Society has an obligation to provide safety net for pensioners

Posted on June 4, 2016 in Social Security Debates – Business – Chief income supports for retirees have lagged rising cost of essentials
4 Jun 2016.   David Olive

One of society’s greatest moral obligations is to its retirees, the people who built the society. We are in danger of failing in that responsibility. If we do allow a return to the times when to be old was to be poor, this will happen despite Canada’s affluence. Despite a total pension-fund nest egg larger than that of all but four countries. (More on that later). Despite an abundance of workable solutions. And despite a campaign commitment by the ruling federal Liberals to ensure income security for our seniors.

Canada’s finance ministers will meet later this month in Vancouver to consider pension-reform options. We have to hope that in their June 20-21 summit, the provincial and territorial finance min- isters and their federal counterpart, Bill Morneau, will come up with something more tangible than kicking the ball down the field, as they did in their previous gathering in December.

The chief income supports for retired Canadians — payouts from Old Age Security (OAS), the Guaranteed Income Supplement (GIS) and the Canada Pension Plan (CPP) — have not kept pace with official measures of inflation and higher costs for food, housing, clothing and other essentials.

That some four million Ontarians alone are suffering that social deficit prompted the government of Kathleen Wynne last year to propose an Ontario Retirement Pension Plan that would top up inadequate federal income supports.

Millions of Canadians have not saved enough for retirement. That is an invitation to blame the victim, but grossly unfounded. To be accurate, millions of Canadians have been unable to save, lacking sufficient income to do so.

Most of the blame for that lies with the crisis of income inequality, itself caused by the fact that the middle class hasn’t had a pay raise in three decades, adjusted for inflation.

Another factor is “precarious employment.”

About half of the employees at my local Tim Hortons work two or three jobs — and lack job security and decent pay at each of them. The best time to start contributing to an RSP is in youth, to benefit most from tax-free investment gains. But that’s not an option for the precariously employed, an affliction of all age groups.

Finally, in the 2000s, most privatesector employers killed their employee pension funds on the altar of profit maximization.

The CEOs of Canada’s 46 largest companies will reap pensions averaging $961,000 a year. But most of the companies they run no longer contribute more than a pittance to their employees’ pension plans, if anything at all.

That helps account for the miserable $3,000 in median retirement savings of Canadians aged 55 to 64 who lack an employer pension plan, according to a report released earlier this year by the Broadbent Institute, a social-justice think tank.

“We have a retirement income crisis on our hands that requires urgent government action,” said Rick Smith, executive director of the Broadbent Institute, in releasing the report.

As that 55 to 64-year-old cohort leaves the workforce for retirement, the crisis of inadequate retirement savings will worsen.

The need for stronger state income supports will become even more obvious, as these will be the sole source of income for most Canadians on a fixed income.

Now for some good news . . . and there’s rather a lot of it.

Among OECD countries, Canada ranks third in its low elderly poverty rate, trailing only the Netherlands and France. Japan, the U.S. and Australia rank 14th, 15th and 17th, respectively.

Canada knows how to lift our elderly from poverty. Between 1976 and 2010, the Canadian elderly poverty rate plummeted by an astonishing degree, from 37 per cent to 6.7 per cent.

Most Canadians regard Medicare as our greatest achievement. This space has no argument with that.

But Lars Osberg, a Dalhousie University economics professor, has called the reduction in the elderly poverty level “the major success story of Canadian social policy in the 20th century,” as noted in a recent report by the Conference Board of Canada.

Canada also has one of the world’s largest national retirement nest eggs, ranking fifth in the world. Canada accounts for just 0.5 per cent of global population. Yet our pension funds control about 6 per cent of the world’s retirement assets.

Our 10 largest public pension funds alone command assets of more than $1.1 trillion, a huge sum relative to our population size.

As a wealthy country whose government finances are in much better shape than those of almost every affluent jurisdiction, we can afford to bolster the income supports for our seniors.

And Canada’s demographic challenge — a growing imbalance between working-age Canadians and retirees — is just that, a challenge. Due largely to Canada’s long-standing open-door immigration practice, demographics are not the crisis that faces the mature economies of Europe and Japan, and emerging economic superpower China.

Complacency, however, has been the undoing of some of the admirable progress Canada has made since the 1970s. After two decades of major reductions in the elderly poverty rate, which dipped as low as 2.9 per cent in the mid-1990s, it steadily increased between then and the late 2000s.

It’s easy to grasp why. Ottawa with- drew its strong support of seniors. From 1995 to 2009, according to Statistics Canada, the annualized growth rate of median government transfers to seniors was a miserly 2 per cent. That compares with a robust growth rate of 8.7 per cent from 1976 to 1994.

The thing to do now is simply reverse that aberrant practice. The current maximum CPP payout of $12,780 is pitifully inadequate. It needs to be doubled.

But even that doesn’t get us above the poverty line. We also need policies that outlaw workplace age discrimination, provide incentives to employers to be flexible about hiring over-65s for part-time work and provide vocational training targeted at those wishing to work beyond 65.

Dragging today’s miserly CPP payouts into the 21st century requires the approval of seven provinces accounting for two-thirds of the country’s population. Holdouts Quebec, British Columbia and Saskatchewan are balking that the economy can’t cope with the expense of higher CPP benefits. That is nonsense. A gradual rise in employer and employee CPP contributions is not only manageable but, of course, a salutary form of mandatory saving for retirement. Given the new reality for so many seniors of no more employer pensions and of meagre retirement nest eggs, raising the CPP payout is an imperative investment in the country’s future.

In this as with all issues, we must consider the alternative. A return to the dark ages of old age meaning impoverishment would deny Canada the wisdom and work — paying and volunteer — that seniors provide.

It would greatly add to our national health-care costs. It would encumber Canadians caring for their parents, making still more severe the income-inequality crisis afflicting the entire country.

And it would supplant our civility with moral vacancy.   < >

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