OECD study on pensions bolsters case to expand CPP

A new report on global pensions from the Organisation for Economic Co-operation and Development is warning that poverty among seniors is Canada is increasing – and conservative think tanks in Canada aren’t going to like the policy prescription to tackle the problem.

Between 2007 and 2010, the poverty rates among people over 65 years of age was falling in most OECD countries, but not in Canada. The average poverty rate of seniors in Canada actual rose about two percentage points in this period.

Notably, government transfers to seniors in Canada account for less than 39% of the gross income of seniors, meaning older Canadians rely on private pensions or their own savings for the majority of their income. This puts Canada offside in the global pensions report of 34 countries representing the most advanced economies: on average, seniors in OECD countries receive 59 per cent of their gross income from government transfers.

The problem with Canada’s ratio is 11 million Canadians don’t even have a workplace pension. That’s why momentum is building to expand the Canada Pension Plan, with Ontario and other provinces pushing the federal government to move ahead.

The new OECD report explains why an over-reliance on private pensions is a problem. “As private pensions are mainly concentrated among workers with higher earnings, the growing importance of private provision in the next decades may lead to higher income inequality among the elderly,” the report states.

The OECD report also found that “Canada’s current pension support, both private and public, replaces only about 45% of average pre-retirement gross income, well below the two-thirds that many experts recommend.”

Speaking of experts, Rhys Kesselman, one of Canada’s leading pension experts and Canada Research Chair in public finance at Simon Fraser University, explains that “most knowledgeable pension experts have reached the conclusion that expanding CPP benefits would be an important advance in social policy. 

“So should worries about the impact of higher CPP premiums be allowed to stand in the way of better income security for future generations of retirees? These concerns are based on misconceptions about the nature and impact of CPP premiums. Fortunately, these misconceptions are easily addressed, as CPP premiums are unlike any other payroll tax,” Kesselman wrote recently in the Globe and Mail.

Photo: safari_vacation. Used under a Creative Commons BY 2.0 licence.