Canadians saving too much? Pardon?

In the private sector, most Canadians have lost their corporate DB plans, with DC plans being offered in their place. Once a useful tool for employee retention, DB plans have saddled many employers with unfunded liabilities.

With only a few companies still offering DB plans, the majority of DB members are civil servants, a popular target in an era of sluggish economic growth.

This has created a class-divide, the authors of the report argue, in which those with DB plans have an “unfair” ability to fund their retirement. The solution to such an injustice is not to improve the ability of all Canadians to save, but to limit the amount that DB plan members can save.

“A lifetime accumulation limit will put Canadians who do not enjoy career membership in a defined-benefit pension plan on the same footing as those who do,” the report says.

By bringing everyone down the same rock-bottom level of savings, Canadians will be equal. Perhaps it’s time to invest in Purina, maker of several fine cat foods.

Before praising this as an argument for smaller government—as it no doubt is intended, in some ways—consider this: The system the authors envision would require Canadians to provide an annual update to the CRA on the current value of their pensions and RRSPs.

The CRA would then compute the amount the taxpayer would be allowed to accumulate within their pension or private tax-deferred account.

“Excess accumulations would be subject to a penalty tax until withdrawn,” the authors suggest.

They admit that the implementation of such a system would cost more for plan administrators—both government and corporate—as they would need to establish new reporting systems to keep employees accurately informed.

Presumably, a small business owner without an individual pension plan, who maxed out his or her RRSP, could, with astute investment advice, reach the accumulation limit, and thereby be penalized for saving and investing too well.

“A consensus is developing that Canada’s rules for retirement saving are unfair and ought not to continue in their present form,” the authors claim, ignoring the definition of ‘consensus.’

“The best way to reform Canada’s tax rules for retirement saving would be to implement a lifetime accumulation limit,” they state—this time, ignoring the definition of ‘best.’

So, does this plan address the problem of Canadians who face poverty in retirement?

“Lower-income workers who cannot save would continue to rely on programs such as the CPP, the OAS, and the Guaranteed Income Supplement,” the report says.

That would be a resounding “no.” But despite this admission, the report concludes:

“A lifetime accumulation limit is a simple, elegant, and workable fix for Canadians who do not have career membership in generous pension plans, and its guarantee of equal and sufficient access would benefit all Canadian workers.”

Simple, elegant and workable?

So, to sum up, we’d have limits on retirement savings to ensure no one is too wealthy in retirement; penalty taxes on saving too much or investing too well; an administrative nightmare of keeping accumulation records up to date; and no benefit for the poorest members of society.

To read the full report, click here.