October 22, 2010 – A study released by the University of Calgary’s School of Public Policy strongly supports CARP’s universal pension plan (UPP), and other large, mandatory defined benefit plans that are durable and provide adequate savings coverage at low cost.
Expanding Canada Pension Plan Retirement Benefits, written by Jonathan Kesselman, professor and Canada Research Chair in Public Finance at Simon Fraser University, compares a range of retirement savings vehicles, including the CPP, various types of occupational plans, and CARP’s UPP.
As the table below shows, a CARP style pension plan, along with the CPP and plans like the CPP, produces the highest ratings across a range of criteria. In fact, the only criterion that produces a low rating is individual flexibility, but Kesselman explains why flexibility is not always a sign of a strong pension plan.
“Mandatory and universal coverage with higher benefit rates than the current CPP are essential to ensure benefit adequacy for all Canadians. The principal cost of pursuing a Big CPP would be the reduction in individual flexibility and choices concerning savings amounts, timing, and modes. The larger the increase in benefits under a Big CPP and the fewer the choices for opting out of the scheme, the greater would be the loss of this flexibility.
However, while individual choice is attractive in principle, in practice a significant proportion of Canadian workers are making poor choices in both savings and investment decisions that do not serve their own longer-term best interests. The burgeoning discipline of “behavioural economics” is rapidly displacing the traditional theory of the individual as an omniscient, rational decision maker; lifetime savings and investing decisions are a perfect example of this shift… mandatory coverage in a relatively rigid public pension scheme can actually yield more economically efficient and cost-effective outcomes than can unconstrained individuals in private markets.”
In assessing proposals for pension reform in Canada, Kesselman’s study confirms CARP’s effort in advocating for a mandatory universal pension plan that produces high coverage adequacy, investment returns, and durability, at low cost to investors.
To read the full report, click here
Keywords: pension reform