On sound strategies

The Star weighs in on the most effective way to ensure retirement security for Canadians:

Ottawa and conservative economists previously argued that the CPP was on a sturdy actuarial footing; that Canada could boast of low poverty rates for seniors; and that Canadians could rely on their RRSPs for extra cash in later years. That’s only half the story, though. Canada’s impressively low poverty rates are due to the Old Age Supplement and the Guaranteed Income Supplement. One reason the CPP is on such a solid financial footing is that its payouts are among the lowest in the world, averaging a mere $6,000 a year and capped at $11,000 annually, which is not good enough.

It’s the middle class who should be most concerned about their future retirement income. Pensions promising a fixed payout (defined benefit plans) are rarely on offer for new hires in the private sector, and longtime employees worry that their old plans are at risk if their company goes bankrupt. RRSPs have long been a disappointment: the take-up rate remains low.

That’s why, to borrow an investment maxim, past returns are no indication of Canada’s future performance when it comes to retirement income. What worked for many in the past — robust private pensions and rising markets — can’t be counted on in future. All the more reason to buttress the CPP as the main pillar of Canada’s pension system.