Expand CPP and boost voluntary savings: Dodge

Dodge and Dion are both senior business advisors at Bennett Jones LLP. (Dodge is also currently chancellor of Queen’s University.)

The research paper argues that Canadian households need to save more now to support future economic growth, and to ensure that Canadians enjoy a satisfactory standard of living in retirement. To that end, it recommends expanding the CPP, and bolstering other retirement savings programs through reforms to improve their appeal.

“On average, Canadian workers are far from saving enough to support in retirement a standard of living that they would find satisfactory,” the paper says. And, it warns that, absent an increase in labour productivity growth, future governments will have a hard time generating enough revenue from a static working population to finance the costs imposed by a very fast-growing population of elderly Canadians.

To avoid increasing the tax burden on future generations, the paper says that the solution is to start saving and investing more now. “A higher saving rate would underpin higher retirement income without increased tax rates on the working population, directly through larger accumulated household wealth and indirectly through supporting a higher investment rate in physical and other forms of capital, and hence higher productivity, larger investment income and increased government revenues,” it says.

To encourage greater savings, the paper concludes that an increase in the CPP, “financed by appropriate premiums, would be an efficient way to increase household savings and to provide for higher retirement incomes.”

It also recommends that “the current system of incentives for voluntary retirement saving may need to be supplemented by some mandatory elements.” To that end, it suggests that regulatory and legislative measures to facilitate the creation and expansion of shared risk (hybrid) employer or group pension plans should be considered as well.

“An enhanced CPP (or Ontario add-on) can only partly meet the needs for increased savings for retirement by younger current members and future members of the labour force. For many middle and upper income workers improvements to voluntary savings options (such as Pooled Registered Pension Plans (PRPPs) or shared-risk single-employer plans) are essential and require modernized legislative and regulatory provisions to be most effective,” it says. “It is also important for Ontario to develop legislation to facilitate the provision of hybrid employer-based pension plans.”

While higher savings rates would impose a short-term economic cost, the paper says that this would be outweighed by the longer-term benefits of higher potential future economic growth, and more adequate retirement incomes.

“The paper released today by David Dodge confirms that there is a need to encourage savings to ensure that people, especially those in the middle-class, have a more secure retirement. Ontario has been advocating for an enhancement to the Canada Pension Plan to bolster people’s retirement savings. So far, the federal government is refusing to act, so our government will move forward with a made-in-Ontario solution,” said Charles Sousa, Ontario’s minister of finance.