social Security system.

“The Congressional Budget Office says that unless premiums are raised, the deficit is increased or taxpayers kick in cash, pension benefits will have to shrink 23 per cent by 2033,” Keller writes, noting that the Social Security system “continues to wend its gentle way toward the iceberg.”

There’s no crisis here, he says.

“Canada is not having a pension crisis. You may not have noticed. ‘`Absence of Crisis Expected to Continue Indefinitely, Experts Say’ is not a headline we tend to put on the front page,” he writes.

That’s because actions taken decades ago stabilized our system, Keller explains.

“Back in the 1990s, Canada was headed for a crisis. The Canada Pension Plan (CPP) (and the parallel Quebec Pension Plan (QPP)) had been created three decades earlier, and like most public pensions they were built on a pay-as-you-go model. CPP premiums deducted from workers’ paycheques paid retirees’ pensions, and once you retired, the next generation of workers would pay your pension. The CPP was a chain of intergenerational IOUs,” he writes.

The French and American systems also operate under the “pay-as-you-go” model. But such systems run into problems when there are fewer workers than retirees. Here in Canada, 19 per cent of us were seniors as of 2021; in France it is 21 per cent, Keller explains.

You have to change things up when demographics change, Keller contends.

“In the 1990s, then-Finance Minister Paul Martin and his provincial counterparts chose to face the arithmetic. They gradually doubled CPP premiums, to ensure that promised pensions would be paid, today and tomorrow. To make that possible, a large chunk of premiums now go into a savings account. The Canada Pension Plan Investment Board (CPPIB) manages the growing pile, which at the start of this year stood at $536-billion. Your premiums today partly fund your retirement tomorrow.”

This is a somewhat complex concept, but what it means is that we are still operating a “pay-as-you-go” system, but when we get to the point when there are not enough workers to pay for the pensions of retirees, money in the CPPIB cookie jar will be tapped into until the ratio returns to a sustainable level.

Keller’s article goes on to note that the Old Age Security (OAS) system, which is paid entirely out of tax dollars rather than employer and member contributions, has the potential for problems in the future; its costs keep rising as the senior population grows. One way to save money on OAS would be to increase the so-called “clawback” so only those seniors needing OAS the most would get it.

CPP was intended to supplement the workplace pensions Canadians were supposed to have; increasingly, workplace pensions are becoming less common. And OAS was designed for those who did not work (and contribute to CPP) during their careers. For a lot of people, CPP, OAS and even the Guaranteed Income Supplement are all they have to live on in retirement, and it’s a pretty modest living.

If you don’t have a workplace pension, there’s a great made-in-Saskatchewan solution out there for you — the Saskatchewan Pension Plan. SPP is a voluntary defined contribution pension plan that any Canadian with registered retirement savings plan (RRSP) room can join. Employers can also offer it as a workplace benefit. Contributions made to SPP are professionally invested in a pooled fund at a low fee. SPP grows the savings until retirement time, when options for turning savings into income include a stable of annuities. Check out SPP today!

And there’s more good news! Now, you can contribute any amount to SPP each year up to your RRSP limit. And if you are transferring money into SPP from your RRSP, there’s no longer an annual limit! Saving with SPP for retirement is now limitless!

Join the Wealthcare Revolution – follow SPP on Facebook!

Canada Pension Plan, Canada Pension Plan Investment Board, CPP, CPPIB, GIS, guaranteed income supplement, OAS, Old Age Security, Paul Martin, QPP, Quebec Pension Plan, Registered Retirement Savings Plan, The Globe and Mail, Tony Keller

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