By Goudu Kassa, Guest Contributor
“A Dollar Today is Worth More Than a Dollar Tomorrow”… how many times have we heard this expression? From the perspective of today’s pensioners this expression has taken on a greater sense of urgency. Pensioners on fixed incomes (CPP and OAS) are faced with an ongoing struggle to afford their basic daily needs in the continuing tight economy. It has become evident that our government needs to reassure pensioners on fixed incomes that their buying power will continue to have the same purchasing power over the years. The CPP and OAS rates are reached through a complex calculation termed ‘pension indexation’. Statistics Canada uses a formula based on the Consumer Price Index ( http://www5.statcan.gc.ca/cansim/a26?id=3260020) for a 12-month period ending in September to calculate the pension index. To explain further, the indexing method or adjustment is basically a compilation of price changes for goods and services we consume every day. For example, Statistics calculates CPP rate increases by taking the average Consumer Price Index (CPI) of a given year and compares it with the last year average CPI. It then uses that difference to adjust our pensions benefit of the current year. With this adjustment retirees should be able to maintain the ability to purchase the same ‘basket of goods’ in future years. In essence, what pension indexation is trying to do is to make sure that those on fixed incomes will be protected from inflation and cost of living increases. Hence, accurate indexation of pensions is critical to the pensioners’ survival. I personally think that, since prices of goods and services fluctuate at different rates, the composition of the goods and services in CPI determination may skew the average CPI one way or the other. Could there be an inherent problem with the CPI adjustment? Is the ‘basket of goods’ used in the calculation adequately reflecting the low-income pensioner’s basket of goods? I know of many low-income pensioners who express dismay and concern when they see noticeable fluctuations in their weekly grocery bill and other basic expenses. The ‘basket of goods’ used in the CPI formula may not be relevant to that of the pensioner. Given the sober demographic forecast of an expanding seniors‘ population and the pressure that will be placed on pension funds I believe it is highly relevant to pose this question: Is the CPI adjustment sufficient for those on fixed income to sustain the market fluctuations and inflation? We need to address that question in the context of the serious economic downturn we are experiencing. We also need to take a closer look at the ‘basket of goods’ included in the formula and how the Guaranteed Income Supplement (GIS) is applied. Low-income pensioners did not create the financial disaster and should not be cast aside casually after having made their contribution to our economy for decades. Pensioners do not have the same good fortune to receive a bailout as those in the financial industry and major corporations. Further, in future planning, our government should not ignore another challenging aspect of the changing demographics. That is, there is a serious need to undertake proper demographic planning in terms of immigration policy to increase the pool of younger workers. However, that poses a dilemma. Although encouraging immigration of younger workers should be given due consideration, that step would be more relevant when we have a healthier economy that generates sustainable employment opportunities. To sum up, I would say that the current method used by Statistics Canada (CPI) to calculate indexation is logical. However, this method is inadequate as it fails to keep up with the increasing costs of the complete ‘basket of goods’ needed by many seniors surviving on modest incomes.