Reforming Canada's Retirement Savings System – Solutions for a Non-Existent Problem?

Abstract

During the past five years in Canada, issues concerning the adequacy of the Canadian retirement system has been debated with increasing intensity amongst politicians, economists, academics, policy analysts, think tanks and unions. This paper contributes to this important theoretical and public policy debate by reviewing and analysing existing research and presenting and reviewing additional empirical evidence. The central issue in this debate is whether or not Canadians are saving and investing enough through government, employer and private savings to provide an adequate income in retirement. And if a retirement income adequacy problem does exist, is it a universal problem for most Canadians or does it only affect some income groups or age cohorts? The third major question concerns the appropriate policy response. The paper also reviews and questions whether the current and proposed policies properly address the challenge and provides some recommendations. The paper shows that the larger part of this debate actually hinges on assumptions surrounding savings and the definition of savings. Those who claim that Canada faces a national pension and savings crisis only consider government and private savings pension plans whose assets are approximately only one third of total household wealth in Canada. However, this narrow definition of savings exclude all savings and investments held outside of recognized pension plans and thus exclude investments in stocks, bonds etc. as well as private homes and secondary residences which can provide for an important source of retirement income. However, there are a small number of Canadians that are or will be below the poverty line and this calls for a targeted policy response rather than an across the board reform of the Canada Pension Plan or provincial programs such as the newly proposed Ontario Retirement Pension Plan (ORPP) which may actually be viewed as a payroll tax. Based on the evidence and analysis, the paper concludes that most Canadians do not face an inadequate income during retirement and no new government policy response is needed.