Canada Pension Plan is a hot topic these days. There are new changes coming quickly and now many of the labour unions in Canada are leading the push for further pension reform because of poor savings rates and the concern that retirees will not have properly saved for the future. On one of my other sites, I posted an article with three reasons why enhancing the CPP is a bad idea. This is really worth a read!
Although I understand the merits of the forced savings aspect of CPP, I would like to see consideration for other ways to help people achieve the forced retirement savings. Here are some alternatives I have heard about and are worth considering.
Enhancing employer sponsored group retirement plans
One alternative is to find a way to support employers who implement employer sponsored group retirement plans like pensions or Group RRSP plans. Many employers have already taken the right steps to help employees prepare for retirement beyond CPP by not only offering group retirement plans but also matching employee contributions. Instead of expanding CPP and forcing employers to pay more per employee, I’d love to see the government provide incentives or benefits to employers who encourage more savings.
We should praise employers who voluntarily offer programs where the employer contributes to employee retirement plans through matching scenarios. Most employees who participate in group retirement programs where there is matching will find that their biggest retirement asset is the group plan.
Increase RRSP limits
There are some that suggest the government should increase RRSP contribution limits, which would also give people the opportunity to save more money for retirement. The problem with this suggestion is Canadians aren’t really using their contribution rooms currently so why would they use bigger contribution limits. According to Statistics Canada only 38% of Canadians contributed to a RRSP in 2009 and only 10% have used all of their RRSP contribution room. In other words, almost 90% of Canadians have unused RRSP contribution room. That’s why I prefer employer sponsored programs because the matching creates more incentive to save.
Promote more financial education and fee based financial advice
Being someone who is very passionate about financial education, especially in the workplace, I would love to see the government endorse a financial spending account similar to a health spending account that allows employees to spend money on financial education programs. This would create not only more education, professional advice but also more accountability.
The 401 Canada Plan
I sat in on a seminar put on by Great West Life and one of their suggestions was to create a 401K type plan for Canada. In the US, they have IRAs which are like our RRSPs. They also have a separate 401K plan, which is like a Group RRSP plan but with a separate set of rules to encourage more employer sponsored retirement plans. 401K plans are very successful in the US with $2.5 trillion dollars in assets. 401K plans are a significant retirement asset for Americans.
Enhance the Guaranteed Income Supplement
We already have Guaranteed Income Supplement (GIS) to help people who do not have a lot of retirement income. Many people feel programs like GIS are better solutions because it is geared specifically to the group of people who have not saved for retirement. Enhancing CPP has a universal effect and can negatively impact those that have saved properly throughout their working years. The GIS plan is funded by the government.
Opting out of enhanced CPP
The other idea that has been tossed around is giving people the option to opt out of an enhanced program. Opting out would be appealing to people like myself who prefer to have more control over our retirement savings and income.
These are just some ideas and alternatives to enhancing the CPP. Have you heard of other ideas? Do you have any thoughts or ideas?