Canada’s wishful thinking pension program

NationalPost.com – full comment/Canada
December 20, 2010.   Kelly McParland

If you want a hint of the difficulty of winning agreement on an issue like Canada’s creaking pension system, consider this carefully considered statement from Finance Minister Jim Flaherty:

“It’s a multi-jurisdictional challenge to get a consensus on the CPP,” he said.

If you speak politics, you realize that “multi-jurisdictional challenge” means that getting the country’s federal and provincial leaders to agree on anything beyond what time to quit for lunch is beyond the power of mere mortals. It is especially hopeless on an issue as fraught with electoral danger pensions, which, after all, are all about old people and their money.  Who votes in far bigger numbers than any other demographic? Old people. What gets them more excited than half-price fares to Florida? Their money.

Mr. Flaherty and his provincial counterparts are gathering Monday for more talks on Canada’s wobbly system. Everyone agrees Canada’s retirees aren’t adequately prepared. But naturally, there’s little hope they will agree on what to do about it.  The ministers come from varying political persuasions, and are divided roughly according to who they think should  be responsible for retirees: the government, or retirees themselves.

Mr. Flaherty, as a staunch Conservative (even if his budgets don’t always show it) believes in voluntary programs that give people the option to save, but don’t force it on them. If they want to be old and broke, it’s their decision. The premiers think people are too dumb or weak-willed to look after themselves and need a mandatory government program.

Much as it violates  official National Post dogma, the premiers appear to have reality on their side. Judging by recent reports on debt levels — Canadian household debt is the highest ever, higher even than the debt-mad U.S. –  the typical budgeting strategy of most Canadians is 1. Get paid 2. Spend it all 3. Borrow more. There are already lots of ways for them to plan for the future,  via voluntary savings programs like Registered Retirement Savings Plans and the Tax-Free Savings Accounts introduced by Mr. Flaherty two years ago. But people don’t bother. Study after study shows that only a minority put any money into an RRSP, and usually only a fraction of what they’re allowed. Canadians are so clueless about financial matters that the government is still trying to explain how tax-free accounts work.  (It’s real hard: You put your money in, you earn interest or investment income on it, and you don’t pay any tax on those earnings.)

Given that level of illiteracy, it’s hard to imagine Mr. Flaherty will attract a lot of support for his latest scheme, a “pooled” pension system workers could sign up for if they’re self-employed or work for a company with no in-house pension plan. As with Ottawa’s other voluntary plans, it sounds like a perfectly reasonable idea that would work great, except that the vast majority of people — especially those who need it — would never go near it.  If someone can’t figure out what a “tax free savings account” is, what makes you think they’re ever going to negotiate the byzantine alleyways of  a “Pooled Registered Pension Plan (PRPPs)?” And in a country where the average person owes 150% of their disposable income, how many people will be interested enough to try?

Not many. It’s easy to say it’s their own problem if they’re unwilling to prepare, but in the end they’ll end up turning to the state to look after them anyway. Voluntary plans may better fit the Conservative view of the world, but if people could be counted on to think ahead, there wouldn’t be so many of them so close to retirement age, who are just starting to ponder how they’re going to pay for it.

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