Pension conversations are puzzling. The subject is as much a diversion as a concern.
This past week the financial leaders of our Dominion met on the shores of the famed Meech Lake, for another ministerial disappointment.
I share the concern of a future restricted by today’s compulsion to spend at the expense of saving. Our Canadian Pension Plan (CPP) should not become society’s singular security of retirement. However it is the sole instrument in many cases.
Our current retirees are a society of savers, often armed with a retirement plan and perhaps a retirement income in addition to the CPP. Today, we are a society of spenders and within the last week Statistics Canada confirmed that we owe $1.64 for every $1 in disposable income earned. As long as we spend more than we make we live for today with disregard for tomorrow.
Our finance minister is right to raise retirement alarm bells, although I am not certain this is the single biggest financial issue facing Prince Edward Island at the present time. In fact one could argue that the present economy is of greatest immediate concern, but this just supports the theory we are only living in the moment.
Several days ago Statistics Canada released additional data on who holds registered pensions. According to the most recent census, there are 1.191 million males holding a public pension and 1.968 females. Shockingly defined benefit plans are up 0.7 per cent between 2010 and 2011 in the public sector.
The private sector pension holders swap ratios. There are 1.870 million males with pensions and 1.083 million females. Defined pension plans are down 1.7 per cent in the private sector. Defined benefit pensions will enjoy a very rapid decline in coming years as a relic of a past era.
Many, myself included, view the pension reform debate as an obtrusive additional tax. I support the argument that neither the affected businesses nor the payee employees can afford additional tax burden without related tax relief.
While increasing pension benefits will support the retiree in the future, in the short run it serves only penalize businesses, employees and the economy. The impacts are irrefutable.
I can also speculate that businesses are very adaptive. In the medium-term this tax will be shifted back to the employee, either through adjusted prices or as transference from a base of employees to a base of contractors/ consultants where no payroll taxes are collected or remitted; and no CPP benefit accrued. In the medium run all proposed tax increases will fall exclusively on the contributing employees.
What of the other options that I am sure have been contemplated?
Increasing the age of pension access. People are living longer and healthier lives, could retirement benefits be pushed out while encouraging extended participation in the labour market? Currently there is an inducement to defer collection of the CPP until age 70; it is an absolute certainty future generations will see these age limits increase.
Our finance minister is correct, the CPP is not going to sustain the social needs of our aging generations. Our culture is one of spending, not saving, and we are failing to save for our retirements. In P.E.I. the average RRSP contribution in 2011 was $2,480. At today’s interest rates this will not carry the contributors very long.
Taxation is no longer an option and not the solution to our challenges. Our culture of spending needs to change, both at personal and public levels.
Blake Doyle is The Guardian's small business columnist. He can be reached at firstname.lastname@example.org.