Canada needs to get it right on pension reforms
Policy-makers must start thinking "outside the box" to ensure Canada and Quebec Pension Plan (CPP/QPP) reforms will address projected gaps in future retirement income.
A new study from the Institute for Research on Public Policy (IRPP) reveals that these new reforms, as they stand, will be of little help to the next wave of Canadian retirees.
Michael Wolfson, former chief statistician, Statistics Canada, examines the impact of various options for CPP/QPP in the study Not-So-Modest Options for Expanding the CPP/QPP.
"Approximately half of middle-income earners aged over 40 today are expected to see a significant decline in their standard of living upon retirement," says Wolfson. "A half-century solution won't help them that much."
He notes that for the majority of baby boomers about to retire, the current reforms will either be phased in way too slowly to make a difference or they rely too heavily on ineffective voluntary savings plans.
In the report, Wolfson offers several options that he feels will improve the effectiveness of CPP/QPP reforms.
For instance, he found that if the age of eligibility for the CPP/QPP enhancement was raised to between 68 and 70 years of age, it would be possible to phase in new benefits more than twice as fast (over 20 years); maintain a solvent pension fund with stable contribution rates over the long term; and adjust benefits to compensate for shorter-than-average life expectancy among lower income earners.
"These reforms would go a long way in securing the retirement income prospects of a large cross-section of Canadians, says Wolfson, adding that his proposal would double the year's maximum pensionable earnings from $51,100 to $102,200, and increase the income replacement rate from 25 to 40 per cent on earnings above $25,550.
Wolfson also believes that his proposed reforms would also encourage workers to remain in the labour force longer, provide greater equity between income groups, and contribute to higher levels of future consumption.
"The options in this analysis provide crucial evidence in supporting the kind of public debate that is needed if we are to get it right on pension reforms," he says.
By Donna Donaldson, MSN Money
What do you think about the reforms? Do you expect to be working into your retirement?