By focusing only on adapting CPP and QPP policy, we risk tightening the squeeze being felt by young Canadians
With Statistics Canada showing that a smaller proportion of seniors currently fall below low-income cut-offs than any other age group, the concern is that younger Canadians may not be saving enough for their retirement, in part because younger Canadians have less access to generous pensions paid by employers than did workers who started out some decades ago.
What does research tell us about this problem?
Young Canadians can’t save money they don’t have because costs are higher than in the past. Research shows it’s harder for young adults to save today because they earn thousands less for full-time work than in the past, in jobs that less often pay pensions, and despite having more post-secondary, larger student debts and that they must pay hundreds of thousands more for housing.
This means any plans to adapt Canada and Quebec Public Pension (CPP and QPP) plans must occur in tandem with policy changes that save young Canadians money when they are young adults. In other words, strong retirement security policy for Canadians in their 20s, 30s and 40s requires a two-prong approach:
1. Adapt policy related to postsecondary, child care, and housing to save young adults money, because these major costs are much higher now than in the past; and
2. Revise CPP and QPP rules so that young Canadians can efficiently put aside some of these savings for their own retirement in partnership with their employers.
By focusing only on adapting CPP and QPP policy we risk tightening the squeeze by mandating that young Canadians find more money to put aside for their retirement amid their current time, money and service squeeze. This is like trying to squeeze water from a stone, and implies that young Canadians are simply dumber than in the past when it comes to saving. They’re not.
Research also cautions against accepting uncritically when banks and investment companies tell Canadians we should be aiming to replace 70 per cent of our annual income when retired. Evidence indicates that a replacement rate of between 40 to 70 per cent will result in many Canadians enjoying a better overall standard of living in retirement than what they experience as young adults, especially when they start their own families.
How do the federal parties compare?
All the parties are short on specifics for now. While the NDP, Liberals and Greens have all stated they are committed to revising CPP and QPP in ways that are consistent with having employees and employers contribute more, they would negotiate such details with the provinces shortly after being elected.
The Conservative Party vision for CPP reform is different. The Conservatives would enable workers to top up their savings in the CPP in addition to, or instead of, putting money aside in an RRSP or a Tax Free Savings Account (TFSA). They won’t ask employers without pension plans to contribute more for their workers.
Like the other parties, the Conservative proposal would give Canadians greater access to the expert management of the CPP Investment Board and do so at fees that are far lower than what we pay in the private sector. This is good for maximizing our savings.
However, if you are concerned about younger Canadians not saving enough for later retirement, the Conservative proposal does little to address the problem directly. There are already lots of other voluntary savings mechanisms like RRSPs and TFSAs that younger people aren’t using – typically because they don’t have the cash to put aside.
There’s no obvious reason to believe they’ll start using a new optional CPP mechanism when they’re not using the other savings options that already exist. For example, Canadians under 45 only benefit from one third of the tax savings made available through RRSPs – the majority of the savings go to older Canadians. The same is true for Tax Free Savings Accounts. Canadians age 60+ are three to five times more likely to max out their TFSAs, compared to those age 18 to 49.
By Paul Kershaw
Dr. Paul Kershaw is a policy professor in the UBC School of Population Health, and Founder of Generation Squeeze (gensqueeze.ca).