Don’t believe the hype coming from the special interests and big-government bureaucrats, writes Brian Lee Crowley in the Ottawa Citizen. Canadians are just fine saving for retirement on their own.
By Brian Lee Crowley, June 16, 2016
Federal and provincial finance ministers are convening in Vancouver early next week to decide how much you should save for retirement. Special interest groups representing seniors and organised labour will likely be there to help. The only ones missing will be regular Canadians.
Much of the debate about expanding the Canada Pension Plan (CPP) assumes that Canadians aren’t saving enough for retirement and more mandatory savings are the solution. Both assumptions ignore the evolving priorities, interests, and responsibilities of Canadians as they move from one stage of life to another. Ministers would be wise to pay attention to how Canadians actually live.
Just think of your own life experience. Most of us start off with entry-level jobs and a host of priorities such as paying off student debt, saving for a first home or raising a child. Retirement savings may not be high on the list. And that’s entirely sensible.
But soon priorities change. Incomes rise as one’s career takes off and expenses begin to fall as mortgages are paid off or kids finish school and move out. These changes allow Canadians to save for retirement, reduce their debt, and accumulate assets, thus increasing their net worth.
Economists know this by the unfortunate name of the life-cycle theory of consumption and savings. Ugly jargon aside, it refers to one of the realities of life – namely that people make spending and saving decisions based both on what they have at any one time and on their stage in life.
Canadians make decisions based on their priorities, interests, and responsibilities and these evolve over time.
It’s not surprising therefore that, according to Statistics Canada, families with primary earners under the age of 35 have the lowest median net worth among different age groups whereas older families (55 to 64 age group) are much better off.
The point is that Canadians make decisions based on their priorities, interests, and responsibilities and these evolve over time. Just this week, for instance, a former co-author of pension studies with federal finance minister Bill Morneau published research showing that spending habits decline as we age – dropping by nearly half between the ages of 60 and 80. This is hardly a path-breaking insight and yet it seems to be completely lost on some politicians including Ontario Finance Minister Charles Sousa.
Forcing all working-age Canadians to save more for retirement – as Mr. Morneau and others have called for – fails to account for how Canadians actually live. Having politicians and special interest groups decide precisely how much Canadians ought to save is the epitome of top-down, technocratic governance. Personal preferences seemingly be damned.
Of course, there’s room for government to provide or administer a basic retirement income so that most Canadians can maintain “reasonable” levels of consumption in retirement. That’s why we have the CPP and Old Age Security and the Guaranteed Income Supplement. But there’s little evidence that many Canadians are at risk of falling below anyone’s definition of “reasonable.”
Having politicians and special interest groups decide precisely how much Canadians ought to save is the epitome of top-down, technocratic governance.
The risk, then, is that more compulsory savings for everyone in the form of a CPP expansion forces Canadians – particularly younger Canadians – to dedicate a greater share of their disposable income to retirement than they want, or can afford to. Most importantly, it will be more than they need to.
It reminds me of David and Neera, the theoretical 40-something couple with two daughters that Mr. Morneau introduced us to in the federal budget. David and Neera are balancing a number of priorities and responsibilities including paying off student loans, raising their children, financing home repairs and taking their kids on a family vacation.
Yet, if Mr. Morneau and some of his provincial counterparts have their way next week, David and Neera will be forced needlessly to put some of these priorities aside in order to save more for retirement. Generations of David and Neera’s predecessors have been perfectly capable of taking responsibility for themselves over their working lives, including saving appropriately for retirement. CPP expansion will make that job harder, not easier.
Brian Lee Crowley (twitter.com/brianleecrowley) is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.