CIBC research shows nearly 6 million Canadians are at risk of a
significant decline in standard of living when they retire
TORONTO, Feb. 20, 2013 /CNW/ - Canadians should have the choice to make
additional, voluntary contributions to the Canada Pension Plan in order
to avoid facing a significant decline in living standards when they
retire, said Gerry McCaughey, President and CEO of CIBC in a keynote
address at the National Summit on Pension Reform.
He told the audience of senior government and business leaders in
Fredericton, New Brunswick that, according to new research conducted by
CIBC's economics group, nearly 6 million Canadians will face a drop in
living standards of more than 20 per cent if current savings rate
"Our research found some 8.4 million people will experience a decline of
more than five per cent in their standard of living at retirement,"
said Mr. McCaughey. "Far more troubling is the fact that 5.8 million
Canadians are on pace to experience a significant decline - meaning a
reduction in living standards of more than 20 per cent.
"And, here is perhaps the most alarming takeaway: when we look at those
5.8 million people - we see that most of them are young. In fact, our
economists estimate that almost 60 per cent of adults in their late 20s
or early 30s, can expect to experience a significant decline in their
standard of living when they retire."
Mr. McCaughey noted that many of these young Canadians - especially
those with lower incomes - can't afford to buy the average home, so
they will also be deprived of the benefits of the forced savings
represented by home ownership.
They're also coming of age in an era when private pension plans are
increasingly scarce. And they're finding it hard to replace what those
private plans offered: scale, obligatory participation, expert
investment management, locked-in contributions, a long-term horizon and
certainty of outcome.
Mr. McCaughey thinks five imperatives should be incorporated into any
retirement savings solution:
It must be easy to understand and simple to participate in.
It needs to put the money of Canadians to work over the longest possible
horizon - as much as 40 years or more - to maximize returns and grow
It needs to be voluntary, but committed savings so after an individual
opts in annually, the money can't be touched until retirement, giving
it every opportunity to grow. These additional, voluntary contributions
would come from after tax income, similar to the TSFA, and when
withdrawn at retirement would neither be taxable nor result in a loss
of income tested benefits.
It needs to provide a predictable income stream at retirement- providing
a date-certain, amount-certain return to Canadians at the conclusion of
their working years.
It needs to take advantage of the benefits of scale - and the
incremental returns that are available from accessing high-quality
investment management that operates within a low cost structure due to
its size and scope.
Mr. McCaughey believes the Canada Pension Plan or a CPP-like vehicle can
deliver on all of these imperatives. "I believe that a reasonable
starting point, benefitting the greatest number of individuals, would
be to allow Canadians to increase their contributions to the CPP," says
McCaughey. "We need to provide Canadians with further choice - choice
that gives them date certainty and real dollar amount certainty. A
choice that will help Canadians as individuals, and Canada as a nation,
reignite a culture of savings."
CIBC research shows that such a solution would help close the retirement
savings gap for young Canadians by as much as 80 per cent.
A copy of Mr. McCaughey's speech is available at: http://files.newswire.ca/256/2013PensionSpeech.pdf
The CIBC World Markets Economics report is available at: http://research.cibcwm.com/economic_public/download/if_2013-0220.pdf
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PDF available at: http://stream1.newswire.ca/media/2013/02/20/20130220_C6850_DOC_EN_23853.pdf
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