If you were sitting on Brackley beach enjoying a relaxing fall afternoon and noticed a tsunami building energy on the horizon, what would you do?
What if you knew it would not hit shore for an extended period? Would you relocate to safety, take measures to protect people and property from the devastation, or would you lie down and wait to be swept away?
Some think that we are watching a retirement tsunami forming off our shores. It has been building for many years and is increasing in size, strength and speed. Lying still and catching a few more “rays of sunshine” is no longer a practical solution.
One of the many financial issues facing us will be management of retirement. If we consider the public service commission, 51 per cent of employees are over 50 years of age. Under normal conditions, this sector would experience employment growth, fund contributions would increase, fund returns would perform well and the defined benefit system is self-sustaining.
Regrettably none of the above scenarios are playing out.
The funds invested are not performing as projected, people are collecting benefits longer and the fund is not scaled to meet the expected demands. This is “bad” news if you have made your long-term retirement plans based on pension receipts.
This is “really bad” news if you are a young worker expecting a pension when you retire. This is “exceptionally bad” news if you are a non-benefiting taxpayer who is obligated to making these payments at the expense of other public investments.
To this point the government has backstopped deficiencies in the pension funds. However there is an acknowledgement this is no longer sustainable. This is now a major public policy issue and not one easily wrestled.
Efforts are underway to force workers to save more for retirement. Forced savings is never a good policy, but it appears that forced behaviour may be required as we are not planning adequately for our long-range future. Our society’s problem is we spend not less than what we make. We no longer have a culture of saving — we now have a culture of spending.
Why can’t we save? One rational is because we are taxed so heavily that we need all our earnings to afford our lifestyles. One solution, tax less. Reduce bloat and let citizens invest in priorities.
A disturbing concept being floated to force savings is increasing the Canada Pension Plan (CPP) contributions. This pushes the obligations away from government and back to contributors. This is absolutely not the right approach. In fact, the approach being proposed by the local government would result in a doubling of the CPP rate; consequently doubling taxation as it relates to CPP, this on top of numerous recent tax increases.
Increasing CPP contributions is a tax increase; it reduces the take home pay of workers and unnecessarily increases the taxable burden on business. This should be a non-starter for both stakeholders and an assured method to decrease employment and smother a fragile economy.
Reform is required, this is clear. If citizens are not prepared for retirement we will have considerable social consequences in the future. If we support tax penalization there will be little left to worry about in the future. It is time to consider the other side of the ledger and examine expenses, as there is no longer any ability to increasing public revenue through taxation.
The waves of warning are starting to lap against our shores. Citizens and businesses need to become educated on these challenges. Tax increases must be resisted as we sound the tsunami warning alarm.
Blake Doyle is The Guardian’s small business columnist. He can be reached at email@example.com.