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Macroeconomic Aspects of Retirement Savings

April 23, 2014

Aspects macroéconomiques de l'épargne retraite

Written By David A. Dodge and Richard Dion

To download the English version (PDF), please click here.

Pour télécharger la version française (PDF) s'il vous plaît appuyez sur ce lien.

Executive Summary

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.

Résumé

La suffisance du revenu de retraite futur pour préserver les niveaux cibles de consommation individuelle des Ontariens et des Canadiens est un enjeu important pour les particuliers et les pouvoirs publics. En effet, en moyenne, les travailleurs canadiens sont loin d'épargner suffisamment pour soutenir un niveau de vie satisfaisant à la retraite. À moins d'une croissance de la productivité du travail supérieure aux prévisions actuelles, les gouvernements futurs se verront forcés d'imposer une population active quasi statique pour financer les transferts à une population de personnes âgées en forte croissance.

Le principal défi consiste alors à trouver un moyen d'assurer un revenu de retraite adéquat à la future génération de personnes âgées, sans imposer une charge fiscale indue à la population active et au secteur des affaires. L'alourdissement du fardeau fiscal ne pourrait qu'aggraver le problème qui consiste à produire suffisamment de richesse, tout en étant inéquitable envers les plus jeunes générations de travailleurs. La solution pour générer un revenu de retraite et une consommation potentielle plus élevés à l'avenir consiste à commencer à épargner et investir davantage dès aujourd'hui. Un taux d'épargne plus élevé soutiendrait un revenu de retraite plus élevé sans imposer davantage la population active, directement en augmentant la richesse des ménages et indirectement, en favorisant un taux d'investissement plus élevé en capital physique et autres formes de capital, et donc une plus grande productivité, des revenus de placement plus importants et des recettes publiques plus abondantes.

En principe, un taux d'investissement plus élevé pourrait être financé en misant plus sur l'épargne étrangère, mais l'expérience des dernières décennies laisse à penser que, sur une longue période, c'est l'épargne nationale qui finance l'investissement national dans les pays développés. De plus, une forte dépendance à l'épargne étrangère rend l'investissement intérieur plus vulnérable aux chocs économiques et financiers qui surviennent à l'étranger. À plus long terme, l'augmentation du taux d'épargne des ménages et des gouvernements est justifiée pour soutenir un taux d'investissement plus élevé par les entreprises et les administrations publiques.

Key Contact

  • Richard  Dion Richard Dion, Senior Business Advisor

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