Pension reform, why? It seems to me we should be finding
ways to encourage people to do. One of the biggest challenges facing our
economy is that people are dependent on their savings to keep them, so they are
very conservative in the way they invest; please see my blog entry Canada the
Economic Stagnation Nation http://nthomson2.blogspot.ca/2015/04/blog-post.html:
which points out that policy matters, good policy works and there is an absence
of good policy in the creative deployment of capital.
The government is always on about pension reform, one
should always be wary of an organization that has as its sole focus the
collective interest, it is clear the government is wanting people to work
longer – policy is moving that way, “retirement” age seems to be going up. Do
you want to work longer? Now some are suggesting people save more of their
earnings in the government system. The rationale, people are failing to save
enough on their own – it seems a little odd that an organization that extorts
as much as 65% of your earnings to sustain itself and spends the extorted funds
with little or no real accountability, would be asking people to trust them
with more of people’s money.
There are a number of challenges with pooling funds and
government pensions systems. When you put money in the system, it is in the
system, whether you die a day after you retire or 50 years after you retire,
what you’ve put in the system stays in the system – so your kids never see a
dime for your efforts related to your CPP contributions. There is merit in
helping people save, the question is, “is mandatory participation in a pooled
fund okay”, or even constitutional for that matter.
It makes a lot more sense to individualize the system, that is to say, to provide
everyone with an account and then set out the terms by which you can contribute
to that account; in so doing, the government is permitted to offer incentives
to save, but, in no way impinges on personal choice or judgement. There is a
wise saving level for an individual to save to over the course of their working
life; the government can be generous in several ways to incent people to save
to that level – rather than engaging draconian measures to force savings.
Beyond that prescribed level, further savings should be discretionary: really,
once a person is independent of government or has provided for sufficient
income to sustain themselves; the government has no role to play. Presently, government policy is subsidizing savings
exceeding necessity and complicating the tax system.
In the early 1980s the Swedish government instituted
pension reform, they assigned accounts to individuals. A portion of the contribution was from employers, similar to CPP, and a portion from citizens. Each
citizen was given an account in which to accumulate savings. The government
provided a half dozen “portfolios” the people could choose from, one of which was
the government's “standard basket” of investments used before transition; people
were given the option to “self-direct” investments as well. The key in the
Swedish model was choice, people treat their account in a similar way we do
RRSPs, they had complete flexibility to save and there was a minimum prescribed contribution.
We all work to provide for ourselves, we also work to
make a future for our families. By issuing accounts the government can track
contributions and provision for intergenerational wealth transfer. Personal
accounts also provide for direct incentives to generate saving to a minimum
level. Personal accounts provide for a consolidation point of government-related saving programs – RRSPs, tax-free savings etc.. There is both better resolution
for the individual and for the government as well; resolution in terms of an individual’s
utilization levels of all programs and perhaps most importantly, the saving
level relative the citizen’s meeting minimum saving levels.
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