Every 3 years the Canada Pension Plan is analyzed by professional actuaries (with peer review by independent actuaries picked by the UK government) to analyze its financies against the best practice means of assessing likely future pay outs and revenue. Once again, the 26th such report finds the CPP is healthy over the "long term" at current contribution rates. In fact, since the 25th report, the CPP has become mildly healthier in that the minimum contribution rate needed to support it has dropped slightly.
This is government working, and succeeding where markets are generally failing: Some people do very well saving for their own retirements but more do not, and rely either on work provided defined benefit plans (which fewer and fewer employers offer) or the government programs of CPP/OAS and GIS. Very few people manage to put enough into RRSPs and TFSAs to retire with security, and rather than cluck at them about "personal responsibility" while leaving them to choose between starving or freezing in gutters, we should just acknowledge that this is not about individual irresponsibility but another symptom of growing inequality and accept the public responsibility to ensure retirement security for all.
The only problem with CPP is that it is too small and meagre a program on which to retire. I hope Premier Wynne manages to get support for increases to CPP's scope and failing that, Ontario should set up a provincial supplimentary pension plan as her government suggests it is considering.
Showing posts with label CPP. Show all posts
Showing posts with label CPP. Show all posts
Tuesday, December 3, 2013
Sunday, March 24, 2013
Conservative Pension Behavioural Utopianism
Conservatives like to portray themselves as hard-bitten "realists" who look objectively at the world as it really is and shake their heads at silly liberals with our rose coloured glasses. Yet I often find conservatives pushing policy ideas that are based on Utopian standards of human behaviour. This is where they make policies that will work only for people who act and behave in certain ideal or near-ideal ways, and fail miserably for people who don't do X, Y or Z where most people realistically will not do X, Y, and Z for whatever reasons.
The prime example would be retirement savings. We have something like a century of real-world experience here in the rich world which shows that when the government does not guarantee a minimum retirement income via some kind of social insurance program like CPP or Social Security, the result is that the majority of the elderly live (or die) in real poverty.
Conservatives frequently argue that without the nanny state looking after them, people will "take responsibility" and make better choices by saving more for their retirement. This is false, we have already tried this "system" of leaving people to freeze in the gutter if they didn't manage to save enough to pay their own freight once too old to work. Here's what one source found to be the case in Canada in 1961 (p154):
These people had no reason to expect the government would save them if they were destitute in poverty since there were no such government programs in existence, or only very minimal ones that no one would expect to be enough to live comfortably on. Yet they did not save enough. These were people who had lived through the Great Depression and World War Two, and had seen much greater depths of deprivation than most Canadians today, if despite all that most of them did not save enough, it clearly is not a matter of incentives or desire. Whatever the causes of their lack of thrift, the reality is that governments of that day realized they had a problem to solve and so they solved it by creating the Canada Pension Plan (CPP) and the Guaranteed Income Supplement (GIS) to bolster OAS.
The result today is that old age poverty in Canada is under 7%. In fact, seniors in Canada are less likely to be in poverty than children and (remarkably) working age people (who generally have less poverty because they can more often work). This drop from a majority in poverty in 1961 to single digit poverty is quite simply because the government's programs successfully ensure most seniors do not end up in poverty. We don't have to speculate about technological change or other temporal factors because we have a great test comparison with Australia, a very similar rich-world nation with a very similar economy, population and even history as a former British colony. Here's what the Conference board of Canada reports:
Conservatives who insist on a system that relies on individuals taking steps to ensure they have ample retirement savings are in fact quite simply re-creating the 19th and early 20th century baseline where most older people were in poverty. That would be the real world outcome of such policies. RRSPs, TFSAs and other individually-driven retirement savings vehicles are a general failure and waiting for working people of today to behave differently than working people did 50 or 100 years ago with respect to retirement saving is simply utopian idealist nonsense.
In fact, as private pensions for the last generation have largely moved away from defined benefit payments to defined contribution systems, these problems will be worse for most current workers since very few of them will have access to guaranteed sufficient income via a defined benefit pension.
There's an old joke that said of communism "nice idea, wrong species." This criticism easily applies to conservatives for the same reason. Maybe somewhere there's a planet with intelligent life where in the absence of a government program to guarantee minimum retirement income, most or nearly all people save enough money and invest wisely to ensure they have a comfortable income after their working years are done, but that species is not homo sapiens and the planet is not Earth.
We need policies that work for Earth, for the real people we have, not some fantasy version of humans that are better than we really are.
None of this is to ignore the very real likelihood that many conservatives who make arguments like this simply do not care if most seniors shiver in the dark eating catfood because they are too poor for light, heat or adequate nutrition. It does allow us to call them out as callous and immoral and prevent hiding behind unsupportably optimistic rationalizations. Humans with normal functioning empathetic capacities simply cannot tolerate the majority of their elders suffering before going to early graves and will react to solve such problems through the vehicle of government, and those policies will inevitably look a lot like CPP, OAS and GIS. These are the realistic "hard-bitten" policy results of real-world hard-taught experience, rather than the fever dreams of free market totalitarian ideologues.
The prime example would be retirement savings. We have something like a century of real-world experience here in the rich world which shows that when the government does not guarantee a minimum retirement income via some kind of social insurance program like CPP or Social Security, the result is that the majority of the elderly live (or die) in real poverty.
Conservatives frequently argue that without the nanny state looking after them, people will "take responsibility" and make better choices by saving more for their retirement. This is false, we have already tried this "system" of leaving people to freeze in the gutter if they didn't manage to save enough to pay their own freight once too old to work. Here's what one source found to be the case in Canada in 1961 (p154):
Incidence of Low-Income - 1961The steady and alarming progression of poverty as one ages is very clear. And "individuals" should be understood to mostly mean "widows" since men tend to die first and particularly at that time, women would be very unlikely to have any form of job-related pension of their own. As the article notes on p152:
All Families: 25.3%
Families with Head 65 or over: 43.9%
Individuals 60-64: 50.7%
Individuals 65-69: 64.1%
Individuals 70+: 72.5%
At the time, of course, Canada lagged well behind the United States in social policy. In 1947 in Canada a means-tested old age pension was available for the destitute at $30 per month (equivalent to about $289 per month at 2001 prices), but that was all. Not until 1952 was it replaced by Old Age Security (OAS). OAS was a universal payment of $40 per month, worth about $274 per month at today’s prices. With income support at this level, the result was widespread and acute poverty among Canadians over 65. Canada had to wait until 1967 for the introduction of the Guaranteed Income Supplement and Canada Pension Plan.So this isn't even the pre-1927 days when there was no federal pension program of any sort, but even with the government kicking in $40/month to everyone, the majority of people over 60 were below the "low income" cutoff (what Stats Canada uses instead of "poverty") and for those over 70 it was over 70% of them.
These people had no reason to expect the government would save them if they were destitute in poverty since there were no such government programs in existence, or only very minimal ones that no one would expect to be enough to live comfortably on. Yet they did not save enough. These were people who had lived through the Great Depression and World War Two, and had seen much greater depths of deprivation than most Canadians today, if despite all that most of them did not save enough, it clearly is not a matter of incentives or desire. Whatever the causes of their lack of thrift, the reality is that governments of that day realized they had a problem to solve and so they solved it by creating the Canada Pension Plan (CPP) and the Guaranteed Income Supplement (GIS) to bolster OAS.
The result today is that old age poverty in Canada is under 7%. In fact, seniors in Canada are less likely to be in poverty than children and (remarkably) working age people (who generally have less poverty because they can more often work). This drop from a majority in poverty in 1961 to single digit poverty is quite simply because the government's programs successfully ensure most seniors do not end up in poverty. We don't have to speculate about technological change or other temporal factors because we have a great test comparison with Australia, a very similar rich-world nation with a very similar economy, population and even history as a former British colony. Here's what the Conference board of Canada reports:
Australia has the highest rate [nb: of the nations in their survey] of elderly poverty—nearly 40 per cent of Australian seniors live in relative poverty. An OECD report notes that the high risk of elderly poverty in Australia is mainly due to the relatively low level of the age pension—which is an income-support payment program. The lead author of the report, Edward Whitehouse, commented: “Australia has a very high rate of old-age poverty and the fiscal room for manoeuvre to address the problem. Public pension spending is only 3.5 per cent of national income in Australia, compared with an average of over 7 per cent of GDP in OECD countries.”Australia has a less generous old-age pension system and thus has much higher old-age poverty. Australians are not lazier, more irresponsible or worse investors than Canadians. Their government doesn't ensure (and insure) their retirement security so many fewer of them have it.
Conservatives who insist on a system that relies on individuals taking steps to ensure they have ample retirement savings are in fact quite simply re-creating the 19th and early 20th century baseline where most older people were in poverty. That would be the real world outcome of such policies. RRSPs, TFSAs and other individually-driven retirement savings vehicles are a general failure and waiting for working people of today to behave differently than working people did 50 or 100 years ago with respect to retirement saving is simply utopian idealist nonsense.
In fact, as private pensions for the last generation have largely moved away from defined benefit payments to defined contribution systems, these problems will be worse for most current workers since very few of them will have access to guaranteed sufficient income via a defined benefit pension.
There's an old joke that said of communism "nice idea, wrong species." This criticism easily applies to conservatives for the same reason. Maybe somewhere there's a planet with intelligent life where in the absence of a government program to guarantee minimum retirement income, most or nearly all people save enough money and invest wisely to ensure they have a comfortable income after their working years are done, but that species is not homo sapiens and the planet is not Earth.
We need policies that work for Earth, for the real people we have, not some fantasy version of humans that are better than we really are.
None of this is to ignore the very real likelihood that many conservatives who make arguments like this simply do not care if most seniors shiver in the dark eating catfood because they are too poor for light, heat or adequate nutrition. It does allow us to call them out as callous and immoral and prevent hiding behind unsupportably optimistic rationalizations. Humans with normal functioning empathetic capacities simply cannot tolerate the majority of their elders suffering before going to early graves and will react to solve such problems through the vehicle of government, and those policies will inevitably look a lot like CPP, OAS and GIS. These are the realistic "hard-bitten" policy results of real-world hard-taught experience, rather than the fever dreams of free market totalitarian ideologues.
Sunday, April 1, 2012
CPP is Completely Sustainable Too
While the cuts to OAS and GIS are my biggest objection to the budget, I want to take a moment to rebut the common belief among Canadians of my age group and younger that CPP "won't be there" for them when they retire. That belief is a self-fullfilling prophecy because disingenuous neoliberal (try here for a half decent description if you're not sure about the term) politicians, mainly in the Conservative party (though lamentably some Liberals too) will use that to cut, privatize or otherwise end the program. After all, their ideology doesn't like the idea of the government ensuring a basic floor for citizens anyway, and if we all believe the program is unsustainable, we won't raise a fuss for ending it. Hell, if the belief really gets lodged deeply enough, we may thank them for "acting responsibly" by taking away our retirement security before it causing the impending doom we baselessly believe it will cause.
Here's what you need to know: Every 3 years, the Chief Actuary of Canada publishes an Actuarial Report on the financial health of the CPP fund. These reports follow the same sorts of actuarial methodologies that for-profit life insurance companies employ to confirm that they are charging appropriate rates for their life insurance customers. Of course such reports require dealing with many unknowns about the future, but short of inventing a flux capacitor and pumping 1.21 gigawatts through it, this is the best anyone can do.
What The Report Says:
The latest report (the 25th) is from December 31, 2009, (well into the Great Recession/New Depression) and can be found here (sorry, PDF). You're encouraged to read it, but let me jump to the conclusion, from page 12:
Note as well the line about the increase in benefits paid due to the aging population. I included that because things like the aging boomers, the rise in retirees to workers expected, or smaller family sizes are frequently cited by ordinary people in explaining why they "know" CPP won't survive. The people running CPP know about these things too, and adjustments have been made over the years to guarantee the health of the program in the face of changing demographics. Note above this is the 25th actuarial report, CPP's non-partisan officials have been checking into this for quite some time.
How Credible is the Report?
I'm not an actuary so of course I won't offer a personal opinion on the techniques employed in writing these things. Luckily, the authors take steps to get second opinions. Here's what they did to assess the competency of the 25th report:
CPP is healthy. Don't let anyone tell you differently, and if that person is a supposed expert (like some think tank analyst or a politician involved in the pension file) and they don't deal with the Actuarial Reports, you should recognize they are liars trying to con you out of your retirement safety. By all means, save for retirement if you have the luxury of an income that supports doing so (yes, a "luxury": half of Canadians live on less than $29,000 a year, which doesn't usually leave much room for RRSPs and TFSAs) but remember CPP is vital to providing a dignified to many Canadians and there's no sound economic reason to take that away from them.
Here's what you need to know: Every 3 years, the Chief Actuary of Canada publishes an Actuarial Report on the financial health of the CPP fund. These reports follow the same sorts of actuarial methodologies that for-profit life insurance companies employ to confirm that they are charging appropriate rates for their life insurance customers. Of course such reports require dealing with many unknowns about the future, but short of inventing a flux capacitor and pumping 1.21 gigawatts through it, this is the best anyone can do.
What The Report Says:
The latest report (the 25th) is from December 31, 2009, (well into the Great Recession/New Depression) and can be found here (sorry, PDF). You're encouraged to read it, but let me jump to the conclusion, from page 12:
Thus, despite the projected substantial increase in benefits paid as a result of an aging population, the Plan is expected to be able to meet its obligations throughout the projection period and to remain financially sustainable over the long term.(Emphasis added because this statement needs to be said over and over until people get it). The "projection period" by the way is 75 years (p10), which means that by the best professional projection techniques available, CPP is believed to be healthy until 2084. I'm 36, and I fully expect CPP to be there for me when I retire sometime between maybe 2036 and 2046. Babies born today can rely on CPP being there.
Note as well the line about the increase in benefits paid due to the aging population. I included that because things like the aging boomers, the rise in retirees to workers expected, or smaller family sizes are frequently cited by ordinary people in explaining why they "know" CPP won't survive. The people running CPP know about these things too, and adjustments have been made over the years to guarantee the health of the program in the face of changing demographics. Note above this is the 25th actuarial report, CPP's non-partisan officials have been checking into this for quite some time.
How Credible is the Report?
I'm not an actuary so of course I won't offer a personal opinion on the techniques employed in writing these things. Luckily, the authors take steps to get second opinions. Here's what they did to assess the competency of the 25th report:
A panel of three independent Canadian actuaries, selected by the United Kingdom Government Actuary’s Department (GAD) through an arm’s length process, reviewed the Twenty-fifth Actuarial Report on the Canada Pension Plan. The external panel’s findings confirm that the work performed by the Office of the Chief Actuary (OCA) on the Report meets all professional standards of practice and statutory requirements, and states that the assumptions and methods used are appropriate and reasonable.I suppose if you're the kind of person who believes that 97%+ of the world's Climate Scientists are arrayed in a massive conspiracy to rig the science to keep their government research grant gravy river flowing, you might believe that Canada's actuaries are conspiring to hide evidence of CPP's imminent downfall from us, but really aside from rampant reality rejection, I don't see how you can do much better than this.
CPP is healthy. Don't let anyone tell you differently, and if that person is a supposed expert (like some think tank analyst or a politician involved in the pension file) and they don't deal with the Actuarial Reports, you should recognize they are liars trying to con you out of your retirement safety. By all means, save for retirement if you have the luxury of an income that supports doing so (yes, a "luxury": half of Canadians live on less than $29,000 a year, which doesn't usually leave much room for RRSPs and TFSAs) but remember CPP is vital to providing a dignified to many Canadians and there's no sound economic reason to take that away from them.
Saturday, March 31, 2012
OAS and GIS Cuts Are a Travesty
The Harper's government's first majority budget is being portrayed as some kind of "moderate" or "compromise" budget because it doesn't gut as deeply as the wingnuts in Harper's caucus and Canadian wingnut welfare think tanks like C.D. Howe, Fraser and the Candian Taxpayers Federation have been calling for. Good job moving the 50 yard line of moderate centrism, wingnuts. The US political playbook continues to work here. Canada's "paper of record" the Globe and Mail, calls the budget "prudent." It's not. It's a travesty that seeks to reduce the deficit on the backs of poor (future) seniors by delaying eligibility for Old Age Security (OAS) and the Guaranteed Income Suppliment (GIS) retirement income programs (and very little attention is being paid to the GIS cuts, even though they're actually more disturbing).
Everyone younger than 54 has just had approximately $12,000 in OAS ($6,000/yr) and potentially another $12,000 in GIS taken away from their retirements. That's $24,000 in 2012 dollars, of course by the time people aged 53 hit 65, assuming 2% inflation, that figure is over $30,000. The people who qualify for GIS are of course those least able to sustain the loss of this income, and particularly so at age 65, where the potent mix of health issues and workplace age discrimination mean it will be particularly hard for these seniors to find paying work. There are just only so many Walmart greeter jobs, and for even those you have to be in reasonable health to work them.
Let's be clear that people receiving GIS are poor pushing on destitute. The income cutoff to receive GIS in 2012 is just over $16,000. That figure doesn't include OAS benefits, but CPP payments (which max out at about $12,000 a year anyway) would count. However not everyone qualfies for CPP and you don't necessarily get the maximum depending on your work history contributions to the program. Also, the numbers aren't trivial, in 2011, over 1.6 million Canadians received GIS.
The arguments for the OAS changes are the usual stew of mistruths and tendenicious rationalizations: People live longer ("People" here meaning: "middle to upper class" people; working age poverty has a dramatic effect on life expectancy), there's more retirees per worker than when these programs were created, the boomer bulge (you can safely ignore anyone citing this since boomers are cynically exempted from this cut) and so on. For GIS, there are no good arguments for cutting it, as this progressive economist notes. In general, I don't buy any of these arguments, for this basic reason: Canada today is a much wealthier country than the Canada that created OAS in 1951 under Liberal PM Louis St. Laurent.
OAS is Completely Affordable if We Want To Afford It
A little math here: Canada's GDP per-capita in 1970 was $4047 (using 1970 dollars). I couldn't find a figure for 1951, but 1970 is far enough back and yet modern enough that we had most of the same modern safety net programs in place, and found them evidently affordable at the time. Using the bank of Canada's inflation calculator that leads to a figure of $24,282 in 2012 dollars. Canada's actual 2010 GDP per capita? $46,236. That's 1.9 times higher even after the biggest recession since the Great Depression. We're almost twice as wealthy as a society than our 1970 cousins. According to this, we may actually be more than twice as wealthy (not sure how the difference emerges). Why could those 1970 Canucks afford OAS but not us?
This is the Big Picture
All the sophist minutia about the number of seniors per working age Canadian, the deficit, the percentage of the federal budget this stuff eats and stats on how long people live after 65 cannot withstand this basic fact. Yes, you can persuade me that OAS will become modestly more expensive as a percentage of our GDP in the coming years, but not that it isn't, at a very fundamental level, affordable. We're simply allowing this government to make the choice not to afford a decent and humane retirement for all Canadian seniors. We decided more than a generation ago that leaving seniors in poverty was unacceptable (in fact income programs for seniors pre-date the Great Depression in Canada). How can we afford this? Clearly there are people who can pay more taxes. The answer really is that simple. Raise the taxes of those who are doing best, who are far wealthier than their 1970 peers were and maintain this basic social intergenerational compact. We don't need another complicated neoliberal four letter (RRSP, TFSA etc) Rube-Goldberg scheme. Tax the people with the most money and ensure the poorest seniors aren't left relying on foodbanks and soup kitchens.
I'm also not moved by arguments around what our OECD/First World peers are doing with pensions. Neoliberal dogma has infected the whole rich world, and a bunch of other neoliberal government unwilling to tax the rich appropriately to maintain the social contract are just proof the problem is very big, not that reducing retirement guarantees is some kind of hard economic necessity.
I am looking for the two main opposition leaders to promise to overturn this decision. Ian Welsh likes what he is seeing from Mulcair on this, so I'm optimistic. Rae perhaps cannot make promises given that he is supposedly only the interim leader, but NDP supporters should pressure Mulcair and when it comes time to pick a Liberal leader, voters in that process should ask the candidates to commit to reversing this. It doesn't have to be this way.
Everyone younger than 54 has just had approximately $12,000 in OAS ($6,000/yr) and potentially another $12,000 in GIS taken away from their retirements. That's $24,000 in 2012 dollars, of course by the time people aged 53 hit 65, assuming 2% inflation, that figure is over $30,000. The people who qualify for GIS are of course those least able to sustain the loss of this income, and particularly so at age 65, where the potent mix of health issues and workplace age discrimination mean it will be particularly hard for these seniors to find paying work. There are just only so many Walmart greeter jobs, and for even those you have to be in reasonable health to work them.
Let's be clear that people receiving GIS are poor pushing on destitute. The income cutoff to receive GIS in 2012 is just over $16,000. That figure doesn't include OAS benefits, but CPP payments (which max out at about $12,000 a year anyway) would count. However not everyone qualfies for CPP and you don't necessarily get the maximum depending on your work history contributions to the program. Also, the numbers aren't trivial, in 2011, over 1.6 million Canadians received GIS.
The arguments for the OAS changes are the usual stew of mistruths and tendenicious rationalizations: People live longer ("People" here meaning: "middle to upper class" people; working age poverty has a dramatic effect on life expectancy), there's more retirees per worker than when these programs were created, the boomer bulge (you can safely ignore anyone citing this since boomers are cynically exempted from this cut) and so on. For GIS, there are no good arguments for cutting it, as this progressive economist notes. In general, I don't buy any of these arguments, for this basic reason: Canada today is a much wealthier country than the Canada that created OAS in 1951 under Liberal PM Louis St. Laurent.
OAS is Completely Affordable if We Want To Afford It
A little math here: Canada's GDP per-capita in 1970 was $4047 (using 1970 dollars). I couldn't find a figure for 1951, but 1970 is far enough back and yet modern enough that we had most of the same modern safety net programs in place, and found them evidently affordable at the time. Using the bank of Canada's inflation calculator that leads to a figure of $24,282 in 2012 dollars. Canada's actual 2010 GDP per capita? $46,236. That's 1.9 times higher even after the biggest recession since the Great Depression. We're almost twice as wealthy as a society than our 1970 cousins. According to this, we may actually be more than twice as wealthy (not sure how the difference emerges). Why could those 1970 Canucks afford OAS but not us?
This is the Big Picture
All the sophist minutia about the number of seniors per working age Canadian, the deficit, the percentage of the federal budget this stuff eats and stats on how long people live after 65 cannot withstand this basic fact. Yes, you can persuade me that OAS will become modestly more expensive as a percentage of our GDP in the coming years, but not that it isn't, at a very fundamental level, affordable. We're simply allowing this government to make the choice not to afford a decent and humane retirement for all Canadian seniors. We decided more than a generation ago that leaving seniors in poverty was unacceptable (in fact income programs for seniors pre-date the Great Depression in Canada). How can we afford this? Clearly there are people who can pay more taxes. The answer really is that simple. Raise the taxes of those who are doing best, who are far wealthier than their 1970 peers were and maintain this basic social intergenerational compact. We don't need another complicated neoliberal four letter (RRSP, TFSA etc) Rube-Goldberg scheme. Tax the people with the most money and ensure the poorest seniors aren't left relying on foodbanks and soup kitchens.
I'm also not moved by arguments around what our OECD/First World peers are doing with pensions. Neoliberal dogma has infected the whole rich world, and a bunch of other neoliberal government unwilling to tax the rich appropriately to maintain the social contract are just proof the problem is very big, not that reducing retirement guarantees is some kind of hard economic necessity.
I am looking for the two main opposition leaders to promise to overturn this decision. Ian Welsh likes what he is seeing from Mulcair on this, so I'm optimistic. Rae perhaps cannot make promises given that he is supposedly only the interim leader, but NDP supporters should pressure Mulcair and when it comes time to pick a Liberal leader, voters in that process should ask the candidates to commit to reversing this. It doesn't have to be this way.
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