SSW106: Seniors and Poverty

Seniors in Poverty - QP Nov 25, 2010

Lift every senior out of poverty: MP Jinny Sims

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If you want CPP to rescue the middle class, the PEI plan is worth a look

Milligan, K. (2013). MacLeans. 

PEI Finance Minister Wes Sheridan recently launched a new proposal to change the Canada Pension Plan (CPP) in advance of December’s meeting of finance ministers. The CPP is a key pillar of Canada’s retirement income system, with a mandate to help Canadians replace a share of their labour market earnings after the end of their working lives. It is also a very large part of our public finances — it will pay out about $38 billion in benefits in 2013-14, and has over $180 billion saved up in its investment fund. 

Calls for CPP reform have sprouted because of a concern that many middle and higher income Canadians aren’t saving enough to fund an adequate retirement. So, how does the Sheridan plan address this concern? And is it the right approach?

First, let’s take a look at how CPP works. There are two moving parts of the CPP formula that are up for debate. The first is the earnings cap. The CPP covers earnings up to a cap set around the median — $51,100 for 2013. This cap is used to calculate both CPP contributions (currently 4.95 per cent each for the employer and the employee on earnings up to the cap) and benefits for those who are retiring. 

The second moving part is the replacement rate. The replacement rate determines how much of your earnings are transformed into retirement benefits. The current replacement rate is 25 per cent. In other words, if the average earnings during your lifetime were $40,000, your annual CPP benefit would be around $10,000. (The calculation is a bit more complex than that; I’m simplifying things somewhat here.) There are several different proposals for the CPP out there, and each involves playing around with earnings cap and the replacement rate.

The crucial question on CPP reform, then, is: How much should we, through government, worry about the retirement incomes of middle and higher earners? The answer to this question largely determines which path CPP reform ought to take. The clear fact, though, is that middle and higher earners without access to a pension from their workplace are at strong risk of reaching retirement with inadequate income set aside. Should we let those under-savers live with the consequences of their undersaving, or does it makes more sense to rescue them by forcing them to save through the CPP? This is as much a matter of personal values about the role of government, and the psychology of savings behaviour as it is about economics. Still, no matter where you come down on these issues, only two policy paths make sense.

For those who don’t think government ought to do more for those who have the means to save but don’t, the clear option for CPP is to do nothing. Better no reform than a perverse one that hurts lower earners more than it helps.

Regardless of what form the CPP takes, the debate is interesting for another important reason. Stephen Gordon has pointed out here on Econowatch that many tax policy discussions of late have involved hiking taxes that are perceived to be paid by someone else (the rich; corporations). Deciding to tax someone else is easy. In contrast, for the CPP any extra benefits in retirement will be paid by taxes on anyone who is of working age — unless you’re retired or still a student, that means you, not someone else. In order to move forward with CPP reform, Canadians will have to become convinced that they are getting a good deal from the extra taxes paid into the CPP. This is a hard political sell, and one we don’t hear much, if at all. But it is the argument that those who want bigger government, either through the CPP or in other spheres, will ultimately have to make.

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Global AgeWatch Ranking Tables by Country

1. Sweden

2. Norway

3. Germany

4. Netherlands

5. Canada

6. Switzerland

7. New Zealand

8. U.S.A.

9. Iceland

10. Japan

Sweden Tops List as Best Place for Seniors

Duff, A. (2013). University of Southampton. Futurity. 

A global “age index” reports that in terms of well-being and quality of life, Sweden is the best place for older people to live and Afghanistan is the worst.

The Global AgeWatch Index 2013, completed by Professor Asghar Zaidi from the Center for Research on Aging at the University of Southampton and HelpAge International, with the support of the United Nations Fund for Population, compares the experiences of older people from 91 countries and ranks them in order of quality of experience.

The Index recognizes that income, health, personal capabilities, and an enabling social environment are all important aspects of the well-being of older citizens. By analyzing national policies and strategies, the chief findings include:

• Sweden is the best place for older people, closely followed by Norway. Japan is the only non-European and non-North American country in the top 10.
• The UK is ranked at 13, next to Ireland (12) and Australia (14) but five positions higher than France (18).
• The United States is ranked 8.
• Mauritius is the top African country.
• Chile leads a cluster of Latin American countries that includes Uruguay, Argentina, Brazil, Costa Rica, Ecuador and Panama.
• Afghanistan is the worst place for older people, followed by Pakistan, Tanzania, and Jordan.

The Index focuses on older people’s income security, health status, employment, and education capabilities and the enabling environment of societies in which they live. It builds a strong case for better policies and services to improve their lives in many countries—especially in developing countries.

2 BILLION OLDER PEOPLE BY 2050

By 2050 the number of older people in the world will reach more than two billion. The Index emphasizes that such “stock taking” work is absolutely essential in developing new ways to tackle the global challenge of an aging population and to empower older people to hold their leaders responsible.

“The world is rapidly aging: people over 60 years of age already exceed children under 5, and by 2050 they will outnumber children under 15,” says Silvia Stefanoni, Interim Chief Executive of HelpAge International.”However, the continual exclusion of aging from national and global agendas is one of the biggest obstacles to meeting the needs of the world’s aging population.

“By giving us a better understanding of the quality of life of women and men as they age, this new Index can help us focus our attention on where things are going well and where we have to make improvements.”

“We expect the Index to become an important research and analysis framework for practitioners and policy-makers alike, as it will facilitate cross-national comparative research on the quality of life and well-being of older people, and help identify data and knowledge gaps on issues of aging,” Zaidi says.