You just have to look at the housing market to get the logic of having people pay more in Canada Pension Plan premiums to get more in benefits.
Housing is where Canadians demonstrate the need for a forced savings plan mandated by governments that themselves are no model of financial responsibility. It would be great for us all to look after our own retirement with registered retirement savings plans, tax-free savings accounts and, for the fortunate few, company pensions. But that's not going to happen for many of today's home buyers.
As was well demonstrated on my Facebook personal finance page this week, reactions to the CPP announcement break down into two groups. One is either enthusiastically or resignedly in favour, and the other is strongly against.
The "against" group cites the burden that higher contributions will place on small business. That's a fair comment, but a long phase-in period will take the edge off. Another line taken by the against group is that the government should butt out of people's financial lives and let them save for themselves.
Problem is, people can't. The growth rate in house prices has far exceeded income growth in the past decade, and that means there's a hidden challenge to home ownership today for all but top earners. Finding the financial juice to save 10 per cent or more of your gross income on a regular basis is brutal.
Retirement saving is the financial responsibility most vulnerable to procrastination. You tell yourself you'll get to it later, when your kids leave daycare or you get a raise or bonus, and maybe you do. But by waiting to save, you'll now need to save 15 per cent of your gross pay to retire comfortably when you want to.
So maybe you'll work longer to make up the shortfall. That's what a lot of people are planning to do, often to stay engaged as much as to make money. But not everyone stays healthy enough to keep working and not all occupations have a place for people trying to glide slowly into full retirement.
The anti-CPP-enhancement crowd is very judgy about people who have bought homes and can't save because of their mortgages and other debts. Why should government make everyone pay more to help people who won't or can't look after themselves?
We're all adults in the housing market, responsible for our own decisions. But societal pressures to buy a house are tremendous. It all starts with the Bank of Canada, which is keeping interest rates low enough to sustain a semblance of affordability in even expensive markets. We also have banks selling the dream of home ownership, TV saturating us with images of glamorous homes and boomer parents touting home ownership to their kids as the best investment you can make.
Is it fair to lure young adults into home ownership and then penalize them when they can't afford to save for retirement? No, and neither is it realistic. Impoverished seniors of the future won't pay taxes and they will require financial assistance from governments through the guaranteed income supplement and social assistance. We can either pro-actively build a better retirement for Generation Y today through a modest enhancement of the CPP, or try to play defence later on and lose control of the cost.
It particularly bugs the anti-CPP-enhancement crowd that the federal government is digging deeper into the paycheques of the country to pay for higher premiums. Governments of all types have demonstrated a sloppiness with money that validates this anger. But the CPP is not the government and CPP premiums are not a tax.
The CPP's assets are separate from government and overseen by an investment board of professionals. Actuaries regularly monitor the flow of money in and out of the CPP to ensure that it's sustainable. The CPP is a real pension fund – it's not a slush fund for embattled finance ministers who can't balance the budget.
The irony of the view that CPP enhancement is bad is that higher retirement benefits in no way mean that people need to save less. Increased CPP payments will have a positive impact on the retirees of the future, but these people will still need to contribute to their TFSAs and RRSPs. Personal responsibility isn't dead, it's just getting an assist.
Rob Carrick