Your Money: Gone Today, Here Tomorrow

A new Canada Pension Plan system in which you can contribute more than the required amount on a paycheque, would go a long way to helping today’s young people have some kind of retirement.

If you’re under 35, you’re probably struggling to juggle the needs to finance living costs, a house, children, transportation and retirement savings. I’m guessing that you’re having a hard time with this last one.

We all know that retirement is going to come later — there has certainly been enough press to let you know that you’ll probably be working until you’re 70 or more — but today’s concerns have a way of trumping those of the far-away future.

That might be why 80 percent of young Canadians are concerned about their ability to save for retirement.  The average 35-year-old is saving less than half of what he or she would have a generation ago. Worse, 60 percent of Canadian workers today have no company pension plan.

Here in BC, which has the highest living costs in Canada, those numbers are probably higher.

Because of that, we should all be giving careful consideration to a proposal advanced by Gerry McCaughey, president and CEO of CIBC at the National Summit on Pension Reform this week.

McCaughey appears to have revived a previous suggestion from a study on pension reform that Canadians should be allowed to make voluntary contributions to the Canada Pension Plan (CPP),  which all Canadians contribute to while working and get back as a pension at retirement.   

Such a plan will provide some financial security for older Canadians who have been caught in a climate of rising costs and lower investment returns. 

Also, by enabling Canadians to contribute extra after-tax money to the “tried and true” CPP, the government will encourage a culture of savings, which is become increasingly rare today.

Critics have complained that there are already several ways for Canadians to save for the future. RRSPs have long been the main vehicle, and in recent years have been joined by the TFSA — the Tax Free Savings Account.

But those vehicles have limitations. Annual contributions for each top out at a certain level. Both carry investment risk (ie. low or negative returns). Each is increasingly seen as a cash reserve to be decertified when funds are needed, particularly for purchases such as a house.

The voluntary CPP contributions would be ineligible for withdrawal and would be invested by the Canada Pension Plan investment board, which has proven to be one of the world’s best money managers.

So the money would go toward a pension and nothing else.

And, as we have seen, the future isn’t what many Canadians can think about right now.

When I wrote a money column called The Cheap Guy, one of the standard pieces of advice I gave was to save 20% of your after-tax income for the future. For the truly hard-pressed, I lowered it to 10%. It becomes another monthly cost, just like the mortgage or rent.  

But with all the demands, real or imagined, on your money these days, this new pension idea is a good substitute.