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Saving The Young From Their Future Impoverishment

Posted: 08/20/2012 7:42 am

"You've got to be kidding me."

Those were the words I mumbled to myself as I read NDP MP Irene Mathyssen's recent Huffington Post article, "Why PRPPs Will Not Ensure Pension Security for Canadians."

For those of you who are unaware of the acronym, PRPP stands for a Pooled Registered Pension Plan, a voluntary retirement savings option that's offered by financial institutions to employees to put more money aside for their retirement.

The Canadian Federation of Independent Business (CFIB) favours PRPP options, and we welcomed the passage of Bill C-25, an Act Relating to Pooled Registered Pension Plans by the federal government.

While the PRPP won't be a panacea for Canada's pension problems, it does address some of the problems with current pension options by promoting significantly lower management fees, making them more accessible to smaller firms and eliminating the taxes business owners currently pay if contributing to an RRSP for an employee. As such, we believe PRPPs are sound public policy and they can -- and should -- be part of the overall solution.

A Bank of Montreal poll found that almost a third of young Canadians haven't saved a penny for retirement, and only 10 per cent have given much thought to exactly how much money they're going to need to retire. Clearly, we need to get these folks saving, and fast.

According to feedback CFIB has received from our members, 80 per cent of small firms don't have any form of company retirement plan for the business owner or employees because the costs and administrative burdens are too high. Company Registered Retirement Savings Plans (RRSPs) are great, but they can quickly become unaffordable because employers must pay taxes like Employment Insurance, Canada Pension Plan/Quebec Pension Plan (CPP/QPP) and workers' compensation premiums on top of any contributions they make.

The nice thing about PRPPs is that employers aren't bled dry by payroll taxes, and the administration fees are lower. A third of small firms have told us they would consider offering a PRPP in their workplace, and CFIB is looking at ways to help our 109,000 small business members across Canada provide such an option.

Mathyssen ends her piece by calling the Canada Pension Plan "a solid, reliable and functional program of retirement savings for Canadians." Well...not exactly.

CPP was created in the mid-1960s to combat the high rate of poverty among Canadian seniors, and it worked well for awhile, operating on a pay-as-you-go basis between workers and retirees. By the mid-1990s, however, premium revenues were no longer sufficient to cover future obligations. The federal government's "fix" was all too predictable: employer and employees premium rates tripled.

Young people aren't stupid. While CPP is important, they know they're going to pay far more into CPP than the previous generation ever had to. And demographic trends aren't on their side. Back in 1960, there were five working Canadians for every retiree. Today that's down to three employed Canadians per retiree, and it will fall even further by 2030 to a two-to-one ratio.

Some argue that CPP premiums should be raised even higher to deal with this looming demographic disaster, but doing so will prove detrimental to the economy, employment and wages. CFIB data shows that even a one percentage point increase would cost 220,000 person-years of employment, and force wages down by about 2.5 per cent in the long run.

I'd like to see today's young Canadians -- particularly those without a gold-plated public sector worker or MP pension -- wind up with something, rather than nothing for their retirement. PRPPs can help employees at private sector small businesses save money for the future.

While the CPP is, no doubt, an important part of Canada's retirement landscape, an increase in mandatory premiums would do far more harm than good. Allowing small business owners to save for their own and their employees' retirement through a low-cost voluntary option is a step in the right direction.

 
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