Efforts to increase compulsory public retirement saving programs may be partly offset by reduced private retirement saving, a new research paper notes. However, the wealth-management industry may have little to fear as the research found little impact on high-income households, which are the industry’s primary target clients.

The research paper, published by Vancouver-based conservative think tank the Fraser Institute on Tuesday, argues that any efforts to increase mandatory retirement saving — either by expanding the Canada Pension Plan (CPP) or by introducing new provincial pension plans, such as the planned Ontario Retirement Pension Plan (ORPP) — should factor in the prospect that some of the increased public saving will likely reduce private saving among certain groups.

The paper looks at survey data for certain years between 1986 and 2008, focusing on the impact of changes to the CPP contribution rate between 1996 and 2004, when the total contribution rate rose from 5.6% to 9.9% of insurable earnings. It finds that this increase in the compulsory CPP contribution rate was followed by decreases in the private savings rate of Canadian households after accounting for changing interest rates and shifts in demographics, such as age, income and home ownership.

Specifically, the paper observes a 0.895 percentage point drop in the private savings rate of the average Canadian household for each percentage point increase in the total CPP contribution rate. The impact was not uniform, with private saving by younger households more affected than the saving behaviour of older households. Furthermore, there was practically no impact on the savings of wealthy households, it says.

The Fraser Institute’s report does not prove a causal relationship between the observed reduction in private savings following an increase in CPP rates, nor does it address the relative returns or costs of private vs public retirement saving. However, the paper says that the possible impact on private savings rates should be factored into the debate on retirement savings reform.

“The debate about the efficacy of compulsory expansion of the CPP or new provincial plans such as the ORPP should account for the consequence of reduced private savings. Our results suggest that overall retirement savings won’t increase to the extent of the increase in compulsory savings, and perhaps won’t increase at all,” the paper says.

“In the end, there will be a reshuffling of retirement savings, with more money going to forced savings and less to voluntary savings,” the Fraser Institute report says. “This means the benefits of increasing the CPP or enacting the ORPP must be weighed against the flexibility and choice offered by private savings vehicles, such as RRSPs and TFSAs.”