How the government wants to trick us into saving more

According to how economists have long imagined us, the way we plan for retirement works somewhat like this:

• Phase one: straight out of school, we calculate how much money we’re going to need after our working days are over, and lay down a carefully thought-out savings plan;
• Phase two: as we climb the corporate ladder, we’re happily shaving larger and larger slices off our paycheques, pouring the cash into carefully selected and closely monitored investments;
• Phase three: we bid good-bye to our fellow co-workers of a lifetime and joyfully retire to freedom sixty-…. whatever.

Now, many of us have little to do with this picture-perfect rational saver: We don’t know how to figure out how much money is enough; we’ve had so many temp jobs before landing the steady gig that it was impossible to plan (or so we tell ourselves); we have an instinctive aversion to payroll withdrawals; and we forever postponed filling out the paperwork to enrol in our company’s pension plan.

Citing ‘enthusiastic support,’ Tories move to cap pension bill debate

The Conservative government moved Tuesday to limit debate on a pension reform bill that will create new Pooled Retirement Pension Plans.

Government House Leader Peter Van Loan argued the move to invoke a process called “time allocation” was justified because the Conservatives won the last election by campaigning on the need for PRPPs.

He said there is “enthusiastic support” for this new pension option, yet the opposition is focused on delay tactics.

“Why are they so determined to keep Canadians from having that option?” he argued in a special half-hour debate triggered by the motion. “It [time allocation] allows for debate to continue but it ensures we will actually make decisions.”

Mr. Van Loan made the accusations of delay in spite of the fact that the government only opened debate on the bill for the first time Monday.

The opposition NDP and Liberals attacked the move as “a disgrace,” arguing that it marks the 13th time the majority Conservative government has limited debate through time allocation or closure motions.

With the bells calling MPs to vote on the motion, NDP MP Chris Charlton held a hurried news conference to announce that – as opposition whip – she would be refusing to perform her ceremonial duties of walking down the aisle with Mr. Van Loan to kick off the vote as a form of protest.

She said it was “absolutely ridiculous” for the government to move time allocation after one day of debate. Ms. Charlton claimed the move is connected to controversy over Mr. Harper’s speech last week in which he signalled changes were coming to Old Age Security.

Tinkering with pensions

As expected, Prime Minister Stephen Harper’s government has just rolled out what the Conservatives are hailing as a “major milestone” to ensure retirement security for the nearly two-thirds of Canadians who do not have a company pension plan. It’s hard to see how they can make that claim with a straight face.

Pooled Registered Pension Plans (PRPPs), expected to come into force next year, will help some self-employed individuals and workers at smaller companies gain access to a private pension plan. But when Ottawa unveils the fine print it is expected that businesses will be required to offer a plan, but not to contribute to it. For workers, then, this may amount to little more than a larger professionally managed savings vehicle similar to a Registered Retirement Savings Plan (RRSP).

The need is undeniable. Many Canadians are not saving enough for retirement. Fewer and fewer have company-sponsored pensions and they do not use all their RRSP or tax-free savings options. Some simply don’t have the money to set aside. Others have underestimated their retirement needs and are not prudently planning for life after work. Unfortunately, another voluntary savings program won’t necessarily change any of that.

The pooled pension is unlikely to come close to filling the gaps in Canada’s retirement income system.

Indeed, those cheering the loudest when the legislation was introduced on Thursday were the banks and mutual fund companies who stand to make a fortune managing the plans.