A mandatory, government-sponsored pension program would alleviate much of the pressure on the retirement system, according to a proposal by Morneau Shepell, in a recent newsletter titled Filling the Pension Gap.
Ontario has already committed to creating a provincial pension plan — but Morneau Shepell proposes that a government pension program across all provinces would have a significant impact, particularly for middle-income earners.
The proposed program would use net replacement ratios, a standardized percentage of disposable income based on gross household earnings.
The net income replacement ratios could be broken down by the following:
• Gross household earnings of $25,000 should have a net replacement ratio of 100%
• Gross household earnings of $40,000 should have a net replacement ratio of 90%
• Gross household earnings of $60,000 should have a net replacement ratio of 80%
• Gross household earnings of $85,000 should have a net replacement ratio of 70%
This formula is based on the assumption that lower-income households do not have significant income supplements for retirement, like RRSP savings. Higher-income households are more likely to have contributed to retirement savings, said the proposal.
"Currently, the retirement income system seems to have lost a little ground," said Fred Vettese, chief actuary at Morneau Shepell and author of the proposal.
"As of December 2012, only 21.1 per cent of workers in the private sector are covered by a pension plan, which is the lowest level of participation since the mid-1960s. It's time for a change."
The proposal focused on middle-income earners and factors in marital status, income level and number of children.
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