Canada's middle to upper classes need retirement help, but should government intervene and how?

CALGARY, March 5, 2014 /CNW/ - There is widespread concern that Canadians are not saving enough for retirement. Several proposals for Canada Pension Plan reform are being floated as a result.  A report published today by The School of Public Policy critiques these proposals and identifies which segment of the Canadian population needs CPP expansion most.

"It sounds like a problem that calls for urgent government action," write Kevin Milligan and Tammy Schirle, the report's authors. "Only, these people are not underprivileged or low income earners. They are middle- and higher-income earners who lack an employer-provided pension, but presumably have the capacity to save for retirement on their own. Whether we see the fact that many of them do not as a problem for government to solve depends entirely on our view of the role of government."

Government can either take a hands-on or hands-off approach to helping this segment of the population save for retirement. If hands-on is the chosen course of action, numerous options are at government's disposal.

Milligan and Schirle examine four potential options for expanding CPP: doubling the current replacement rate to 50 per cent, a plan recently proposed by P.E.I., the "wedge" proposal offered by economist Michael Wolfson and doubling the maximum pensionable-earnings room allowed for CPP contributions.

The authors argue that the Wolfson wedge and the P.E.I. plan do a good job of targeting the expansion where it might be needed most: middle- to higher-income earners. However, their analysis indicates that the simpler reform of doubling the Year's Maximum Pensionable Earnings (YMPE) to $102,200 would perform very similarly to the P.E.I. plan, but would do so without the complexity of three separate CPP replacement-rate ranges.

Of course, the question remains whether an individual that averages a lifetime yearly $100,000 income should be getting a boost in CPP benefits.

"Whether leaving relatively advantaged workers to suffer the consequences of their own investment decisions, or whether we require government intervention to protect them with an expanded CPP, hinges very much on just how paternalistic we expect our policy-makers to be," the authors write.

The report can be found at http://www.policyschool.ucalgary.ca/?q=content/simulated-replacement-rates-cpp-reform-options

SOURCE: The School of Public Policy - University of Calgary

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