Columnist image
Pattie Lovett-Reid

Chief Financial Commentator, CTV


ANALYSIS: Poll after poll suggests Canadians aren’t saving enough for retirement and that many people are ill-prepared for the challenges that lie ahead.

You have to wonder, as we really as bad off as many would like us to think? In research I’ve conducted in the past, I found that very few are living off the recommended 70 per cent of pre-retirement income in retirement. In fact, some are not only saving for retirement, they are also saving in retirement.

It may not be the 10 per cent of after-tax dollars that the Wealthy Barber recommends, but Canadians are still trying to tuck a little away. The problem is most private-sector workers lack access to a workplace pension plan, and while we’re saving there is growing concern about the amount of personal retirement savings Canadians hold.

Reports suggest that Canadians are living beyond their means as their debt-to-disposable income increases monthly, they’re retiring earlier than they should and the odds of living too darn long are increasing.

Canada’s finance ministers will meet next week in Vancouver and debate whether the Canada Pension Plan should be expanded – a move that would increase mandatory contributions on working Canadians.

There are opposing views. Here are a few highlights as we approach the June 20-21 meeting:

The Fraser Institute argues that expanding the CPP is a solution in search of a problem. The think tank dispels some of the common myths underlying the push to expand CPP.

  1. Canadians aren’t saving enough for retirement. Fact: According to the Fraser Institute, Canadians are well-prepared. In 2014, Canadians held $9.5 trillion in non-pension assets including stocks, bonds, real estate and other investments.
  2. Higher CPP contributions will increase overall retirement savings. Fact: Forcing Canadians to contribute more to CPP will reduce their private voluntary savings.
  3. CPP is a low cost pension plan. Fact: The total investment and administration cost of running CPP is $2.9 billion.
  4. The CPP produces excellent returns. Fact: If you were born after 1956 the rate of return (after inflation) is just 3 per cent or less annually. For those born after 1971 it’s estimated to return 2.1 per cent.
  5. Expanding CPP will help the financially-vulnerable senior. Fact: Many haven’t contributed to CPP and are therefore not eligible.

Other companies such as Mercer suggest that CPP expansion is a very real option as the finance ministers sit down in Vancouver to look at the issue of pension policy in Canada.

Mercer has long supported expansion of the CPP. Some provinces are moving towards improved coverage of workplace pension plans, including Quebec’s Voluntary Retirement Savings Plans and Ontario’s Retirement Pension Plan (ORPP). While the intention of those propositions have merit, Mercer believes a national solution is better.

Meanwhile, Finance Minister Bill Morneau has made it known that he hopes to introduce an enhancement to the CPP before the end of the year.

Clearly, this debate is far from over.