CIBC CEO calls for additional, voluntary contributions to CPP to reignite culture of savings

Feb 20, 2013, 07:30 ET from CIBC

CIBC research shows nearly 6 million Canadians are at risk of a significant decline in standard of living when they retire

TORONTO, Feb. 20, 2013 /CNW/ - Canadians should have the choice to make additional, voluntary contributions to the Canada Pension Plan in order to avoid facing a significant decline in living standards when they retire, said Gerry McCaughey, President and CEO of CIBC in a keynote address at the National Summit on Pension Reform.

He told the audience of senior government and business leaders in Fredericton, New Brunswick that, according to new research conducted by CIBC's economics group, nearly 6 million Canadians will face a drop in living standards of more than 20 per cent if current savings rate trends continue.

"Our research found some 8.4 million people will experience a decline of more than five per cent in their standard of living at retirement," said Mr. McCaughey. "Far more troubling is the fact that 5.8 million Canadians are on pace to experience a significant decline - meaning a reduction in living standards of more than 20 per cent.

"And, here is perhaps the most alarming takeaway: when we look at those 5.8 million people - we see that most of them are young. In fact, our economists estimate that almost 60 per cent of adults in their late 20s or early 30s, can expect to experience a significant decline in their standard of living when they retire."

Mr. McCaughey noted that many of these young Canadians - especially those with lower incomes - can't afford to buy the average home, so they will also be deprived of the benefits of the forced savings represented by home ownership.

They're also coming of age in an era when private pension plans are increasingly scarce. And they're finding it hard to replace what those private plans offered: scale, obligatory participation, expert investment management, locked-in contributions, a long-term horizon and certainty of outcome.

Mr. McCaughey thinks five imperatives should be incorporated into any retirement savings solution:

  1. It must be easy to understand and simple to participate in.
  2. It needs to put the money of Canadians to work over the longest possible horizon - as much as 40 years or more - to maximize returns and grow savings.
  3. It needs to be voluntary, but committed savings so after an individual opts in annually, the money can't be touched until retirement, giving it every opportunity to grow. These additional, voluntary contributions would come from after tax income, similar to the TSFA, and when withdrawn at retirement would neither be taxable nor result in a loss of income tested benefits.
  4. It needs to provide a predictable income stream at retirement- providing a date-certain, amount-certain return to Canadians at the conclusion of their working years.
  5. It needs to take advantage of the benefits of scale - and the incremental returns that are available from accessing high-quality investment management that operates within a low cost structure due to its size and scope.

Mr. McCaughey believes the Canada Pension Plan or a CPP-like vehicle can deliver on all of these imperatives. "I believe that a reasonable starting point, benefitting the greatest number of individuals, would be to allow Canadians to increase their contributions to the CPP," says McCaughey. "We need to provide Canadians with further choice - choice that gives them date certainty and real dollar amount certainty. A choice that will help Canadians as individuals, and Canada as a nation, reignite a culture of savings."

CIBC research shows that such a solution would help close the retirement savings gap for young Canadians by as much as 80 per cent.

A copy of Mr. McCaughey's speech is available at:

The CIBC World Markets Economics report is available at:

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