Putting more money in seniors’ pockets…just in time for the election

Click here to read “Putting more money in seniors’ pockets…just in time for the election” by Tasha Kheiriddin – National Post: Full Comment, May 27, 2015

What a drag it is getting old … unless you have a good pension. With household debt at record levels, Canada Pension Plan (CPP) payments currently topping out at $1,065 a month and the retirement age moving from 65 to 67 in 2023, many seniors and their supporters are calling on the government to reform the CPP — now.

Until this week, the federal Conservatives refused to consider increasing CPP benefits, preferring to encourage Canadians to save for themselves through pooled pensions and higher Tax Free Savings Account (TFSA) limits. Now the government has made, in the words of seniors’ advocate Susan Eng, “a 180 (degree turn),” saying it will consult Canadians about offering increased payouts in exchange for increased contributions — but on a voluntary basis. Eng, who is vice president of CARP, Canada’s largest seniors’ lobby, dismissed the announcement as, “A nice piece of electioneering.… That’s something they’ve resisted all along. They’ve had five years to do it before this.”

Eng is referring to the fact that the Tories only promised to look at the issue due to the upcoming federal election. It’s true that the Tories couldn’t leave the benefits issues untouched, as both the NDP and the Liberals have promised to increase pension payouts. For the past few years, polls show that’s the preferred position of most Canadians: the most recent CPP survey by Nanos Research found that 88 per cent of respondents support boosting CPP benefits. Fifty-two per cent strongly support such a move and 36 per cent somewhat support it — while only six per cent are somewhat opposed and four per cent are opposed.

But are Canadian seniors really in crisis? According to the numbers, the answer is no, at least not relative to other groups. In 2009, Statistics Canada found that, “There has been a long term decrease in low income among seniors (65 years old or older) since the late 1970s.” The percentage of seniors below the Low Income Cut Off (LICO), a commonly- used poverty measure, declined from 33 per cent in 1977 to 10 per cent in 2009. That’s far more dramatic than for other groups during the same time period. Child poverty measured by LICO fluctuated between 13 and 17 per cent, while that of recent immigrants actually increased from 10 to 17 per cent. In fact, only single parents did better than seniors: their poverty rate declined from 50 to 20 per cent between 1976 and 2009.

As for the next generation of seniors, a McKinsey report published in February foundthat, “83% of the nation’s households are on track to maintain their standard of living in retirement.” Most surprisingly perhaps, 93 per cent of “modest-income households” are on track “primarily because they will receive a high rate of income replacement from public sources.” The groups most likely to see their standard of living decline are not low-income Canadians, but mid- to high-income households that do not contribute enough to their workplace pensions, and mid- to high-income households that have no workplace pension and below-average savings. In other words, the higher you fly while you work, the further you can fall when you stop, unless you create your own safety net.

Voters will likely have little sympathy for well-off Canadians who have to sell the cottage at retirement because they didn’t sock away enough savings.

In that context, the Tories’ proposals to increase the contribution limits for TFSAs and offer a voluntary CPP top up make perfect sense. Canadians in the mid- to upper-income brackets — the ones facing a lifestyle crunch in retirement – are also the best positioned to take advantage of such options. They are also the group that need to do this to avoid lowering their standard of living after retirement.

But what makes sense from a policy perspective might not wash at the ballot box. Voters will likely have little sympathy for well-off Canadians who have to sell the cottage at retirement because they didn’t sock away enough savings. Opposition politicians will paint these Tory policies as pandering to the rich, in the same way that they deride income splitting. As Liberal leader Justin Trudeau said, “Benefiting every single family isn’t what’s fair.” In other words, redistribution shouldn’t benefit the rich, but only those who need it. The Conservatives might ridicule him, but if they are to convince Canadians that their CPP plan is the better one, they’ll have to explain – ironically – why benefiting all retirees isn’t fair, either.