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Pension debate heats up as Ottawa floats TPP

Pension debate heats up as Ottawa floats TPP

As the Baby Boom generation continues its long, slow goodbye from the workforce, the debate around the looming pension crisis in Canada continues, along with the number of ideas to fix the problem.

The federal government announced a proposal Thursday for a new hybrid program, called a Target Pension Plan (TPP), where the employer and employee would share the investment risk. It would have a targeted payout, but if the money isn’t there both sides would decide how to manage it. It’s a mix of the older defined benefit plans that offer guaranteed payouts and the newer defined contribution plans, where the amount you get in retirement depends on performance of the investment.

The government’s new pension proposal comes as Ontario’s government floats its own program, and as some premiers across Canada are calling for Ottawa to boost Canadian Pension Plan (CPP) premiums to help Canadians receive a bigger pension in retirement.

Then there’s the camp that believes all of the fuss about boosting pensions is overblown.

“There is no retirement income crisis in Canada,” claims a new report from the Fraser Institute called The Reality of Retirement Income in Canada.

The report says the doomsayers’ arguments are based on faulty assumptions about retirement savings in Canada.

“Proponents of a new government pension program for Ontario, and an expanded Canada Pension Plan, stoke fears of a looming crisis by claiming that Canadians aren’t saving enough for retirement. These claims blatantly ignore the ample resources available to Canadians when they retire,” stated Philip Cross, study author and former chief economic analyst for Statistics Canada.

The Fraser Institute says people often forget that Canadians have a lot of savings, as well as home equity, which they can rely on in retirement. What’s more, Canadians are retiring later, and some may never voluntary hand over their office-parking pass.

According to the Fraser Institute, one-in-four Canadians between ages 65 and 70 are still working. That’s up from one in eight at the turn of the century.

This means Canadians are accumulate more savings either in their pensions, through Registered Retirement Savings Plans (RRSPs) and in other investment vehicles such as Tax-Free Savings Accounts (TFSAs)

“It postpones the drawing down of savings,” the report says.

Statistics Canada said recently that the median net worth of Canadian family units (two or more people in one home) was $243,800 in 2012. That’s a 44.5-per-cent increase from 2005 and up almost 80 per cent from 1999, adjusted for inflation.

Still, recent surveys have shown that Canadians are counting on CPP (or the Quebec Pension Plan) as a source of retirement income. Many aren’t even sure how much they’ll need to retire, which has raised red flags.

Then there are surveys suggesting Canadians are socking away more into RRSPs, worried that pension plans won’t be enough – or even available - to support them in their golden years.

Making Canadians pay more into government pension programs, such as the CPP, would likely mean they’d do less voluntary savings, the Fraser Institute argues,

“The debate about retirement adequacy should shift to targeted solutions for particular segments of the population such as single seniors with no work history, and away from mandatory increases to CPP that would impact almost every working Canadian,” Cross said in his report.

He also believes that the current retirement system is working.

"Building on the three pillars of Canada’s pension system, the problem of poverty among the elderly, which drove many of the reforms in the 1970s and 1980s, has largely been eliminated. Seniors are living longer, healthier, wealthier, and more productive lives. This is one of our society’s great achievements in recent decades.”

The Montreal Economic Institute made similar arguments in a report released in February, which suggested the CPP increasingly irrelevant for retirees.

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