Today Canadians celebrate Lester Pearson's birthday. Even as we reflect back on the kind of leader he was and the growing capacities of Canada that he helped to create, we become aware that somewhere between then and now we lost our edge, our diversified global influence, and, sadly, our belief in the public good.
This week, the legislation that originally created the Canada Pension Plan (CPP) will turn 50 years old. The stated purpose of the Canada Pension Plan was to ensure all working Canadians have an opportunity to retire in dignity. It builds on basic Old Age Security to achieve greater social justice linked to progress in the economy. But Canada has big challenges to face in the immediate future if we're to honour Lester Pearson's ambition of a fair, efficient, adequate system of retirement income for all Canadians.
Nine-million baby boomers will retire from the workforce over the next two decades, and when they do, they will start to consume the most expensive forms of government programs. This is great news for seniors, but terrible news for our public finances and for young Canadians forced to foot the bill. Generation Y has been dubbed the "Millennial" generation because we came of age at the turn of the new millennium. A more fitting name for this cohort is Generation Screwed.
Reduce the length of time pensioners collect. The Auditor General noted that one of the biggest problems with the pension plans is that pensioners are living longer and collecting more and more benefits. It's not likely they will be willing to voluntarily give up their entitlements but steps can be taken to lower their life expectancy.
Now, in Australia, you get a lump sum pay-out (hardly any Aussies annuitize their lump sum). Once again, you have to manage your retirement on your own. Now, even if you knew exactly when you were going to die, this would be difficult, but when you have no idea of your personal life expectancy, this is a problem beyond the capabilities of the average Canadian.
Put simply, the aging of Canada's population has resulted in large and growing unfunded liabilities. The funding shortfall is estimated at $792.3 billion for the CPP, $494.4 billion for OAS, and $894.7 billion for medicare. Together the unfunded liabilities in Canada's public pensions and health care programs total $2.2 trillion or $134,841 for each income taxpayer. These unfunded program obligations make up more than half of total government liabilities. And their sheer size calls into question the structure of taxing current workers to provide benefits for retirees. Ultimately, to maintain current levels of spending in the future, taxes will have to increase or benefits for other programs will have to be cut -- or both.
The upcoming meeting of federal and provincial finance ministers will touch on what's become a politically charged debate about expanding the Canada Pension Plan. Proponents have tried to convince Canadians they are not saving sufficiently for retirement with some even suggesting we are on the brink of a retirement crisis. These views simply do not reconcile with the available empirical evidence.
Canadians are not using RRSPs enough, and those that do are in the higher income brackets. The people who need help saving for retirement are those earning under $100,000 -- i.e. most Canadians. So the goal is to ensure that any change has broad effect and target the reasons why people are not saving.
As our political leaders deliberate expanding the CPP, they would do well to consider the evidence which does not support the notion of a broad retirement income crisis. They also need to consider that a compulsory expansion to CPP could reduce private savings and the flexibility they afford Canadians.