By Stephen Gordon - Wednesday, January 9, 2013 - 0 Comments
There are any number of proposals to “reform” Canada’s pension system. Some may be good ideas, some may be less than good. But before we can evaluate the relative merits of a given set of pension proposals, we have to articulate the question: what, precisely, is the problem these reforms are meant to solve?
The original goal of the CPP/QPP was to solve the once-pervasive problem of elderly poverty—and it was largely successful at that. As UBC economics professor Kevin Milligan notes, elderly poverty declined sharply after the implementation of the CPP/QPP. In all of the measures produced in this Statistics Canada table, the incidence of poverty among the elderly is significantly less than among the non-elderly.
People save for retirement for the same reason that they take on debt when they are young: they are rearranging income across time in order to maintain a stable level of consumption throughout their lives. Capital markets are the mechanism with which income is shifted across time: current income is deferred to the future by saving, and future income is brought to the present by borrowing. If everything worked according to the simplest form of the standard life-cycle model of savings and expenditures, retirement would be characterised by a smooth transition from labour income to investment income that allowed people to maintain the same standard of living. In practice, of course, this doesn’t happen: capital markets are not perfectly frictionless, and people don’t always have access to all relevant information when making their savings and investment decisions. That’s why retirement is generally associated with a reduction in disposable income. The policy challenge is to make the transition less abrupt.
By Aaron Wherry - Tuesday, December 18, 2012 at 12:54 PM - 0 Comments
Recent reviews of the Canadian retirement income system by Jack Mintz and Bob Baldwinhave concluded that the public system already in place does well in ensuring sufficient retirement income for those in the bottom two-fifths of the population. Research by Statistics Canada indicates that more than two-thirds of lower-earning Canadians have more income in retirement than they did at age 50. The pension problem, such that it is, can be found among those in the top three-fifths of the population who do not receive benefits from an employer-sponsored pension plan.
The CPP affects almost everybody. The pension problem identified by these recent pension reviews is one that affects middle-to-high earners without a workplace pension. This presents a fairly obvious mismatch. Is a bigger CPP really the solution for high earners who aren’t saving enough? Should we invest a lot of public policy effort to ensure that high earners can spend their retirement days in Florence instead of Florida? I still need to be convinced that a more targeted solution wouldn’t be more appropriate.
Milligan reviews some of the proposals, including the last Liberal campaign proposal of a “secure retirement option” and Thomas Mulcair’s proposal of a pension exchange. Mr. Mulcair’s leadership website seems to have mostly disappeared, but his policy paper on retirement security is preserved for posterity here.
By Paul Wells - Tuesday, January 31, 2012 at 1:36 PM - 0 Comments
“There are tough, important choices that must be made,” Stephen Harper wrote to his caucus 16 days ago. All righty then. Let’s talk about choices and Old Age Security. One thing I’m going to resist doing is handing out white hats and black hats. There are fewer heroes and villains in this story than, well, choices.
Here (.pdf) is the Ninth Actuarial Report on the Old Age Security Program As At 31 December 2009, tabled before Parliament three months ago. The government says it took a look at that report and had a fright. “Demographic changes will have a major impact on the ratio of workers to retirees,” it says, with the result that “Total annual expenditures are projected to increase… from $36.5 billion in 2010 to… $108 billion by 2030.”
Out went the talking points. The cost of the program will triple! Something must be done! They were more reticent about the next paragraph, which says cost of the program as a fraction of GDP is projected to rise from 2.3% in 2010 to 3.1% in 2030, before declining after that. So 2030 will indeed be a high-water mark in the entire history of the OAS program’s cost, but it’s not really a tripling because everything, including our ability to pay, will have increased in the meantime.
Still, big bump up. Point taken. But then there’s this. Here’s (.pdf) the Second Actuarial Report on the Old Age Security Program As At 31 December 1991, tabled in Parliament on Feb. 7, 1994 — about the time a 34-year-old rookie Reform MP named Stephen Harper would have been getting used to his new job. That report said the total annual cost of OAS would grow from $34 billion in 2010 (it’s in the chart on page 4) to $119 billion in 2030. An even bigger increase than the one projected by the most recent report, but pretty much the same scale. And indeed, on Page 3, that actuary 19 years ago picked 2030 as the peak date for the cost of the OAS program.
Demographics doesn’t change radically from year to year. So anyone reading the 2nd, 3rd, 4th, 5th, 6th, 7th or 8th Actuarial Reports on the Old Age Security Program would have seen the same trend lines that the government says spurred it to action now. Never mind last May’s election — this could have been an issue in any of the last six federal elections. (As we’ll see, and as many of you already know, it sort of was, once early on.) There quite literally could not possibly have been more warning.
So that’s one thing.
Then there’s this. Continue…
By Aaron Wherry - Tuesday, January 31, 2012 at 11:25 AM - 0 Comments
The government sent up Joyce Bateman during QP yesterday to lament that the NDP wanted to expand the Canada Pension Plan. Specifically, the NDP’s plan in the last election was to gradually double CPP over a period of seven years.
Finance Minister Jim Flaherty was not present to hear this, which is perhaps just as well, seeing as how Mr. Flaherty also used to support an expansion of CPP. And, as David Akin notes, Mr. Flaherty also just allowed an increase in those dreaded payroll taxes.
By Aaron Wherry - Thursday, January 26, 2012 at 12:19 PM - 0 Comments
Brian Topp has released his sixth policy paper, this one on supporting families. He’s proposing a national child nutrition program, a renewed health accord, a national pharmacare plan, a reversal of the moratorium on family reunification, a doubled Canada Pension Plan and support for LGBTTQ families.
Mr. Topp has also picked up the endorsements of his wife and two sons.
By Aaron Wherry - Wednesday, January 11, 2012 at 1:18 PM - 0 Comments
Thomas Mulcair pitches pension reform, including a pension exchange.
The proposed pension exchange would be operated by CPP and consist of a payroll deduction system, a selection of investment funds including a public plan offered by the CPP Investment Board and regulatory requirements to both guarantee and insure benefits.
“Canadians who choose to participate will be able have their pension contributions deducted directly from their pay cheque and invested through the exchange in one of several investment funds including a public plan offered by the CPP Investment Board. This will force large financial institutions to complete for our investment dollars and guarantee both lower management fees and higher rates of return.”
By macleans.ca - Thursday, November 10, 2011 at 12:21 PM - 11 Comments
Net assets down nearly $1 billion in latest quarter
In a sign that turmoil in the global economy is taking a toll on Canadians’ retirement savings, the Canada Pension Plan Fund indicated in a statement on Thursday that its net assets were down by nearly $1 billion at the end of the third quarter. The fund had $152.3 billion in net assets at the end of September, down from $153.2 billion at the end of the second quarter, the Globe and Mail reports.
By Peter Shawn Taylor, Jullia Belluz - Thursday, November 18, 2010 at 12:40 PM - 11 Comments
Doubling Canada Pension Plan benefits would provide all Canadians with a safe retirement, but it’s a risky plan that is set to spark a major political battle
Carlπos Hernandez understands the restaurant business. The retirement business, on the other hand, is a bit of a mystery.
After a career spent working in other people’s kitchens, Hernandez, a native of El Salvador, is on the verge of opening his own restaurant. Inigo, in downtown Toronto, will offer takeout Portuguese churrasqueira-inspired fare—oven-roasted chicken, salads and brown rice. At 48, Hernandez felt it was time he became his own boss. So he’s sunk 15 years of savings into his venture.
While most financial advisers would argue against putting a lifetime of savings into a single, risky asset, the chef figures he knows his way around a kitchen counter much better than a stock portfolio. If the restaurant flops, however, he’ll be left with nothing.
“This is a gamble,” Hernandez admits of his foray into the notoriously fickle restaurant industry. “But it’s all I know. I’m not thinking in terms of a retirement plan.”
By Yoni Goldstein - Thursday, December 10, 2009 at 6:40 PM - 0 Comments
The year’s biggest mergers
Alex Rodriguez and Kate Hudson
The baseball slugger and ﬁlm starlet confirmed their relationship in July, though Hudson pretty much gave away the secret by following A-Rod’s Yankees across the U.S. during the baseball season. In February, Rodriguez admitted to using steroids between 2001 and 2003—which proves that women love an “honest” man.
Peter MacKay and Jana Juginovic
The hunk on the Hill is engaged, and this time the object of his affection isn’t a fellow pol. MacKay announced his engagement to Juginovic, director of programming at CTV News Channel, in November. Jack, the MacKay family dog, is reportedly happy—his master walks him way too often when there’s no amour in his life. Eat your heart out, Belinda and Condi.
Disney and Marvel
Disney got significantly cooler in August when it announced a US$4-billion deal to buy Marvel Entertainment. Walt’s company will finally have a stable of strong heroes—Iron Man and Wolverine come to mind. Perhaps the Marvel guys will find a way to toughen up Mickey and Pinocchio.
Archie and Veronica
First he married Veronica. Then he married Betty. But Archie’s no bigamist—both were “dreams.” Could you see this ending any other way? The redhead has been stringing these two on for 70 years. Some may say he’s got the best of both worlds—one rich girl, one nice girl—why ruin it by choosing Veronica? By the way, have you noticed Betty and Veronica look exactly the same, except for their hair colour?
Suncor and Petro-Canada
“I don’t know if it is a marriage made in heaven. But it is a match made in Canada,” Suncor’s CEO Rick George said when his company mergered with Petro-Canada. The deal protects two big players in Canada’s oil patch from foreign takeovers. It also means we have one less company to blame the next time gas prices skyrocket.
Michael Vick and the Humane Society
Michael Vick used to be a sick puppy, now he’s helping them. The dogfighting quarterback and the Humane Society of the U.S. teamed up after Vick was released from prison in May. Now that he’s back in the NFL, we’ll see how much time he has for the Sparkys and Rexes of the world.
Fiat and Chrysler
If anyone can make Chrysler stylish again, it’s the Italian automaker. But this deal isn’t just about reviving the moribund American institution—Fiat plans to use Chrysler’s dealerships and manufacturing plants to promote its own brands (and those of subsidiary Alfa Romeo) in the North American market. As the Italians say: Chi non risica, non rosica (“Nothing ventured, nothing gained”).
Robert Pattinson and Kristen Stewart
Honestly, we can’t figure out whether the Twilight stars are dating or not. They keep denying a relationship, but then were recently photographed holding hands in Paris. It’s not fair to keep so many teens languishing in crush purgatory.
Ivanka Trump marries
Mazel tov! Ivanka Trump—or Yael Trump, as she’s now known—converted to Judaism and married New York Observer owner Jared Kushner on Oct. 25. She wore a Vera Wang dress. No one could tell whether Donald was wearing a yarmulka—or whether he was having another bad hair day.
CPP and Skype
The Canada Pension Plan’s purchase of a portion of the Internet phone company signals the emergence of a bolder CPP. Now that a lawsuit between Skype and the computer nerds who developed the online phone technology has been settled, pensioners can expect to see money start rolling in—over the Web, that is.
By John Geddes - Wednesday, December 9, 2009 at 9:26 AM - 18 Comments
Patterns in politics are obviously more revealing than isolated actions. When Michael Ignatieff decided last week to throw Liberal support behind harmonizing provincial sales taxes in B.C. and Ontario with the federal GST, it was merely an interesting event. Combine that risky political move with yesterday’s proposal from Ignatieff on pension reform, however, and you’ve got the beginnings of something that deserves closer attention.
By Andrew Coyne - Thursday, March 12, 2009 at 11:46 AM - 29 Comments
Coyne’s secondary headline (and primary argument) is, “Compulsory plans like the CPP expose older investors to risks they shouldn’t have to face.” His logic is that, whereas risky assets with potentially high returns (e.g. stocks) make sense for young people with decades ahead of them, safer assets with modest returns (e.g. bonds) make sense for people closer to retirement. In buying some risky assets, the CPP Investment Board allegedly forces excessive risk upon older Canadians.
What Coyne seems to miss is that younger Canadians are also members of the CPP. If risky assets are appropriate for young people and safe assets are appropriate for old people, then the CPP should buy a combination of risky and safe assets . . . which is what it does.
Weir represents my point fairly: the Caisse fiasco is only an extreme example of a basic problem with compulsory public pension funds — that they expose everyone to the same risk, regardless of their tolerance for it.
It’s his rebuttal that’s baffling. Whatever combination of risky and safe assets the CPP buys, it’s only one combination. That combination will be optimal for some of its clientele, and entirely wrong for the rest. That’s the point: by throwing everyone, young or old, into the blender, the CPP homogenizes into one what are in fact a heterogeneous mix of risk preferences.
Isn’t this just risk-pooling, as in life insurance? No: the pensioner is not the risk, here. It’s the stocks that are risky. So it makes sense to buy a broad mix of stocks — ideally, the index — as well as bonds and other things. But it equally makes sense to leave it up to different individuals — or age groups, at least — which asset mix is right for them.