Put your RRSP’s in the Canada Pension Plan?

What if you could invest your retirement savings in the Canada Pension Plan? Sound a bit radical? 

This is one of several innovative proposals presented in a new report published by the Pearson Centre for Progressive Policy, entitled Future of Work Policies for the 2020’s. The report author is Terrance Hunsley, also the Editor of Social Canada.

The report reviews the analyses of many major institutions like the OECD, as well as academic reports and reports from business and labour organizations. It looks at the predictions of the effects of new technology – robotization, AI, nanotechnology, biotechnology, etc – on jobs and and the way work is organized.  It acknowledges that the economic disruption rising around us will have both good and harmful effects. A set of policy recommendations is advanced to guide the way that workers are educated, trained and retrained;  how they can equip themselves to adapt and succeed, and how they can be empowered in a world where work is being fragmented. 

One of the tough nuts is how today’s workers can save enough to carry them through what will be a much longer old age than today’s elderly. Especially when the concept of being employed is evolving to contractual arrangements. One recommendation is to require the employer or contractor to make a retirement and social security contribution for all paid work, regardless of the work arrangement. 

But even with that, there is still a problem. The thing is, if you go to a bank or other financial institution and invest in their retail level mutual funds (as most workers do), the chances are that your savings won’t generate an adequate retirement income for you. The reason? Their money managers take about two percent off the top of your assets every year, regardless of how much you gain or lose in the year. Canadians pay very high fees for investment services. Multiply that amount by the 35 or 40 years that you might work, and you will see why so many people, even now, worry that they will outlive their savings. And if you are young now, you are probably going to live a lot longer.   

The Canada Pension Plan Investment Board is set up to manage investments of more than $420 Billion, and it does that very well. It brings returns that equal or outperform most mutual funds, and the balanced portfolios that most individuals are set up with.  And they do it for under 0.5% of the total, a difference of 1.5% per year, compounded over the years. The average worker could retire with 30-40% more money. Maybe more. 

Could it be done? Yes, the government has considered accepting voluntary contributions in the past.  Would it require extra administrative resources? Yes, but not so much to move the fee cost very far upward, given that lots of new money would be coming in. Would it mean people would be investing only in Canadian markets? No, the CPP funds are invested all over the world. Would governments have a better idea of how well the average worker’s retirement savings are doing? For sure. Would the average worker plying his or her trade in the global economy feel more closely aligned with Canada? I think so.

Will there be opposition to this? For sure. Expect the banks and other financial institutions to resist it mightily. They don’t want to lose the risk-free profits they have been making. But they won’t be cut out of the retirement investment field. They have lots of room to up their game and compete with better products at lower prices. 

The report can be seen at   http://www.thepearsoncentre.ca/platform/future-of-work-policies-for-the-2020s/


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