Calls to expand CPP and create Ontario pension program rely on misguided analysis

VANCOUVER—Despite Ontario’s upcoming proposal for its own government pension program, there is no retirement income crisis in Canada, finds a new study released today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

In fact, the study, The Reality of Retirement Income in Canada, finds that analysts, activists, and politicians who advocate for an expanded Canada Pension Plan (CPP), and its Quebec equivalent (QPP), base their arguments on several faulty assumptions, often overlooking all the resources available to Canadians in retirement. “Proponents of a new government pension program for Ontario, and an expanded Canada Pension Plan, stoke fears of a looming crisis by claiming that Canadians aren’t saving enough for retirement. These claims blatantly ignore the ample resources available to Canadians when they retire,” said Philip Cross, study author and former chief economic analyst for Statistics Canada. The study notes that focusing exclusively on the traditional “three pillars” of the pension system (Old Age Security, CPP/QPP, and voluntary pensions such as RRSPs) overlooks trillions of dollars in assets held by Canadians (in home equity and other savings) and their largely undocumented support from family and friends (financial or otherwise).

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In addition to accumulating large sums of assets, Canadians are waiting longer to retire. One in four Canadians between 65 and 70 years old now remain in the workforce—an increase from roughly one in eight just 13 years ago. This delay in retirement allows more time to accumulate savings either inside the pension system (i.e. RRSPs) or outside the system (i.e. Tax Free Savings Accounts), and it postpones the drawing down of savings. Finally, an expanded CPP (or newly-minted Ontario pension program) would require increased mandatory contributions from working Canadians that will likely reduce the amount of money Canadians invest voluntarily elsewhere. “Past experience suggests that when governments increase mandatory pension contributions and force Canadians to save, Canadians tend to scale back their voluntary saving,” Cross said. While the study questions the necessity of an expanded mandatory pension system, it notes challenges that may currently exist, particularly for single seniors who never worked and aren’t eligible for CPP benefits. These Canadians often rely more heavily on Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) as sources of retirement income. “The debate about retirement adequacy should shift to targeted solutions for particular segments of the population such as single seniors with no work history, and away from mandatory increases to CPP that would impact almost every working Canadian,” Cross said. Philip Cross is in Ottawa and available to media, and Charles Lammam is in Vancouver.