Solutions for Retirement Fund Policies in Canada

In order for Canadians to retire with an acceptable amount of money provided, the government needs to help put options in place. The Ontario Retirement Pension Plan (ORPP) that was created by the Ontario Premier Kathleen Wynne ensures that individuals along with their companies are putting away funds for retirement. This is a good idea in that it forces people to contribute to their own retirement savings. The way things are going right now, it’s more or less the younger generations of taxpayers that are paying for the elderlies’ retirement since the money used to pay for pensions is coming from the employers. That money has to come from somewhere and it’s doubtful a company will increase salaries if they are having to pay more for pensions. This is not fair since there is a higher amount of retirees at this point in time. With all the baby boomers retiring, this has put a strain on the amount of retirement funds available. The way this system is going, the younger generation will have less retirement funds to live off. Therefore, this ORPP system may be a good solution.

Since Canadian companies are drifting farther and farther away from defined benefit pension plans, it seems that the government needs to take action. The Canadian economy cannot function properly if all of the elderly are unable to pay their bills or even pay for groceries. There is an incentive to help Canadians with their retirements. Registered retirement savings plans (RRSP’s) are another option for Canadians to ensure they have some income when they are older. However, RRSP’s are in the hands of the individual and are not officially required. This means that many individuals never actually set an account up. Therefore, they will have less money available to them in old age, unless they have other savings accounts or investments set up, such as a Tax Free Savings Account (TFSA).

The Canadian government should take an active role in the Canada Pension reform. The fact that Bill Morneau, “the millionaire finance minister writes that there is no retirement crisis in Canada, that the elderly may work past 65 if their pensions are skimpy and that most seniors can live perfectly well on 50 per cent of their pre-retirement income” states this in his book shows that he doesn’t understand the average Canadian’s fight with proper funding in retirement. Not everyone is a millionaire and not everyone can afford to live on 50% of their previous income. “The current annual salary for members of Parliament is $172,700”. If you make $172,700 a year, $86,350 would most likely still cover all monthly expenses. However, if you only make around $45,000 a year, 50% of that is a substantial change and with how expensive it is to own a home, pay a mortgage, pay off bills and loans, it is substantially harder to live on that small amount. Especially when you consider how expensive it is to live in a retirement home. Although in some cases, the cost of the retirement home may fall on the children of the elderly. That however, does not help Canadians, since the children now have to pay for their parents retirement as well as their own.

As scientific advancements and new medical procedures are occurring, the life expectancy of Canadians is growing. In 2011, Statistics Canada showed that Canadians have “a life expectancy of 81. 7 years and a most common age at death of 85 years”. This shows that individuals are retiring with still an average of 15-20 more years of life. With that being near a quarter of their life span, how are people supposed to live on their pension for that many years? There are many discounts for seniors, such as percentages off in restaurants, grocery stores, and retail stores. Discounted items help senior to afford basic necessities, but it’s not enough. A 10% discount isn’t going to cover the difference of 50% of an income. Canadian citizens can’t be trusted to ensure they set up a proper retirement plan, companies can’t be trusted to provide defined benefit plans for their employees, and the Canada Pension Plan (CPP) being taken from gross income is not enough to provide in old age. Through deduction, it’s obvious that the government needs to add a new policy. One that either requires companies to have benefit plans that include both the employee and employer contributing to a plan, or to raise the tax on an individual’s gross income. That may not seem like a great idea to a lot of people, since it will increase taxes paid, but there needs to be a decision reached. With the way things are going, the social security of Canadians will become non-existent.

This may not be a very popular idea, but perhaps the amount of CPP taken from individuals should be a total percentage off an individuals salary, and then pooled into a giant resource where it is divided up into an amount that allows everyone a fair amount. Of course, people with higher salaries would most likely be against this since they would feel they are being subjected to unfair policies. The truth is though, that they could probably afford to share some of their fortune with those less fortunate. Not everyone has the same opportunities in life and some have it harder than others. It’s obvious though that this type of situation would have a lot of backlash since not everyone wants to share their fortunes and would feel it unfair that they have to pay for “lazy” people’s pensions. It’s a tough call for governments to decide what policies are fair and ethical, and that will provide the most good. Bill Morneau’s comment suggests that some leaders of our government don’t care about how the every day citizen faces retirement. That’s obviously not the case with every politician, but it does make you wonder. Most politicians make such a large income, it seems easy to believe that their view of how much money an average citizen needs to live off of is skewed. Especially since this article states that “the pension plan for members of Parliament… is more than $100,000 a year for the rest of their lives”. How could someone who receives that amount possibly understand the hardship of living with a quarter of that amount. Many members of Parliament are not only receiving a paycheck from working, they are also receiving pension checks as the same time.

The government has many agencies that enforce the CPP from the Human Resources and Skills Development Canada (HRSDC) to the Office of the Chief Actuary (OCA). These agencies enforce the work necessary to administer the CPP. They administer the applications, design the policies, collect the CPP contributions, invest the funds, and verify that the policy is working. This shows that there are steps in place by the government to ensure the CPP is enforced, but it may need more work. As mentioned above, since there are so many individuals retiring with so much life still left, the CPP needs to be updated. With the current plan and contributions, Canada will not be able to keep a large enough sum of money to pay out retirees for the rest of their life. The government works and acts this way because it is a force of habit. For many years, there have been rules and regulations laying out these policies and for years they have seemed like the best actions. Whenever an economy changes, changes in policy are necessary as well. This is why a CPP reform is necessary. The government understands this and that is why we are facing the questions of change. Although there are people at either end of the spectrum trying to persuade the government in to one way or another. It should be the individuals affected by the policies that have the most say. People with lower incomes have the most to lose with ineffective CPP regulations. Whereas people with high figure salaries, such as politicians, aren’t affected as much. With the way inflation keeps increasing, it is getting harder and harder to afford to live. From renting a home, paying to live in a retirement home, or even buying groceries, the fundamental facts are the same. If you have a lower income, it’s harder to afford them. However, individuals who have made high salaries and are expecting larger pensions don’t need to worry as much. Therefore, in reality, policies should be put into place that help those with less funds to actually be able to afford a comfortable life. It shouldn’t matter to the people who have enough to keep their way of life into their retirement.

We are human, and a caring human being wouldn’t begrudge those less fortunate with the right to live the rest of their life comfortably. This is why I will never understand the arguments that are made to deny this assistance. Therefore, I think that the actual policies made by the government regarding these people should be made fairly and with less bias from politicians and high senior executive and whoever else makes a high salary. Policies should take into account inflation. Income, public pressure, international pressure, social movements, and past experiences are all factors that could explain a governments actions in regards to policies. People can be fickle when it comes to money and obviously that is a huge reason for the governments actions. Pressure from individuals and even from other countries can constantly put strain and stress on a governments plans to enforce policies. Social movements by groups of people can force governments to act in certain ways.

Lastly, past experiences help the government to decide what might work best. Examples would be a rate that they used that might not have been enough, or a certain policy that didn’t go well with people. These are all ways that a government learns from their actions in order to produce the best policies for everyone.