OAS vs. Pension Reform

OAS vs. Pension Reform

Much ink has been spilled in the past couple of weeks on unspecified planned changes to the Canada’s Old Age Security system. Experts, fear mongers, protesters, advocates and politicians have come out arguing for changes ranging from ‘no change at all’ the way to ‘doing away with the OAS system completely’, except for the poorest of Canadians. I won’t wade into this debate because I consider it a diversion from where attention must be focused.

The government (intentionally or accidentally) has succeeded in diverting attention from lack of urgently needed and long overdue “pension reform”, where it only produced a “PRPP” which has zero credibility as useful reform; instead the government has re-focused the discussion to OAS changes. Pension reform advocates and the media got sucked-into arguing about OAS changes, instead of keeping the heat on the lack of real pension reform. By forcing reform advocates from an offensive stance on pension reform to a defensive position on OAS, the government succeeded in suppressing the almost universal criticism and condemnation of the PRPP. We should consider getting back onto the real issue of pension reform.

And by the way, the CPP is not the only answer or for that matter the best answer to the needed pension reform, though an enhanced CPP might be part of the pension reform solution. The CPP as structured today is compulsory, inflexible with employment income based contribution levels (50/50 employer/employee funded, and perceived by most as a tax); in addition the CPP is not generational transfer neutral and ends up concentrating a large portion of Canadians’ retirement savings into a single investment vehicle. Perhaps a better approach to pension reform is going back to basic principles, like: (1) mechanisms to encourage/’nudge’ to sufficient savings, (2) very low cost investment vehicles with appropriate accumulation and decumulation mechanisms, (3) access to very low cost “pure” longevity insurance to mitigate longevity risk and (4) protecting already earned private sector pension benefits when sponsor/employer goes into bankruptcy protection with an underfunded plan by changes to the Bankruptcy and Insolvency Act to raise priority of pensions in bankruptcy.

It is time to go back to basic principles and focus on what really matters: a holistic solution to Canada pension crisis. We had enough ‘discussions’, ‘recommendations’, ‘research’, ‘soliciting of input from Canadians’; we need real and meaningful pension reform now, before it is too late!

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