Thursday, February 27, 2014 – In Canada, the current balance between compulsory and private savings is effective in meeting a clear goal, namely reducing poverty among retired people. Canada stands out among industrialized countries with a poverty rate among seniors that is lower than the average and lower than the poverty rate for the Canadian population as a whole.
However, trade unions and provincial governments, including those of Ontario and Prince Edward Island, are calling for expansion of the public plans across Canada, namely the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP). These reforms are not needed and would impose higher payroll taxes, says a new Economic Note published today by the Montreal Economic Institute.
“These reform proposals overvalue the advantages of the public plans and undervalue the advantages of private savings,” states Youri Chassin, the study’s author. “The public plans create inequities, with winners and losers, whereas private savings belong to us individually. We can even bequeath our savings to others if we don’t use them.”
Calls for expansion of existing plans are based on the view that household savings are inadequate to maintain living standards upon retirement. But the studies supporting this view have two major methodological weaknesses: they fail to take account of the value of housing and treat retirement at age 65 as a given. In fact, Canadians are better prepared for retirement than it may appear.
“Expansion proposals rely on the government imposing compulsory savings programs,” notes Michel Kelly-Gagnon, President and CEO of the Montreal Economic Institute. “Although this ‘gift’ may be tempting, the price to be paid is lower disposable income for Canadian families during their working lives.”
The Economic Note titled “Do Public Pension Plans Need to Be Expanded?” was written by Youri Chassin, an economist at the Montreal Economic Institute. This publication is available on our website.
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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
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