Canada vs. U.S.A.: a comparison of public retirement systems

Canada vs. USA
Summary

The retirement programs in Canada and the US are similar in that they both provide social insurance for low income individuals facing poverty (SSI and OAS/GIS) through general tax revenue.  On top of that, a more comprehensive system provides for retirement benefits proportional to contributions through an individual’s working career.

The main difference between the OASDI and CPP is in the level of coverage: in 2012, the OASDI’s covered earnings are $110,100 while CPP only covers $50,100 of earnings.  The difference in coverage represents a difference in philosophy on retirement saving responsibilities.  Instead of mandatory saving through payroll deduction, the Canadian system clearly puts more burdens on individual citizens to save, in particular for those in the middle to high income range. However, based on a comparison of the value of the benefits done by computing the implied investment returns on both contribution patterns, the CPP provides better value per contributions dollar under the current levels of coverage and contribution than the OASDI.

The long term sustainability of the two programs is also reflective of differences in consideration and approach.  The governments must decide on how the program should be financed and how its funds should be invested.  While Canada’s Pension Plan is currently in good financial health, given the current economic conditions and the aging population in the U.S., changes to the OASDI will likely be necessary in the near future. The required changes could include increasing contribution rates, decreasing benefit levels, or increasing the normal retirement age.

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