It probably wasn’t the last-minute, RRSP-season sales pitch that Canadian Imperial Bank of Canada (CIBC) advisors were looking for, but the bank’s head honcho, Gerry McCaughey, spoke the truth when he suggested that the financial services industry’s products aren’t the answer to ensuring adequate retirement savings for millions of Canadians – and suggested that better public options are what’s needed.

As a former retail broker, McCaughey undoubtedly knows the importance of the RRSP sales season. But that didn’t stop him from stepping out of the herd to counter the industry party line by admitting that government, not the banks, is the answer to the savings shortfall.

In a speech at a pension-reform conference in Fredericton, McCaughey cited new research from CIBC’s economics department, which suggests that almost six million Canadians could see their living standards drop by more than 20% in retirement if current savings trends continue and that more than half of today’s young workers can expect to see a significant decline in their standard of living when it comes time for them to hang it up.

More surprising, McCaughey admitted that sacred cows, such as RRSPs and tax-free savings accounts, probably won’t enable people to make up the shortfall. Many people don’t earn enough to exploit these vehicles fully; and even those who do simply aren’t saving enough. What’s really needed to fill the gap, he says, is an increase in contributions to the Canada Pension Plan (CPP).

Although McCaughey pitched this concept as providing a new choice to Canadians, the true value of such an approach would be to limit choice.

Only a public plan can compel higher savings rates by automatically enrolling people to make higher contributions and allowing their natural inertia to keep them invested. By limiting choice, a public plan can prevent people from chasing returns and making silly asset-allocation decisions as a result. Such a plan also ensures economies of scale, which means low-cost money management and no expensive distribution network to fund. This runs counter to what the financial services industry preaches, but McCaughey is correct in saying it.

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