Pay it backward

A recent OECD report reveals that Canadian seniors receive a much lower proportion of their income from public pension schemes than do seniors in most other advanced economies.  Although the OECD acknowledges that the rate of senior poverty in Canada is much lower than the OECD average, the report is putting more pressure on the federal government to improve the Canada Pension Plan (CPP).

The Federal Finance Minister, Jim Flaherty, has steadfastly resisted calls for the government to increase employee and employer contributions to the plan in order to boost CPP payouts.  He has argued that the weak economic recovery makes any such addition to employment costs, and drain on after tax incomes, a risky proposition.  In response, some of the Provinces, notably Ontario, are musing about setting up their own pension plans, if the Feds won't play ball.  (Quebec already has its own, very well run pension scheme, completely separate from the CPP).

It's hard to see how this ends well, because the whole effort is coming too late.  The people clamouring for the increase in public pensions are the baby boom cohort, now reaching retirement age and realizing that, despite decades of urging from governments and financial planners alike,  they haven't set aside nearly enough to sustain their lavish, debt-fueled lifestyles. If Ontario proceeds with a pension plan of its own, it's dollars to donuts that it will start paying out immediately to all those seniors who have never contributed a penny toward the scheme. Premiums will be collected from employers and from current employees, adding to the financial burdens they already face as a result of their parents' profligacy.

There's been a lot of coverage in the media in recent months about rising economic inequality since the financial crisis.  The problem is worst in the United States, but the same phenomenon is evident in Canada also.  A big part of this rising disparity in incomes and wealth is surely age-related.  One way or another, pensions are a claim on income.  If you defer consumption during your working years, either by yourself or as part of a pension scheme, then you're making a claim on your own lifetime income.  If you spent every paycheck and then some, then the pension you demand is a claim on someone else's income.

A large percentage of baby boomers have never exhibited any qualms about hijacking the income of future generations for their own purposes.  Ontario Premier Kathleen Wynne, a youngish boomer herself, well knows that these folks turn out to vote in much larger numbers than do the young.  With a finely-balanced provincial election just months away, she may well be tempted to offer up yet another unfunded  inter-generational wealth transfer.