I had lunch on Saturday with a couple of friends that I don’t see often. One is a CPA past retirement age and nearing retirement. The other is an MBA and is a few years older than me. Mr. CPA worked most of his career in public accounting working for businesses and individuals. He has seen his share of individual retirement plans and many of his friends are now retired. Although Mr. MBA recently changed jobs, his last job was managing the Finance Department for a multi-billion dollar organization with many thousands of employees. That organization sponsored a defined benefit plan for its employees (and still does today) so he has certainly spent some time thinking about how to provide an adequate retirement income to Canadians.
The conversation we had was all over the map – car insurance premiums for teenage boys, health care for the elderly (we now all face this more directly with our own parents), and the effectiveness of working Canadians to adequately save for retirement. The last subject was something the other two knew was on my mind so they saw that discussion coming before they booked the lunch.
On the question of expanding the Canada Pension Plan, we quickly staked out our territory. Many already know my position is that after the floor of CPP and OAS plus GIS for those that qualified, the government has done their job and it should fall to individuals with the support of their employers to do the rest. Mr. MBA is convinced that ‘modest expansion of the CPP’ is a good idea. Mr. CPA took a middle ground between us – arguing that CPP could be expanded – but only with additional employee contributions – not with new ‘taxes’ to employers.
I wasn’t there to convince the other two that I was right – I was there to understand Mr. MBA’s view since I knew he was intelligent, educated, experienced, and well informed. How could it be that he didn’t see things my way?
Mr. MBA took a surprising turn in his analysis – he changed tracks to our sky rocketing health care costs in this country and the likely inability of future taxpayers to afford to continue our current OAS/GIS and health care systems as the boomers push through retirement – especially as they push through the last few years of life when health care costs are greatest. In a nutshell, he recognized that more CPP contributions today, while only modest in the total impact, were the minimum we needed to be doing today to defer consumption to pay the costs that people will face in the future. He was less interested in trying to divide the problem between a retirement income problem and a health care cost problem – his holistic approach simply added it all together as a problem that we need to face.
Mr. CPA didn’t mind at all the idea of forcing people to save more through CPP – he recognized the system as highly efficient. He was against adding a payroll burden to employers – especially in Ontario, where we are already seen globally as a costly place to do business. We talked a little about how immigration must be part of the solution but ran out of time before we fully explored the details.
Where am I now? Unfortunately, I am between a rock and a hard place. Sooner or later Canadians need to collectively save more or they need to collectively brace themselves for a more difficult future in terms of the consumption they can expect to enjoy. I have always known that our health care system needed repair – but I have compartmentalized it as a separate problem than retirement saving. I have also rested my head on my pillow with the dream that technology will somehow drive lower costs into health care over time rather than the ever increasing costs that we have experienced in recent decades. How come televisions and computers do way more for way less money – but health care costs always go up?
I still think that expanding the CPP – whether its employer and employee contributions or employee only – masks the major financial challenges ahead – but I will grant Mr. MBA the correctness of his assertion that we just collectively aren’t doing enough to be ready for the future. The other thing that Mr. MBA said that resonates with me is the poor job that individuals do in managing longevity. This was his argument in favour of a defined benefit solution like expanding the CPP. I agree that managing longevity is challenging which is why I long ago suggested that defined contribution plan participants look more seriously at annuities at retirement.
Our discussion didn’t cause either of us to change our minds but it did cause me to see that his starting point is much different than mine. This leaves me with big questions that I just can’t answer. How much health care do Canadians deserve and who pays for it? What happens to an economy that has too many unproductive members relying on the productivity of the working population? What happens when globalization hollows out the productive contribution of workers in traditional employment like manufacturing? How many health care dollars should we invest in someone age 90 to extend their life? Is it quantity or quality of life that we should pursue?
I know that Japan has had struggles for decades but I really haven’t studied that country’s problems, how they are being tackled, and whether they are being successful. I am not sure if Japan has something to teach us. I do know that I am willing to look for answers. I also know that we need to elevate this conversation for Canadians so that we can either find solutions well ahead of the crisis or we can sufficiently forewarn Canadians of the harsh winter ahead so that no one is taken by surprise.