Too obvious!

Everybody knows we have an impending crisis:  Canadians are just not saving enough for retirement.

The federal government has tried all sorts of programs in years past to encourage us to provide adequately for our retirement.

Registered Retirement Savings Plans (RRSP) have been utilized by some, but not enough.  Statistics Canada reported that in 2010 although 93 per cent of taxpayers were eligible to contribute to RRSPs only 26 per cent of that group made contributions.   Contributions in 2010 represented 5.1 per cent of the total room available to eligible tax filers.  Other years reflected similar participation rates.

Hoping for a new incentive to encourage saving, in 2009 the federal government introduced the tax-free savings account (TFSA).  It’s been successful to some degree – 30 per cent of adult tax filers had a TFSA in 2011.  But the three-year trend, according to the Finance Department, shows that 58 per cent of TFSA’s represent tax filers making more than $200,000 a year.

Both volunteer programs have their largest participation by people who make the most money.  Now, that stands to reason.  Those with the most money are always looking for places to park their excess and reduce taxes.  They’ve got enough money to buy their toys and save for the future.

Another plan has been to raise the age limit for Canadian Pension Plan (CPP) and Old Age Security (OAS) benefits from 65 to 67.  This shift helps the funds but it is doubtful whether it will spur Canadians into more personal savings by working two years longer.

The government’s long-term monetary policy of keeping interest rates low to spur on economic growth has had a negative spin-off.  We have trained up a nation, young and old, to comfortably live on cheap debt and forgo savings.

But there is one obvious solution.  Increase the amount employees contribute to CPP.

First, it would cost nothing; unlike the costly administration surrounding new programs like the TFSA.  And contrary to what Kevin Sorenson, Minister of State for Finance says, an increase in CPP contributions does not have to be an increase in payroll taxes, nor a job killer.

Employment Insurance is calculated at 1.4 : 1 with employers paying 1.4 times what the employee pays.    Today CPP is equally divided; half employee, half employer.  But for CPP, why can’t it be the employee paying 1.4 times what the employer pays?  The employee should pay more because it is they who will reap the retirement benefits at the end of the day.  And best of all, the program is mandatory: no temptation spending can get in the way of forcing Canadians to save for retirement.

Those who have faithfully saved for 40 plus years haven’t realized as much as they should have.  The stock market is a crap-shoot for the unsophisticated (e.g. non insider) and the interest rates on Guaranteed Investment Certificates are a joke.  There are few reliable places for Joe-average Canadian to park his savings and see consistent wealth growth.

It’s time the government steps up to the plate.  Voluntary savings programs are not doing enough.  Upping the mandatory employee contribution for CPP just makes sense!

Aaah . . . maybe that’s why politicians can’t get their head around this obvious and simplistic solution.  It’s common sense!

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