Canadians saving enough; report urges rethink on CPP expansion

Given the flurry of polls released lately showing Canadians aren’t saving enough - and in some cases are betting on the lottery to support them in their old age - it’s not surprising (and kind of comforting) to see the debate raging on what to do about it.

Some provinces are calling for reform, which includes boosting Canadian Pension Plan (CPP) contributions to provide a bigger payout for retirees down the road.

Ottawa has been reluctant to make a move, saying Canada’s economy is still too fragile to support premium increases.

There’s also the camp that’s opposed to making any changes, calling the CPP increasingly irrelevant for retirees.

In a new report released Thursday, the Montreal Economic Institute argues Canadians are saving enough privately and with the help of tax-sheltered vehicles such as the Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA).

Economist Youri Chassin says more people can also draw income from their homes, and that retirement at age 65 is no longer a given.

“Canadians are better prepared for retirement than it may appear,” argues Chassin, adding that Canada’s poverty rate among seniors is lower than most industrialized countries.

"These reform proposals overvalue the advantages of the public plans and undervalue the advantages of private savings.”

It’s an argument that is certain to fuel the long-standing discussion around retirement savings, especially given growing worries that Canada’s housing market is overheated.

Statistics Canada told us this week that Canadians are worth more, due largely to the increased value of their homes. Meantime, a Sun Life survey says about a quarter of Canadians are counting on their homes to support them old age.

Using the value of your home as a retirement vehicle is considered a risky strategy amid continued calls for a “soft landing” in Canada’s housing market, and more dire warnings from economists outside the country that it’s a bubble set to burst.

What’s perhaps worse is that many Canadians closing in on retirement aren’t sure how much they’ll need to support them in their golden years, according to a recent study from Investors Group.

A BMO survey also says 90 per cent of Canadians count on the CPP (or Quebec Pension Plan) in their golden years. About a third reported relying “heavily” on the funds, even though the average monthly payout is less than $600. (It was also this study where 34 per cent also said they were hoping to win the lottery to fund their retirement).

Chassin says changing the CPP isn’t the answer for future retirees.

“All of the reforms being discussed propose a paradigm shift,” he writes. “The goal of the public pension plans would no longer be to ensure a minimum for everyone, but rather to guarantee to all an income sufficient to maintain their living standards, including middle and upper class Canadian households.”

Should Canadians fork out more now to ensure they have a solid CPP to draw from in their old age?

Regardless of your current age, expect this debate to continue well into your own retirement years.