RRSPs and Savings
My recent post on doubling the CPP -Â http://www.progressive-economics.ca/2009/10/26/double-the-canada-pension-plan-benefit/ – prompted some commentary in defence of voluntary as opposed to compulsory savings vehicles.
I guess it is reasonable to debate if we should force people – especially those above very low income levels – to save in their own best long term interests.Â That is, of course, exactly what happens when people land a job with a decent workplace pension plan, and I don’t see young people turning them down on the grounds that they don’t want a pension.
What seems indefensible to me is the proposition that people will save anywhere near enough for retirement if left to their own devices. We already know that there are huge amounts of unused RRSP contribution room. The pension satellite accounts data released by StatsCan last week show that Canadians in the aggregate do not save anything at all outside of pension vehicles.Â And RRSP saving has fallen quiet sharplyÂ from 5.1% of personal disposable income in 1996 to just 3.8% in 2007 – even as pension plan coverage has declined and as baby boomers head into retirement.
Why did RRSP savings fall? Partly, Statscan guesses, because inflated stock values led people to think they were richer than they were – or are today.Â Partly, I’d say,Â because of squeezed wages and incomes across a broad part of the income spectrum and rising personal debt incurred to maintain consumption.
In any case, th real choice is squarely between compulsory saving for retirement through workplace pensions and the CPP, or inadequate saving.