ORPP, CPP expansion would see drop personal savings

For every 1% of CPP increase, savings fell by 0.9% last time around



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Higher forced contributions to the Canada Pension Plan may lead to a decrease in personal savings, according to a study by the Fraser Institute.

A CPP expansion or starting a mandatory Ontario Retirement Pension Plan could help Canadians set aside more for retirement, but a proportionate decrease in personal savings could mean little change in overall funds.

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The study looked at past CPP changes between 1996 and 2004 when the contribution rate rose from 5.6% to 9.9% of earnings. For every percent of increase in contribution, the personal savings rate of the average Canadian household fell by 0.895 percentage points.

“The research suggests that for every one dollar increase in CPP contributions, Canadian households, on average, reduced their private savings by one dollar,” said Charles Lammam, director of fiscal studies at the Fraser Institute in a press release.

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Less voluntary saving also means less control over where your money goes, according to the report. With vehicles like TFSAs and RRSPs, Canadians can choose where their money is going, whether it’s saving for their golden years or for a down-payment on a house.

Who exactly was saving less due to higher CPP contributions? The study notes that reduced private savings were more apparent in households of those under the age of 30 and between ages 30 and 49. Lower-income households saw a larger drop in savings whereas higher income households saw little to no reduction.


One comment on “ORPP, CPP expansion would see drop personal savings

  1. Is this supposed to be a point against CPP or ORPP? If I put a dollar into CPP or ORPP I get a match from my employer. If I save a dollar in my TFSA I don’t get a match (if I’m lucky I get some kind of match in my RRSP, but the vast majority of Canadians don’t get a dollar per dollar match).

    As for having “control” over your investments, again, the vast majority of the population would be better off in a well-managed pension plan rather than having to self-direct their own investments for retirement.

    The move away from defined-benefit pension plans to RRSP-type plans was a huge loss for workers. The winners were the financial services industry who were able to push high-fee products on a large and naive consumer base and corporations who were able to opt out of funding employee pensions at anywhere near the same levels as they did previously.


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