The Liberals are talking pension reform
NationalPost.com – Opinion
Sunday, Nov. 7, 2010
Ah, pension reform. If European and American experiences are anything to go by, it is one of the most scorching hot potatoes around. Talk of raising the retirement age and reducing benefits this year provoked riots in Greece and France, which are packed with young people who aren’t even in the workforce yet. In the United States, former president George W. Bush saw his 2005 attempt at Social Security reform evaporate in the face of opposition by organized labour and the American Association of Retired Persons (AARP) — and then, the economic meltdown.
The conclusion politicians draw from this: Mess with old people, or even people who will someday be old, and they will bite you in the behind.
So here in Canada, the federal Liberals deserve praise for going where they should logically fear to tread. According to a party “white paper” — which the NDP obtained and shared with Postmedia News — they are now contemplating an election platform that would include a voluntary supplemental pension plan and would ease the rules that currently limit retroactive payments for late claimants of Canada Pension Plan (CPP) benefits to one year.
As the Ottawa Citizen reported, the Liberals’ white paper on the subject “suggests limits on contributions of 18% of income, which mirrors the current limits on RRSPs, and says that a contribution to the voluntary plan of $5,000, for example, would reduce the amount someone could contribute to an RRSP by the same amount.”
This isn’t the first time the Liberals have chosen to tackle pension reform. The last round of changes, devised by Paul Martin in 1997 when he was Finance Minister, hiked premiums in an attempt to shore up the CPP’s coffers. Despite this, the plan still has a massive unfunded liability, as chronicled by the Fraser Institute.
Any attempt at pension reform should look at the whole picture, not just savings vehicles. That means a discussion of the following subjects:
-What should the retirement age be, in a country where life expectancy is now well past 80? We know there will be fewer young workers to replace their older counterparts. Those older workers will also be in better health than before, and may well want to work full or part-time past the age of 65.
-How can one encourage savings in a country consumed by record levels of personal debt? Putting money away for retirement makes little sense if you are carrying a credit card balance at 20% interest.
-What of the impact of taxes, both income and consumption, on savings rates? Sure, your RRSP can help reduce your tax load, but high taxes prevent you from squirrelling away money in the first place.
-Is a publicly-administered plan the right vehicle for retirement savings? The benefits the CPP currently pays out are barely enough to live on. Should Canadians be given the opportunity to opt out partially or completely, and fund their own retirements privately?
Let’s hope the leaked Liberal white paper kicks off a real discussion of these issues — and that our society is mature enough to debate them, without reflexively balking at the potential loss of entitlements.
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