Blogs & Comment

Costs & benefits of retirement system

The Dept. of Finance recently set up of a variety of forums to gather ‘input from Canadians on ensuring the ongoing strength of Canada’s retirement income system.’ The consultation period runs until April 30, and perhaps the most convenient forum for leaving comments is online at the Dept. of Finance website.
Ive just readthe Dept.’s background brief. The overriding focus of participants in the national debate is on how to maintain or add to retiree benefits. I dont recall any references to the cost of thesystem or the possibility of unintended consequences.
Heres the tenor of thediscourse:let’s do something aboutthe secular decline in defined benefit pensions, under-saving in RRSPs and under-funded corporate pensions. Lets increase OAS, GIS and CPP benefits (with concomitant increases in contributions); lets launch a brand-new government-sponsored defined contributions plan. And on it goes — including an accounting of benefits recently enacted such as changes to ease the tax burden on Canadian seniors since 2006, including $2 billion annually in tax relief.
No doubt, some of the concerns are worthy. But what about the overall costs and possible side effects? To see where I am coming from, you might want to read a great (award-winning) article written by MoneySense editor Duncan Hood, The War on the Family.’Lets review a few points (apologies to Mr. Hood if my interpretation unwittingly takes too many liberties):
Over the past three decades, governments have consistently funded and enriched programs for seniors, writes Mr. Hood. Meanwhile, families are finding it increasingly difficult to make ends meet.
According to stats cited by Mr. Hood, a two-salary family now earns roughly the same level of real income as a one-salary family in the 1960s. Mortgages, cars, child care costs, and other expenses take a big bite in addition to steadily rising taxes now the largest expenditure for most families.
As a result, families today cannot afford to have many children. As recently as the 1960s, families used to span an average of four kids; today, the typical family includes a mere 1.5 children, notes Mr. Hood. Today’s parents aren’t having enough kids to replace themselves.
This declining birth rate undermines many parts of the governments retirement income system — not to mention other social programs. These programs raise money by taxing those who are working. Right now there are five working people for every senior; within 25 years, there will be only half that many, explains Mr. Hood.
In 2005 the median net worth of couples with children was a meagre $189,000. The median net worth of senior couples was more than twice as high, at $443,600. Look at those figures and you have to think that if anyone needs tax breaks, it’s not people in their 70s, its people with seven-year-olds. But the system works in just the opposite fashion.
The Dept. of Finance invites Canadians to participate in the consultations at Im thinking of forwarding a copy of Mr. Hoods article and asking: How about consultations on how to nurture the Canadian family so that it can generate the kind of population growth and national wealth able to sustain government programs over the long run?