Should the public protect private pensions and RRSPs?
There is a lot of concern about there about the state of private pensions and private savings plans (RRSPs and the like). Having lost a quarter to a third of their value in the past year, those who anticipated a cozy retirement are now rethinking those plans.
But the core problem is that asset values (houses, too) have grown at annual rates that far exceed income growth, and have been further fueled by rising debt loads. As a society we have come to treat the stock market as a one-way bet, not recognizing that what is popularly called “investment” is really speculation that asset values will keep rising and we will bank the capital gain as income.
To grossly oversimplify, it is like we went into the casino and were up 60 grand at midnight then lost it all just before leaving. Should then the public protect all or any of those gains?
To me the answer is clearly no. This dynamic is actually a big part of growing inequality in our society. Those fortunate enough to have jobs with defined benefit pensions or to have bought into equities or the housing market long ago reaped huge gains relative to those who did not. For the public to now move in and lock in some of those gains seems wrong to me. The public sector cannot and should not prop up real estate or equity values.
Ultimately, this is a call for more publicly-provided income security and public pensions, and less private in the mix. Right now it is a three-pillar approach of Old Age Security (and the low-income top-up, the Guaranteed Income Supplement), Canada Pension Plan, and whatever private savings you can muster. While the OAS is an excellent program, and the CPP was shored up in the mid-1990s (a tax increase that met with essentially no opposition), there has been a huge emphasis on RRSPs (where you get a tax deduction then pay tax, typically at a lower rate, on withdrawals) and in 2009 the Tax Free Savings Account (where you pay tax then don’t pay tax on withdrawals). These latter private plans are huge tax expenditures for the government, give the most benefit to the richest among us, and contribute to a you-are-on-your-own culture.