Pension reforms must be built upon the system that will best create decent pensions to keep the elderly out of poverty, require minimum additional contributions and have low administrative and investment costs.
The only system capable of meeting these goals is the Canadian Pension Plan (CPP)—a proven system that is the envy of many countries.
Approximately 35% of elders are dependent upon the Guaranteed Income Supplement (GIS) to keep them out of poverty. This is partly because, currently, the CPP objective of just replacing 25% of the average industrial wage is too low. A 50% income replacement ratio would dramatically reduce the reliance on GIS to keep the elderly out of poverty and reduce the cost of GIS to the federal government by billions annually.
The Year’s Maximum Pensionable Earnings (YMPE) should be raised to at least $90,000 and consideration should be given to raising it to the full Income Tax Act limit for registered pension plans of $122,222 (as of 2009) pending a evaluation/review in a decade.
Subject to an actuarial evaluation, it is expected that these benefit could be achieved with a phased in increase of CPP contribution rates from the current 9.9% to approximately 14.5%. Most if not all of which would be offset by reductions in workplace pensions for those with them. Redirected GIS savings could be used to offset some of the required contribution increase.
Defined benefit plans are much more efficient than defined contribution (DC) plans in that they produce significantly higher pensions for the same contributions, yet DC plans get the same tax support.
Prorating tax expenditures to the value of projected pension would bring fairness and equity back into the system.
RRSP’s are very tax inefficient and median asset values too low to provide a meaningful pension supplement.