I AM A SONIC BOOMER, NOT A SENIOR... In this blog, I am writing to and for those who believe that the Boomers will change what the word Senior means. I also believe that Boomers will change what retirement means in our society. The blog is also for those who are interested in what life after retirement may look like for them. In this blog I highlight and write about issues that I believe to be important both for Seniors and working Boomers.
Friday, May 22, 2015
Key Questions for Retirement Planning Canada
The following is from the Ontario Ministry of Finance and is an interesting starting point to discuss what is going on in the area of Pension reform in Canada. To start the discussion we need to understand the system. Canada’s Retirement Income System: uses “The Three Pillars Approach”
Canada’s pension system consists of three pillars:
Universal government benefits for seniors (PILLAR 1)
Canada Pension Plan (PILLAR 2)
Employment Pension Plans and Individual Retirement Savings (PILLAR 3)
PILLAR 1: Universal Government Benefits
Federal seniors benefits include:
Universal Old Age Security (OAS)
Guaranteed Income Supplement (GIS)
Spouses Allowance (SPA) Ontario (and other provinces and territories) supplement federal benefits to low-income seniors
PILLAR 2: Canada Pension Plan
Federal government and Provinces are joint stewards of the CPP
Provides retirement, survivor, and disability benefits
Universal coverage of all workers in all industries
Employees and employers make equal contributions (4.95% each – 9.9% combined) on earnings up to annual maximum of $47,200 (2010)
RRSP withdrawals and RRIF income payments are taxable
In 2006, federal RRSP tax expenditure was estimated at $10 billion (plus Provincial tax expenditures)
PILLAR 3: EPPs/RPPs and Individual Retirement Savings
Total savings rates in Canada are very low by historical standards
Average family savings of $1,332 per year
Savings are accumulated and then dispensed over a person’s life cycle
Savings can be held in non-pension financial assets (including the new TFSA) and non-financial assets
Canadian Retirement Income System (CRIS): Strengths
The CRIS has worked well for many Canadians
Dramatic declines in senior poverty since 1970s
Diversity of the CRIS is a strength
Canadian Retirement Income System: Challenges
Market downturn in 2008 and low long-term interest rates
Declining coverage in traditional pension plans
Pillar 2 (CPP/QPP) provides lower benefits than in most other developed countries
Questions about the ability of the existing system to deliver for tomorrow’s seniors
Research suggests that 1/4 to 1/3 of Canadians may not be savings enough for their future retirement.
Canadian Retirement Income System: Defining the Challenge
Ontario research identifies the challenge for tomorrow’s seniors: “The status quo is an option. However, it is an option that may leave a significant minority of people with moderate to high earnings facing a decline in their standard of living in retirement, and force many people to rely on sub-optimal pension and retirement savings institutions.” - Bob Baldwin
“There is… some evidence that not all working Canadians are saving enough… Further study is needed to determine the degree of saving inadequacy. - Jack Mintz
Canadian Retirement Income System: Government Response
Expert Commission on Pensions
Review funding of DB pension plans and related matters
Bill 236, Pension Benefits Amendment Act, 2010
First major pension reform in Ontario in over 20 years
Premier McGuinty calls for National Pension Summit
FPT Working Group on Retirement Income Adequacy
Ontario research by Bob Baldwin
Federal research directed by Jack Mintz
Canadian Retirement Income System: Key Options
Major stakeholder proposals for reform:
Expansion of public pensions (CPP)
Supplementary DC pension plans
Reforms to Tax Assistance
The following were identified as Key Questions for Discussion, which you should be having with your elected officials as they move into an election campaign
Why do we need to strengthen Canada’s retirement income system?
In your view what research or evidence demonstrates that people are not saving enough for retirement?
How would you define “enough”, and how much weight should be placed on personal choice?
What are some of the possible options or combination of options that the government should consider in strengthening Canada’s retirement income system for tomorrow’s seniors?
How would your preferred options or proposal be implemented?
How would your proposal work?
What do you think it might cost?
How would costs be allocated among employees, employers, etc.?
Would it be voluntary (e.g. opt-out) or mandatory?