The sa国际传媒 Pension Plan been called 鈥渢he major success story of Canadian social policy in the 20th century.鈥� It has also been labelled 鈥渁 disaster waiting to happen.鈥� The first of those descriptions has certainly proved accurate. Unfortunately, there is reason to believe the second will, too.
Between 1975 (the year of its first payout) and 2000, CPP achieved stunning results. The poverty rate among seniors plummeted from almost 40 per cent to just three per cent. sa国际传媒 went from having one of the worst old-age poverty records in the developed world, to second best.
But that success has been short-lived. The gains achieved early on are being reversed, and poverty rates among those 65 and older have begun to climb again.
The reason is clear. CPP was not designed as a cure-all. It was meant to top up other forms of income.
When the plan was introduced, most seniors had savings to fall back on or they held equity in the homes they owned.
Unfortunately, that scenario no longer holds true. Consumer borrowing has gone through the roof.
And house prices are so high, most of us will carry a mortgage well into the golden years.
The result is that today鈥檚 middle-income earners are in for a rough ride when they retire. More than half will experience a significant decline in their standard of living.
Yet although sa国际传媒鈥檚 finance ministers are aware that a crisis approaches, they are reluctant to act.
Part of the problem is that CPP is largely a pay-as-you-go plan. Money paid in by working-age contributors (and their employers) equals money paid out to retirees. Analysts say it can keep doing that for at least the next 75 years, as long as benefits don鈥檛 increase.
As a result, whenever improvements are considered, decision-makers have only two practical options: Raise contribution rates, or delay the age of retirement. The first choice is opposed by younger families already struggling to make ends meet. The second is opposed by older workers getting ready to retire.
The solution to this conundrum was supposed to be the Registered Retirement Savings Plan. People who need more than CPP offers can supplement their income by building a private nest egg.
But RRSPs are stumbling. Since the 2008 recession, investment returns have fallen significantly.
Of course, the financial climate may improve. But in the meantime, the number of Canadians contributing to an RRSP has fallen to its lowest level in 40 years.
Perhaps a different solution should be considered. In sa国际传媒, employees of the provincial government have their own work-based pension plan. Because it鈥檚 not required to make a profit, the management and overhead fees are very small.
Private investment firms that manage RRSPs demand annual fees in the 1.5 to three per cent range. But the sa国际传媒 Pension Corp. charges just 0.5 per cent.
That might sound like a small difference. But apply compound interest, and it begins to add up. Over a working career, the public-sector plan can earn 40 per cent more for its members than a private RRSP.
It seems odd that only civil servants get this benefit. Why shouldn鈥檛 everyone be given the option?
Saskatchewan did just that, and more than 30,000 people signed up. The sa国际传媒 government could easily do the same 鈥� the infrastructure is already in place.
No doubt banks and investment houses would complain about unfair competition. Very well. Then let them lower their fees so RRSPs become profitable again.
There are no easy answers here. But with millions of workers facing an uncertain retirement, some new solutions are definitely required.
