A modest expansion of the Canadian Pension Plan (QPP) and Quebec Pension Plan (QPP) would be the best option to provide future retirees with sufficient retirement income to maintain their standard of living into retirement, according to a new study by the Institute for Research on Public Policy (IRPP).
In recent decades, Canada’s three-tier retirement income system has provided satisfactory pension incomes for a growing number of retirees and has dramatically reduced poverty among seniors. However, there is increasing pressure for reform, said the IRPP.
Heavy reliance on private saving and insufficient voluntary pension savings, combined with an aging population, lower rates of return on investment and a decline in employer-sponsored registered pension plans, cast doubt on the retirement income security of today’s middle-income workers, said IRPP.
In the study A New Pension Plan for Canadians: Assessing the Options, author Keith Horner compares three pension plan options with the same contribution structure: a mandatory defined benefit plan (DB) and two defined contribution (DC) plans, one mandatory and the other voluntary. Horner’s proposed DB plan would raise the CPP/QPP benefit rate from 25 to 40 per cent of earnings up to $48,300, and from zero to 25 per cent of earnings between $48,300 and $96,600.
Having compared the effects of his proposed DB plan with the two DC plans, Horner concluded a DB plan would provide higher, more secure and predictable benefits per dollar of contribution than would a DC plan.
“Defined benefit plans can achieve higher returns because they enable longer investment horizons and slightly greater exposure to risk,” he said.
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