Piecing together the puzzle for better pensions

The mad rush to contribute to RRSPs is getting a lot less mad.  The line-ups at banks to make contributions before the annual deadline are becoming a thing of the past. Despite all the financial industry pressure and the federal government extolling the virtues of individual retirement savings, Canadians are increasingly moving away from Registered Retirement Savings Plans.

Fewer Canadians contributed to RRSPs for the 2014 tax year: only 57 per cent of those surveyed down from 65 per cent for the 2013 tax year. Much of this is because most feel they can’t afford to: stagnant real wages, precarious work and rising household debts mean that a majority of Canadians feel so burdened by debt and other costs that they can’t afford to put money aside for retirement savings.  The casino nature of the RRSP market, with its high fees, risky returns and excessive choices, has also quite rightly driven many away.

While the solution—better public pensions—is clear, the federal and some provincial governments have instead worked to undermine them, by rejecting widely supported proposals for improving the Canada Pension Plan (CPP), increasing the age at people can receive Old Age Security (OAS) and weakening provincially-sponsored plans.  While much is being made about the costs of OAS, analysis by the federal  Parliamentary Budget Officer found that the costs of the federal government’s elderly benefits (OAS and the Guaranteed Income Supplement) will be quite sustainable over the long run—and that was before the Harper government reduced these benefits.

Meanwhile there’s little attention paid to the costs of RRSP tax deductions—which are only available to those who can afford them—and the Harper government is putting in place even more regressive and highly expensive tax breaks such as income splitting and Tax-Free Savings Accounts that overwhelming benefit the wealthiest.

Workplace pensions of course continue to be a big piece of the solution, however, these plans are under attack from employers across the country who are seeking permanent pension cuts based on the temporary market downturn and ensuing deficits after the 2008 financial crisis. The good news is that most of our plans are recovering steadily.  And of course most Canadian workers, and especially those with lower incomes, don’t have workplace pension plans.

This is why better public pensions, including an improved CPP, are so critical to solving the pension puzzle.  And even better, they don’t involve an annual deadline with the hyped-up pressure from the financial industry to put money into products that are overpriced and that under-deliver.  Public pensions just deliver secure decent retirement income.  Isn’t that what everybody wants?

In brief:

  • On strike for decent pay and job opportunities. Almost 10,000 CUPE members, teaching assistants (TAs) and other academic workers at University of Toronto and York, Canada’s two largest universities, are now on strike. The main issue for the 6,000 members of CUPE 3902-1 at U of T is compensation: graduate students only receive a minimum $15,000 a year in funding after tuition is paid. This has been frozen since 2008 and is below the poverty line. At York, the 3,700 members of CUPE 3903 went on strike March 3, where the main issue is the lack of job security and better job opportunities for their contract professors. TAs and contract faculty now perform 64 percent of the instruction at York, but receive less than 8 per cent of the university’s operating funds. The vast majority of their 1,100 contract professors are on year-to-year contracts, with considerably lower pay and far less job security than tenured faculty, but the university hasn’t offered much to improve that. David Bush and Doug Nesbitt at RankandFile connect the dots between the strikes, austerity and other struggles in Ontario.
  • Toronto becoming Canada’s capital for inequality? Analysis by the United Way found that income inequality increased at a faster rate in Toronto than other major Canadian cities and at more double the national rate. While growing inequality is undermining the city’s social fabric and putting its long-term health and prosperity at risk, the report outlines a blueprint to get Canada’s biggest city back on track towards a better future, including improved opportunities for young people, better jobs and reducing barriers to opportunity based on background and circumstance.
  • Unions good for equality, good for economy: In another repudiation of trickle-down economics, the International Monetary Fund (IMF) is now highlighting the importance of unions in reducing inequality and strengthening economic growth. It reports that higher inequality is associated with lower and less sustainable growth, that declines in unionization explain about half of the rise in inequality over the last 30 years and calls for stronger restrictions on CEO pay and for “reaffirmation of labor standards”. While we and others have been saying this for years, when the generally conservative IMF agrees, it’s news—and worth repeating!
  • The price of independent financial freedom is now $4.5 million in Canada, according to calculations by Ian McGugan. That’s how much you would need to receive $74,000 annually in after-tax income (equal to the Canadian household median) if your money was invested equally in bonds and stocks. That’s 18 times the net wealth of the average Canadian household and out of reach for all but the wealthiest five percent of Canadian families. If you’re not part of this elite group and don’t want to count on the one in 14 million odds of winning this amount through the Lotto 6/49, you’re going to have to depend on—and should support—improved workplace and public pensions, including the Canada Pension Plan.
  • As good as it will get? Canada’s economy ended 2014 with what appeared to be decent growth, expanding by 2.4 per cent in the fourth quarter and with an average of 2.5 per cent for the year. But the growth came from consumer spending and a build-up of inventories while business investment declined. Provincial and local governments contributed most to economic growth, while the federal government squeezed spending and ended the year with a $2.4 billion surplus in December. With the sharp decline in oil prices, a further fall off in business investment and additional government austerity, economic growth is expected to average just 2 per cent this year and a majority of Canadians think the economy is in decline.
  • Oil prices dive pulls inflation down. The drop in gasoline prices pulled consumer price inflation down to an annual rate of just 1 per cent in January from the annual average of 2 per cent for 2014. Without the drop in gasoline prices, the Consumer Price Index (CPI) would have increased by 2.4 percent in the twelve months to January 2015.   A 4.6 per cent increase in average prices for food, 2.9 per cent increase in household operations and furnishings and a 6.4 per cent increase in alcoholic beverages and tobacco all pushed the CPI up.   While the year over year overall consumer price index declined in Atlantic provinces, it was up in the rest of Canada, led by Ontario with a 1.6 per cent increase in the twelve months to January.

All content: Toby Sanger, Economist, CUPE National. @toby_sanger tsanger@cupe.ca

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