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.
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.
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.