January 24, 2007
We've Got Pension Tension
Linda Leatherdale, Toronto Sun, January 23, 2007
Fact or fiction?
Don't count on government to help out in your retirement -- government pension plans will be up in smoke by the time most of us retire.
It's a warning we keep hearing, especially during RRSP season, which may explain a new poll showing Canadians are among the most pessimistic when asked about the future of government-funded pension plans.
The poll, conducted by AXA Retirement Scope and released yesterday, surveyed 11,950 persons in 16 countries, and it found only 50% of Canadians aged 35 to 44 believe the Canada Pension Plan (CPP) will be around when they hit 75, compared to 58% aged 45 to 54.
Also pessimistic about the future of government-funded pension plans were Americans, Germans and the Brits, while in China, the people were the most optimistic, followed by Spain and Australia.
"The considerable transformations that will take place in the Canadian population during the next few decades ... around legitimate concerns in Canadians," said Robert Landry, AXA's executive VP, personal insurance and financial services.
Landry was referring to aging baby boomers, who by the 2020s will be putting a big strain on both public and private pension plans as they start to retire.
Problem is a shrinking workforce with some experts prediting a crisis by 2030, when old age dependency will jump by 93% with only one worker for every four retired people to support the system.
But one financial advisor says it's all smoke and mirrors.
"It's a total misconception," said Toronto chartered accountant David Trahair, author of Smoke and Mirrors, Financial Myths that will ruin your Retirement Dreams.
Trahair reminds us of these changes:
- No more mandatory retirement at age 65.
- A 73% hike in CPP contributions, with premiums to hit 14% of contributory earnings by year 2030. That has swelled the CPP's reserve fund to a surplus of more than $80 billion which is expected to grow to $160 billion this decade.
- A push to encourage more immigrant workers, to help alleviate a worker shortage.
- Ottawa now sitting on surpluses and paying down Canada's net debt, meaning more revenue for government programs.
Trahair also reminds us not only do we have CPP, but there's also Old Age Security and the Guaranteed Income Supplement, for low income earners.
"Can you imagine a federal government going to the polls and telling Canadians they're going to kill Old Age Security?" asks Trahair.
Only a few years ago, Jean Chretien's Liberals floated the idea of a Senior's Benefit, but Canada's powerful grey-hair lobby fought back and killed this sucker.
The Senior's Benefit would have combined Old Age Security with the Guaranteed Income Supplement, then clawbacked those benefits. For some it would have meant a 78% tax hike.
The bottom line is that Canada is in better shape than many other countries, says a fellow tax crusader Peter Holle, president of Winnipeg economic think tank -- Frontier Centre for Public Policy (FCPP).
And that's because Ottawa listened when a decade ago, Holle, along with New Zealand's former finance minister Sir Roger Douglas, plus a number of political, economic and tax experts sat at the Sun's Economic Summit to tell former Finance Minister Paul Martin Canada was hitting the Debt Wall.
Martin cut debt, cut taxes and sweetened RRSPs, to help Canadians plan for their own retirement.
The next step, says Holle, would be to adopt the Chilean government model -- which allows people to take their government pension money and invest in private sector plans.
Other countries have followed Chile's lead with success , he said.
Also, income tax relief would go a long way to helping overly indebted Canadian families get out of debt, just as Ottawa has done.
"(Prime Minister Stephen) Harper should cut income taxes," said Holle.
Wendell Cox, Senior Fellow, is principal of Wendell Cox Consultancy, an international public policy, demographics and transport consulting firm. He has developed a leadership role in urban transport and land use and the firm maintains three internet websites: www.demographia.com, www.publicpurpose.com and www.rentalcartours.net . Wendell Cox has completed projects in Canada, the United States, Asia, Australia, New Zealand, Europe and Africa. He is author of "War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life" and a co-author with Richard Vedder of
"The Wal-Mart Revolution: How Big-Box Stores Benefit Consumers, Workers, and the Economy."
He was appointed to three terms on the Los Angeles County Transportation Commission which oversaw highways and public transit in the largest county in the United States. He was also appointed to the Amtrak Reform Council. Wendell Cox is visiting professor at the Conservatoire National des Arts et Metiers (a national university) in Paris.