Privatization of Pensions

The thrust of the last 40 years has been for private companies to move from

• defined benefit plans (which give retirees a known amount of money during retirement) to


• defined contribution plans (which the employer gives a fixed sum and manages of the pension) with the employee taking the investment risk to


• employer contributes a matching sum -- up to a fixed amount -- with the employee managing his own funds and taking all risks to


• no plans/no retirement benefits.

In short, retirement funds have shriveled up and blown away and more and more risk has been pushed from the private sector onto the shoulders of the individual. People are now supposed to be "investement experts" as well as do their jobs, be a good responsible citizens, and manage a healthy family life. More burdens, less time, more complications. That's the thrust of "modern" life.

In the face of this, right wing political agitation has been for the dismantling of public pensions to allow retirees the "freedom" to do with their money as they want. This in fact undermines the whole point of assuring a pension because there will be a certain percentage who will take the money and run, i.e. quickly lose it or spend it or gamble it away. Those people then will have to double dip because they will be indigent and need public assistance.

Despite these facts, the right keep agitating. Here is a bit from a Linda McQuaig article in the Toronto Star:

According to Jonathan Kesselman, professor of public finance at Simon Fraser University, management costs at Canadian mutual funds eat up nearly 2 per cent of assets — the highest rate in 20 countries surveyed. By comparison, CPP management costs were just 0.17 per cent last year.

This enables the CPP to pay out more in pension benefits. Kesselman argues that significantly extending the CPP would be “by far the best of all savings vehicles.” In fact, expanding the CPP would ultimately save governments money, by making future retirees less financially dependent.

But this eminently sensible, cost-effective public solution has been resisted by some on the right, who argue that the mandatory CPP deprives Canadians of the choice not to invest in their retirement.

This is reminiscent of arguments by the American right against public health care, on the grounds that some risk-lovers prefer to be without health insurance.

Of course, those making such arguments are usually well-off financially, with little risk in their own lives. Still, they fiercely defend the right of the poor to experience the risky pleasures of life without a safety net.

My personal preference is in exactly the opposite direction. I wish the CPP would open up to allow individuals to deposit their retirement funds to be managed by the CPP at a 0.17% fee. That is a hell of a lot cheaper than the best deal I can get right now. And I'm completely convinced that I would get better "management talent" with CPP than with the series of incompetents and fools I've dealt with over the last 30+ years (and not counting myself, the biggest fool who managed to shoot myself in the foot not once, not twice, but multiple times in "managing" my money).