The head of one of Canada's big banks has called for Canadians to be allowed to make voluntary contributions to the Canada Pension Plan above what is already deducted from their salaries.

"Our economists estimate that Canadians now in their late 20s or early 30s can expect to experience, on average, a decline of 30 per cent in their standard of living when they retire," CIBC CEO Gerry McCaughey told a pension conference in a speech in Fredericton Tuesday night.

"The average Canadian needs to focus more and earlier on setting aside money as savings for retirement," McCaughey said.

Too much attention has been paid to investment returns and not enough to how much Canadians are saving for retirement, he said.

"The need to save seems to have become secondary," McCaughey said.

Permitting extra contributions to the CPP fund "would give Canadians the choice to put aside more – a little at a time – with the confidence of clearly knowing what benefits it will bring," he said.

"It would improve the future of Canadians who choose to opt in – through forced savings and no withdrawals – over the arc of 40 years."

Savings rate falls

CIBC commissioned its economists to analyze how well Canadians are doing at saving for retirement.

Among its conclusions, it found:

  • 60 per cent of Canadians born between 1985-89 and almost half of those born in the late 1960s will experience a decline in their standard of living at retirement of more than 20 per cent. Only 25 per cent or less of those born during or soon after the Second World War faced that same fate.
  • Among Canadians between the ages of 25 and 64 today and earning less than $100,000 a year, around 8.4 million will experience a decline of more than five per cent in their standard of living at retirement.
  • Of those, about 5.8 million will experience a decline of more than 20 per cent.

"When we look at that most vulnerable group — those 5.8 million individuals — we see that most of them are young, " McCaughey said. 

Much of the decline in standard of living that the late 20s to early 30s age cohort will face is owing to the fact that those individuals are maturing and entering the job market at a time when private pension plans are increasingly scarce, McCaughey said.

"They're finding it hard to replace what those private plans offered," he said.

They lack the scale of saving that their parents enjoyed, and the advantages of obligatory participation, expert investment management, locked-in contributions, a long-term horizon and certainty of outcome.

McCaughey said the CPP, or something like it, could deliver on all of those advantages

He said his bank's research suggests the CPP savings option would help close the retirement savings gap for young Canadians by as much as 80 per cent.

His proposal comes at a time when the federal government is increasingly concerned about the falling savings rate among Canadians.

As of the end of 2011, according to Statistics Canada, Canadians saved about four per cent of their personal disposable income. That compares with the more than 20 per cent peak achieved in 1982.

Ottawa has responded by passing laws to allow the creation of pooled registered pension plans, private savings funds operated by banks and insurance firms. PRPPs still require regulatory approval by the provinces.

Federal Finance Minister Jim Flaherty has also promised to work with the provinces on approaches to opening up savings options for Canadians within the CPP.