Hidden Agenda Behind the Attack on the CPP

The calamitous predictions by the prophets of doom have fallen on receptive ears.. There's a nothing like scare tactics to grab headlines. Relentless pounding from the media-most of it ill-informed and erroneous-seems to have convinced many people that the CPP is broke and won't  be there for them when they retire.

Critics of Canada's public pension system are engaging in scare tactics, a prominent pension expert charges.  In a  new  study  Pensions Under Attack:     

What's behind the push to privatize public pensions, released today by the Canadian Centre for Policy Alternatives, independent economist, Monica Townson says, "talk of a demographic time bomb and intergenerational warfare over pensions are deliberate attempts to undermine public confidence in the Canada Pension Plan."

The World Bank warns of an "aging crisis;" the pension industry talks of a "demographic time bomb," there are even threats of an "age war over pensions" as younger people rise up against the elderly.

Why the panic? Are we really facing chaos and destruction as the "wrinklies" take over our cities and countryside? Maybe it?s time to step back and shine the light of reason on some of the hysteria and hyperbole.

Population aging is nothing new. Its been going on for several decades, and it's something almost all industrialized countries now face. Population aging simply means an increasing percentage of a country?s population will be senior citizens. For Canada, it's a process That will happen gradually over the next fifty years or so. By the middle of this new century, almost one-quarter of our population may be over sixty-five.

Some countries are already much further down this road. In many European countries the over-6Os were well over 20% of the population in 1990. Canada is not expected to reach that stage for quite some time-about 25 years after countries like Greece, Italy, Germany, and the Nordic countries. Population, aging hasn't happened overnight, and  it's  not a surprise.

It is important to remember there are many unknown elements which underscore the problem of predicting how an aging population will affect our economy, our society, our health care system and our pension programs 40 or 50 years down the road. No one can project that far ahead with any certainty.

American economist James Schultz, a specialist in aging policy, castigates the doomsayers for their "voodoo demography." He says the dire predictions should not be taken seriously because "they are based on simplistic and erroneous demographic analyses and-to the extent economics is considered-analysis is equally simplistic and seriously deficient"

Not everyone age 65 and over is "dependent" Some seniors continue to work after they turn 65. Much more relevant is the fact that people continue to pay taxes throughout their lives. Seniors pay Income tax, GST, provincial sales taxes, excise taxes, and property taxes-not to mention user fees. These revenues, flowing to the federal, provincial and municipal governments, are used to finance programs such as the OAS and GIS, as well as services used by seniors, such as health care, home care, and long-term care facilities.

In other words, many of these services are paid for partly by taxes collected from seniors themselves. The only taxes seniors do not pay are payroll taxes, such as UI and CPP contributions. Retired people do pay tax on their CPP benefits, and OAS is both taxable and clawed back from higher-income seniors.

As seniors form an increasing percentage of the population, they will account for  an increasing percentage of all taxpayers. Higher total amounts paid in taxes by seniors themselves, will be able to finance programs such as the OAS and GIS through transfers from higher-income seniors to those with more modest incomes, rather than from younger people of working age to older people who have retired. This is also contrary to the conventional wisdom that assumes increased costs of public pensions, as the population ages, will require a massive transfer from younger generations to the elderly, because they simply translate into an increased burden on future working age generations.

The baby boomers have been described as "the trillion dollar generation"--- a reference to the amount they are expected to inherit from their parents.  Boomers  are  also  rapidly   accumulating savings of their own.  In its latest salvo against the "demographic time bomb" the Association of Canadian Pension Management (ACPM) added up Statistics Canada?s numbers on financial assets currently invested in pension plans and RRSPs and conclude that "an accumulation of $l trillion would not seem farfetched." Whether its savings come from inheritances or accumulated wealth, or both, the baby boom generation seems set to be much better off in retirement than today's generation of seniors. As the boomers draw down their financial assets to support themselves in their golden years, they will pay income taxes on the money they receive from pension plans and RRSPs, as well as from public programs such as OAS and CPP. They will also continue to pay sales taxes and GST on their purchases and property taxes on their mortgage-free homes.

But at the same time as critics of our public pension plans almost never mention the role of this big  generation  as  taxpayers,  studies by the International Monetary Fund and the OECD, project that Canada will have the lowest economic burden for public pensions among the G-7 countries.

In a 2000 book called The Imaginary Time Bomb:  Why an Aging Population is not a Social Problem,  Phil Mullan says the crusade to move from public to private systems cannot be legitimized by even the most extreme of the aging projections.

"People who want to replace the CPP with a system of individual savings accounts-- whether they take the form of mandatory private savings plans or simply allowing people to opt out of the CPP if they wish to, are clearly following their own political and ideological agenda," says Townson.  "Its clear that by presenting the situation in terms of crisis and conflict" she says, "they're trying to soften up the public for radical measures allegedly designed to address the challenge of Canada's aging population."

"We should recognize these threats for what they are," says Townson. "They represent an attempt to justify reducing the role of government and eliminating collective responsibility for our aging population under the guise of preventing intergenerational conflict." Many of those who advocate privatization through individual accounts have a thinly-disguised self-interest in the outcome of this debate, Townson charges.  They would like to see the mandatory contributions of workers and their employers directed to private financial markets where fees, commissions and other charges can be levied on them----reducing the portion of workers contributions that can be used to generate a pension.

Financial advisers and financial institutions regularly promote their mutual funds and other investment products by claiming that Canadians would be foolhardy to count on government pension programs to form part of their retirement income in the future.

Canada has already taken action to address the concerns raised by a pay-as-you-go pension plan in the face of population aging,  Townson points out. A wide range of further acceptable options is available to policy makers, if necessary, without resorting to privatization and individual accounts, she points out.

Canada's  retirement income system already has a reasonable balance of public and private arrangements and it has done a good job of reducing poverty and inequality among seniors. If we are really concerned about protecting the financial security of future seniors and ensuring them an adequate income in retirement, we must resist the attack on public pensions. Our public pension system is worth fighting for, she maintains.

#  Monica Townson is an independent economic consultant working in the field of social policy.

She is the author of many books and studies and is a Research Associate of the CCPA. For more information please contact Bruce Campbell at (613) 563-1341 ext 302.