David Dodge, Senior Advisor in our Ottawa office discusses proposed changes to the Pension reform. A report commissioned by the Government of Ontario, (Macroeconomic Aspects of Retirement Savings) and prepared by Bennett Jones advisors David Dodge and Richard Dion was released to the public on Wednesday, April 23, 2014. Summary from the report:
The adequacy of future retirement income to support individual target levels of consumption for Ontarians and Canadians is an important problem for both individuals and governments. Indeed, on average, Canadian workers are far from saving enough to support in retirement a standard of living that they would find satisfactory. Unless the economy generates higher labour productivity growth than is currently projected, governments in the future will be under great pressure to tax an almost static population of workers to support transfers to a very fast-growing population of elderly.
The big challenge then is how to provide for adequate retirement income for the future population of elderly people without imposing an undue burden of taxation on the working population and the business sector. Such an increased burden could only worsen the problem of generating enough wealth at the same time as being inequitable to the younger generations of workers. The solution to generate more retirement income and potential consumption in the future is to start now saving and investing more. A higher saving rate would underpin higher retirement income without increased tax rates on the working population, directly through larger accumulated household wealth and indirectly through supporting a higher investment rate in physical and other forms of capital, and hence higher productivity, larger investment income and increased government revenues.
In principle a higher investment rate could be financed by increased reliance on foreign saving but the experience of the last several decades tend to suggest that in the long run it is national savings that finances national investment in the advanced countries. Moreover, heavy reliance on foreign saving makes domestic investment more vulnerable to economic and financial shocks abroad. A higher saving rate by households and governments is therefore warranted in the longer run to support a higher investment rate by businesses and governments.