Ignore the Dangerous “Do Nothing” and Keep up the Pressure for Pension Reform

CARP has been calling for CPP enhancement or the creation of a large, mandatory, pooled retirement savings vehicle for over 5 years now. The vision is for a fund whose governance and size would allow Canadians to enjoy the benefits of professional management, high investment returns and privileged access to opportunities that only larger players might enjoy, while pooling risk and management fees.  For a fascinating in-depth look at how this type of fund works and why it has been proven to be such a successful model, read John Lorinc’s “Pension Envy”.

If the recession taught Canadians anything, it was that large, well managed, pooled funds did better, especially during a downturn.  This realization as well as the pressing need to improve the status quo has brought the public onside, not to mention an ever increasing number of experts, academics, CEOs, politicians and business titans.

CARP members are fully behind CPP enhancement and many are willing to make it a condition of their vote – they want the next generation to learn from their mistakes without having to experience the pain of learning those lessons the hard way.

Despite the growing consensus, there are those who are reluctant to endorse the proposal for various reasons, but you would be hard pressed to find anyone who believed that CPP enhancement a bad idea.

Meet Philip Cross and Ian Lee, who recently published an Op-Ed in the Globe and Mail that includes some mind-boggling statements including (we kid you not):

“…the reality is that the biggest monetary problem for most retirees is dying with too much money in the bank.”

Almost every retirement (in)security poll and study published in the past 5 years tells a conflicting story. Only 1/3 of Canadians have access to workplace pensions. Recently CIBC released a poll that showed parent were increasingly sacrificing retirement savings to pay for their children’s education and a recent CARP Poll showed a dramatic increase in the proportion of members who say they are living cheque-to-cheque.

Over the past 20 years, the number of people over 55 declaring bankruptcy has quadrupled.  Between 2007 and 2008 poverty among seniors soared by 25%.

But according to Cross and Lee: Eliminating elderly poverty was one of the great public policy triumphs of the late twentieth century.”

Poverty among seniors has been eliminated?  Tell that to the 300, 000 Canadian seniors living in poverty and about 680,000 of the financially vulnerable seniors who live on less than $20,000 a year, many on about $9000 a year. 

What would prompt Philip Cross and Ian Lee to write such an article? Their attack on Michael Wolfson’s take on  Canada Pension Plan expansion is a look through the rear-view mirror rather than an evaluation of the current and future situation for Canadians heading into retirement.

Cross and Lee are correct insofar as Canada has successfully brought down the poverty rate over the past 50 years.  Before the advent and maturation of the CPP, poverty among seniors was endemic.  For instance in 1961, among those families whose head was aged 65 or more, the poverty rate was 43.9%.  Furthermore, the single elderly (mostly women) who survived their spouses were almost certain to be poor. The incidence of low income for unattached individuals 70 or more was an astonishing 72.5%.

That hard-earned success has been based, for the most part, on the creation and maturation of the CPP in providing a basic pension for more and more Canadians. But that effect is now complete; we cannot rely on the CPP to reduce retirement insecurity further unless it is enhanced.   It is hard to fathom how anyone would think that we should stop trying to improve the lot of Canadian seniors because they are doing better than they were in the 1960s, when the poverty rate among the 65+ was shockingly unacceptable.

Here are just a few of the factors that contradict Cross and Lee’s assumptions that there is no problem for future Canadian retirees:

  • Massive shifts in the labour market and the hollowing out of the middle class through the loss of steady, well-paid jobs in favour of precarious, occasional, part-time and free-lance contract work
  • The SUBSTANTIAL decrease in the number of defined-benefit pension plans and the shift to defined-contribution plans, which transfer the risk of earning returns on pension monies away from employers to beneficiaries
  • Fewer and fewer Canadians have any pensions at all
  • Minimal interest rates are barely keeping pace with inflation for those who do have savings; for those who do not, the only option is to keep working as long as possible
  • A huge increase in the number of older Canadians who are carrying debt into retirement elevates the risk that if interest rates increase, as they surely will sooner or later, retirees on reduced incomes will be forced into bankruptcy

Most Canadians pride themselves on being self-reliant but there are things that only government can do and there has been little to show for all the politicking of late.

People still don’t have a safe, reliable retirement savings vehicle five years after a market crash that woke everyone up to the fact that a large universally accessible fund like the CPP is the only sensible option for average Canadians to save for their own retirement.

Those whose private savings were devastated in the crash could blame market volatility but also inappropriate financial advice. There is still no national investor protection agency with the authority to champion investors, investigate wrongdoing and order restitution. A lawsuit is still the only avenue to get your money back – when your financial resources to launch the suit are now at their lowest.

In this climate, more people have to return to, or stay longer in, the work force just as it is shrinking and putting older workers at greater risk than most. Giving them an even break will require innovative management thinking and a heavy dose of openness to counteract long held prejudices.

Fortunately, as Lorinc reported, the recently retired head of the highly successful Teachers Fund will now devote his time to sharing his experience and expertise about why broad access to defined benefit pensions work best and how to do it.

Those who think nothing needs doing should get out of the way of those who are getting it done.