Why expanding CPP is a no-brainer

Need more proof the Harper government is wrong to oppose the expansion of the Canada and Quebec Pension Plans?

A new report released Monday lays out why the Conservatives' big idea to solve the country's pension crisis -- to encourage people to plough more money into private investments, such as RRSPs -- works well for the mutual fund industry, but not real people concerned about retirement insecurity.

Here are some key numbers from the report titled Risky Business: Canada's Retirement Income System, by the Canadian Centre for Policy Alternatives:

  • Old Age Security and the Canada and Quebec Pension Plans are credited for "substantial reduction in poverty among seniors, especially women."
  • Just 11.1% of the workforce are covered by private workplace defined benefit pension plans, down from its peak of 28.6% in 1982.
  • Only a quarter of Canadians who earn between $40,000 and $60,000 contribute to an RRSP.
  • 16% of tax filers have incomes over $80,000, yet they account for 30% of RRSP contributors and 57% of contributions.
  • Even those who are contributing to an RRSP aren't using their allotted room, with unused RRSP contribution room up by 38% since 2007 (exceeding $638 billion).
  • Reducing the risk of running out of retirement savings is "prohibitively expensive," the study found. "The cost to reduce the odds that a male will outlive his retirement savings from one in two to one in four is an 18% increase in required savings. For a female, the tab would be 13%."
  • A person who contributes a constant percentage of their income over their working life to an RRSP pays an average of 2.07% annually in investment management fees to mutual fund managers. "Over a working lifetime, that soaks up about 36% of his retirement savings."

The bottom line?

"One message is clear from the analysis. The Canadian retirement income system may be working well for the mutual fund industry. For individual Canadians, not so much."

But the "problem with RRSPs and their cousin PRPPs, compared with the CPP/QPP alternative, goes beyond high fees. They earn lower returns, even before fees are factored in. And they fail to provide a cost effective way to protect against the risk of outliving your retirement savings. RRSPs and PRPPs are not an acceptable substitute for a pension plan. When stacked up against the realistic alternative of an expanded Canada/Quebec Pension Plan, they deliver an inferior product at more than twice the cost."