Many Canadians are unaware of how little their retirement investments will yield, so the Harper government should consider a new mandatory savings plan that goes beyond the modest payouts of the Canada Pension Plan, Toronto Dominion chief economist Don Drummond said.
"We're going to have a lot of Canadians with shattered dreams when they come to their retirement. They're going to suffer an unexpected drop in their income," he warned.
The impeccably well-connected Mr. Drummond is a former senior official in the federal Finance Department who's often consulted by governments and political parties. When he speaks, politicians tend to listen.
"We have to have a big think in Canada: Do we need a larger state presence in the pension business?"
The problem for Canadians is that lucrative private-sector pension plans are dwindling, and many investors have failed to sock away sufficient funds in registered retirement savings.
The Canada Pension Plan, to which many workers contribute, does not offer much. It's designed to provide only 25 per cent of the pre-retirement income on which contributions were based.
"People have no idea what stock of savings they need in order to sustain a certain income flow in retirement," Mr. Drummond said. Reform options could include enriching incentives for private-sector savings or increasing contributions to CPP so that it yields more for retirees. The latter could be a mandatory measure.
Mr. Drummond acknowledged that hiking CPP premiums could be politically controversial because voters might consider it a tax hike rather than a mandatory contribution. "It isn't obvious this is a winner politically because somebody's got to pay for it."
The traditional defined benefit pension plan - where employees are guaranteed a certain payout upon retirement - is dwindling in the private sector as companies cut costs. "They're going to be very soon restricted to civil servants and relatively few others," Mr. Drummond said.
Even defined contribution plans - where companies contribute but returns depend on the success of investments - are on the wane, he said.
"If you look at the growth rate for jobs that have benefits and those that don't ... there's about triple the growth rate for jobs without benefits over the last 10 years."
He said the investment outlook suggests far more modest returns in the years ahead. "It's going to take a long time to make up for the losses of the last two years."
Canadian Auto Workers union economist Jim Stanford said he'd like to see contributions to CPP increased so the plan can provide more retirement income for seniors.
"We need a whole national debate about how we pay for a decent standard of living for our retirees and that is going to have to involve less reliance on the stock market," Mr. Stanford said.
"It's the big deficits in big defined benefit plans that get the headlines, but there's a hidden crisis ... that's just as bad, or worse, in the RRSP system."
Big stock-market declines in 2008 and early 2009 have slashed the value of registered retirement savings plans.
But Mr. Drummond noted that many Canadians had saved relatively little in RRSPs even before the markets plunged, saying this reflects a failure of the RRSP system to get middle- and upper middle-income Canadians to put away sufficient cash.
"After 50 years of promoting RRSPs, we have to conclude they haven't turned out as envisioned. I don't know why we don't just recognize this and make the needed adjustments to the retirement income system," he said.
Liberal finance critic John McCallum said the lack of retirement savings for middle-income earners in the private sector is a "major issue." But he said an improved system doesn't necessarily require mandatory contribution hikes to CPP. An alternative could be a voluntary system where Canadians who want higher payouts can contribute more.
© Copyright 2009 CTVglobemedia Publishing Inc
May 6, 2009
CANADA: We face small pensions unless savings boosted, economist says
.
TORONTO, Ontario / Globe and Mail / ReportonBusiness / May 6, 2009
By Steven Chase
OTTAWA — Canadians should be forced to save more for retirement because their RRSPs and private-sector pension plans are in tatters, a leading economist said yesterday.
Many Canadians are unaware of how little their retirement investments will yield, so the Harper government should consider a new mandatory savings plan that goes beyond the modest payouts of the Canada Pension Plan, Toronto Dominion chief economist Don Drummond said.
"We're going to have a lot of Canadians with shattered dreams when they come to their retirement. They're going to suffer an unexpected drop in their income," he warned.
The impeccably well-connected Mr. Drummond is a former senior official in the federal Finance Department who's often consulted by governments and political parties. When he speaks, politicians tend to listen.
"We have to have a big think in Canada: Do we need a larger state presence in the pension business?"
The problem for Canadians is that lucrative private-sector pension plans are dwindling, and many investors have failed to sock away sufficient funds in registered retirement savings.
The Canada Pension Plan, to which many workers contribute, does not offer much. It's designed to provide only 25 per cent of the pre-retirement income on which contributions were based.
"People have no idea what stock of savings they need in order to sustain a certain income flow in retirement," Mr. Drummond said. Reform options could include enriching incentives for private-sector savings or increasing contributions to CPP so that it yields more for retirees. The latter could be a mandatory measure.
Mr. Drummond acknowledged that hiking CPP premiums could be politically controversial because voters might consider it a tax hike rather than a mandatory contribution. "It isn't obvious this is a winner politically because somebody's got to pay for it."
The traditional defined benefit pension plan - where employees are guaranteed a certain payout upon retirement - is dwindling in the private sector as companies cut costs. "They're going to be very soon restricted to civil servants and relatively few others," Mr. Drummond said.
Even defined contribution plans - where companies contribute but returns depend on the success of investments - are on the wane, he said.
"If you look at the growth rate for jobs that have benefits and those that don't ... there's about triple the growth rate for jobs without benefits over the last 10 years."
He said the investment outlook suggests far more modest returns in the years ahead. "It's going to take a long time to make up for the losses of the last two years."
Canadian Auto Workers union economist Jim Stanford said he'd like to see contributions to CPP increased so the plan can provide more retirement income for seniors.
"We need a whole national debate about how we pay for a decent standard of living for our retirees and that is going to have to involve less reliance on the stock market," Mr. Stanford said.
"It's the big deficits in big defined benefit plans that get the headlines, but there's a hidden crisis ... that's just as bad, or worse, in the RRSP system."
Big stock-market declines in 2008 and early 2009 have slashed the value of registered retirement savings plans.
But Mr. Drummond noted that many Canadians had saved relatively little in RRSPs even before the markets plunged, saying this reflects a failure of the RRSP system to get middle- and upper middle-income Canadians to put away sufficient cash.
"After 50 years of promoting RRSPs, we have to conclude they haven't turned out as envisioned. I don't know why we don't just recognize this and make the needed adjustments to the retirement income system," he said.
Liberal finance critic John McCallum said the lack of retirement savings for middle-income earners in the private sector is a "major issue." But he said an improved system doesn't necessarily require mandatory contribution hikes to CPP. An alternative could be a voluntary system where Canadians who want higher payouts can contribute more.
© Copyright 2009 CTVglobemedia Publishing Inc
Many Canadians are unaware of how little their retirement investments will yield, so the Harper government should consider a new mandatory savings plan that goes beyond the modest payouts of the Canada Pension Plan, Toronto Dominion chief economist Don Drummond said.
"We're going to have a lot of Canadians with shattered dreams when they come to their retirement. They're going to suffer an unexpected drop in their income," he warned.
The impeccably well-connected Mr. Drummond is a former senior official in the federal Finance Department who's often consulted by governments and political parties. When he speaks, politicians tend to listen.
"We have to have a big think in Canada: Do we need a larger state presence in the pension business?"
The problem for Canadians is that lucrative private-sector pension plans are dwindling, and many investors have failed to sock away sufficient funds in registered retirement savings.
The Canada Pension Plan, to which many workers contribute, does not offer much. It's designed to provide only 25 per cent of the pre-retirement income on which contributions were based.
"People have no idea what stock of savings they need in order to sustain a certain income flow in retirement," Mr. Drummond said. Reform options could include enriching incentives for private-sector savings or increasing contributions to CPP so that it yields more for retirees. The latter could be a mandatory measure.
Mr. Drummond acknowledged that hiking CPP premiums could be politically controversial because voters might consider it a tax hike rather than a mandatory contribution. "It isn't obvious this is a winner politically because somebody's got to pay for it."
The traditional defined benefit pension plan - where employees are guaranteed a certain payout upon retirement - is dwindling in the private sector as companies cut costs. "They're going to be very soon restricted to civil servants and relatively few others," Mr. Drummond said.
Even defined contribution plans - where companies contribute but returns depend on the success of investments - are on the wane, he said.
"If you look at the growth rate for jobs that have benefits and those that don't ... there's about triple the growth rate for jobs without benefits over the last 10 years."
He said the investment outlook suggests far more modest returns in the years ahead. "It's going to take a long time to make up for the losses of the last two years."
Canadian Auto Workers union economist Jim Stanford said he'd like to see contributions to CPP increased so the plan can provide more retirement income for seniors.
"We need a whole national debate about how we pay for a decent standard of living for our retirees and that is going to have to involve less reliance on the stock market," Mr. Stanford said.
"It's the big deficits in big defined benefit plans that get the headlines, but there's a hidden crisis ... that's just as bad, or worse, in the RRSP system."
Big stock-market declines in 2008 and early 2009 have slashed the value of registered retirement savings plans.
But Mr. Drummond noted that many Canadians had saved relatively little in RRSPs even before the markets plunged, saying this reflects a failure of the RRSP system to get middle- and upper middle-income Canadians to put away sufficient cash.
"After 50 years of promoting RRSPs, we have to conclude they haven't turned out as envisioned. I don't know why we don't just recognize this and make the needed adjustments to the retirement income system," he said.
Liberal finance critic John McCallum said the lack of retirement savings for middle-income earners in the private sector is a "major issue." But he said an improved system doesn't necessarily require mandatory contribution hikes to CPP. An alternative could be a voluntary system where Canadians who want higher payouts can contribute more.
© Copyright 2009 CTVglobemedia Publishing Inc
