FEW HUMAN impuises are as strong as the desire to ensure that somebody will look after us in our old age. By Michael Walker Contributing Writer That explains the explosive growth of mutual funds, pension plans and RRSPs as the baby boomers contemplate their descent into “old-fartdom,” as my son describes this most inevitable of human conditions. i people feel is whether the prov made will be adequate to maintain an accept- able standard of living as retirement casts them off on a voyage into the unknown. It is not surprising therefore, that questions Tam most often asked as an economist revolve around this theme: “Can we rely on the Canada Pension Plan (CPP) and the old age security? What will be the future of these government programs and are they a reli- able part of retirement planning?” My answer to these questions of adequacy always must be vague, and while this may come 4s no surprise to those who usually find the comments of eccnomic scribbiers either incom- prehensible or unhelpful, the source of the vagueness does not reflect the economics of the situation. _It is rather the politics of the CPP. The problem that gives rise to concern about the Canada Pension Plan is the fact that it is a “pay as you go” type plan, meaning that current contributors to the plan pay for the people who are currently retired (as opposed to a fully funded plan _ Where individuals pay the cost of their own retirement only). Now, as we go further into the future where relatively fewer people will be working due to lower fertility rates, CPP contri- butions will have to rise from the current rate of 5.5% to 10.5%. Those contributions will have to risc by a further 1% in order to make up for the fact that people are living longer than they once did. So that’s an 11.5% contribution rate overall. The build-up of capital in the fund being used to pay some . pensions at the moment also means that current contribution Tates are about 2.5% lower than the pay-as-you-go rate. So the rate will have to be further increased, bringing the total contribution rate up to 14% by the year 2020 from the cur- rent 5.5% rate. Looking for controversy? THE FRASER institute’s Dr. Michael Walker. Replace the words “contribution rate “tax increases” and you immediately issue. The question is: Given tical constituencies that will be involved as we enter the new century, will there be the political will to increase CPP con- tribution rates by the amount required to tra fer the income from those people who will then be working to those people who will then be retired? This increase in pension taxes wilt be of course added to the increases we already know about for the accumulated public debt, the increasing old-age secu- Tity payments that will be neces- sary as the population ages. And, of course, Medicare costs which some anticipate will double over the same time period that the Canadz Pension Plan premium is nearly tripling. The view of many experts is that the future simply doesn't add up and that something will have to give. One possibility is that the age of retirement could gradually be extended. Adding two months per year to the retirement age would add five years to the retirement age within 30 years. That would, in the jargon of actuaries, stabilize the costs of the plan and avert what might otherwise be a political crisis. Yet others, me included, have suggested that the only real solution to the Canada Pension Plan conundrum is to privatize it, and while carrying on with the compulsory contributions, tie each individual's pension to the contributions which they alone make. We at the Fraser Institute have also suggested that the Canada Pension Plan ought to be clawed back like old-age security currently is. There is no reason in principle to make a dis- tinction between the tax-supported old-age securi- ty system and a Canada Pension Plan based on conipulsory contributions to the federal govern- ment, and relatively high-income individuals ought not to be receiving benefits under that par- ticular system. READ PUG COLLINS every Wednesday & Sunday. Well, don't expect a quick response, Or much of a response at all, for that matter. For while banks are eager to tell you all about their RRSPs, they tend to bea litte unresponsive when it comes to talking about your RRSP needs. And that’s where we come in. You see, we're not a bank; we're a credit union. We actually put our customers’ needs first. Which is why we have financial experts on hand who'll take the time to explain all your RRSP options, And help you determine not only what term deposits or mutual funds are right for you, but also what can do for you. nee ee A702 MARINE DRIVE, WEST. VANCOUVER, 926-2612° . Wednesday, January 31, 1996 — North S' While all of this may be clear as mud, there is one implica- tion that is unavoidable. People whose incomes are above the average and who are taking prudent account of their futures and are desirous of being truly financially independent in their old age cannot ignore the fact that the Canada Pension Plan is not a sure thing. Additional private savings by way of insur- ance against a politically expedient change in the program would be a wise thing. Dr. Michael Watker is the executive director of the Fraser Institute. He will be discussing “Canada's health care system under fire” at the North Shore News Financial Forum at 2:30 p.m. on Saturday, Feb, 10. revert t LP lanning Where will your retirement plan take you? (Visit one of our branches or see our ad in Sunday’s edition.) NS NORTH SHORE 4 CREDIT UNION qyilrans inyour Communtlg. North Vancouver © West Vancouver ¢ Vancouver * Burnaby ° Whistler Proud sponsor of the 1996 BC Winter Games plan — regular or self-directed — suits you best. So, before you nun into a brick wall at RRSP time, come and see us at the Financial Forum on February 10. We'd be glad to show you what our breakthrough approach to RRSPs We're not a bank Were better.