Demographics will be the end of CPP
By Steven Martinovich
According to a Statistics Canada report released March 13, the number of senior citizens will be greater than the number of children aged 14 years and younger by 2016, a phenomenon "never before recorded," said the federal agency. By 2026, one in every five person will be a senior citizen.
"The number of people aged 65 and over is expected to double from nearly four million in 2000 to almost eight million by 2026," the agency said. "By 2051, the population of seniors could reach between nine million and 10 million."
Also causing headaches for future government planners is the worrisome fact that the annual population growth will also continue to fall, from 0.9 per cent in 1996 to 0.1 per cent between 2046 to 2051. As grim as the numbers are, there's another that was contained in the Statistics Canada report that government leaders and bureaucrats have known about for years but have not publicized. Going by the ungainly sounding phrase "potential support ratio," the number will affect each and every Canadian, especially those who pay taxes.
According to the agency's prediction, the number of working people per senior "is projected to fall precipitously in the coming decades." Currently, there are five working age Canadians for each senior, a number that will fall to three by 2026. There are now 46 children and seniors for every 100 people of working age, who by 2026 will number between 55 and 60 per 100 working age people.
If those numbers are lost on you, their ramifications are explained. Simply put, fewer Canadians are going to be available to pay into social programs - the Canada Pension Plan included - that will be tapped into by seniors on a scale never before seen in Canada. That necessarily means that workers will have to pay more - far more - in taxes to support the overburdened programs Canadians have grown accustomed to, or benefits will have to be cut or handed out later in life. Aware that neither alternative will be popular, politicians haven't exactly made the results of their own research public.
Rather than bemoan the problems looming, Canadians should be taking this moment to remember that out of troubled times often come opportunities. With a population that is increasingly open to different solutions to old problems, politicians should be pushing for a radical rethinking of the way pension benefits are handed out. Rather than attempt a band-aid, Canada's politicians should take the brave step of dismantling a system that will be crushed under its own weight.
A radical but proven solution that Canada hasn't seriously considered is the lead established by Chile and other nations. It's the end of government administered social security systems, replaced instead by privatized systems. Chile was the first nation in the Western hemisphere to establish a government run social security system in 1929 and in 1981 it was the first to completely privatize its system. The results speak for themselves. The Chilean savings rate increased to 27 per cent of GNP by the middle of the 1990s while the funds administered by the private pension funds grew to equal to 40 per cent of GNP.
Experts also point out that under a private system it is virtually impossible to lose money in the markets over a period of several decades. Even if returns are low over a period of twenty years, a person would do no worse than the poor returns that government administered programs will provide over the coming decades.
Chile's switch to a private program also served to depoliticize a huge sector of the economy and give individual workers more control over their own lives. With one move Chile avoided the demographic flaw which will pain Canada and the United States and the future of the pension system began to depend on the markets and personal behavior.
If simple economics isn't enough to sway our politicians, perhaps an appeal based on human rights will. The problem with government run pension programs is that they manage to divorce work from reward and infringe upon individual initiative. Without understanding how much money it really takes to survive in those last years, people have no incentive to properly plan, leaving most to survive on the meager benefits handed out by the CPP. Benefits which won't get any better in the years to come.
As columnist P.J. O'Rourke quipped a few years ago, "[h]aving a government that owned economic assets is what made the U.S.S.R. the success that it is today." Unfortunately that success is being repeated in the CPP, all for the fear of simply giving back control of the future to the group it matters the most to, the people themselves. Better to do it while you can, not when it's too late.
Steven Martinovich is a freelance writer in Sudbury, Ontario. This article recently appeared in the Kitchener-Waterloo Record and the Vancouver Province.
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