Die Neue Zeit
21st February 2012, 05:31
http://ca.finance.yahoo.com/news/how-the-government-wants-to-trick-us-into-saving-more.html
Excerpts:
Now, many of us have little to do with this picture-perfect rational saver: We don’t know how to figure out how much money is enough; we’ve had so many temp jobs before landing the steady gig that it was impossible to plan (or so we tell ourselves); we have an instinctive aversion to payroll withdrawals; and we forever postponed filling out the paperwork to enrol in our company’s pension plan.
That’s why the Harper government’s new pooled registered pension plans are set to include an auto-enrollment feature. We’re talking about bill C-25, which lays out the federal government’s vision of PRPPs and–unlike anything to do with Old Age Security–is the pension reform measure that’s actually before parliament right now. PRPPs are voluntary pension schemes aimed at the 34 per cent of Canadians–mostly self-employed and small business employees–who have no workplace pension. Under the government’s proposal, contributions would be pooled (allowing for lower administrative costs) and managed by private financial institutions. [More: Maybe it's the health-care house that's burning and not the pension house]
While employer participation in a PRPP is voluntary, the employees of a company that opts in are automatically enrolled. They may choose to opt out of the plan, but no one will ask permission to sign them up. That little trick, Ottawa believes, will be enough to boost the number of Canadians with a retirement savings account. There’s plenty of evidence to support this view. In the U.S., after Congress modified the rules around 401ks to favour automatic registration, the number of Americans saving through that type of retirement account grew dramatically, reaching almost 90 per cent in some companies. New Zealand and Australia have played around with auto-enrollment as well, with similarly staggering results. And the U.K. is currently in the process of rolling out similar automated schemes.
All of these pension reforms–and Ottawa’s own bill, the Department of Finance confirmed–are based on research from the increasingly popular field of behavioural economics, which recognizes that many people in many circumstance don’t act like rational actors. Behaviourists have been drawing up economic models that seek to incorporate factors that may muddle our rationality, such as instincts, myopia, inertia and laziness, and they’ve helped design a number of public policies that play off of those irrational tendencies to nudge us towards certain desired behaviors. Automatic enrollment for retirement accounts is just one example. The Obama administration, for instance, used behavioural economics to package its 2009 Making Work Pay tax credit in a way that was supposed to make Americans spend, rather than save, the extra money (judgment is still out on whether this one worked).
Needless to say, libertarians call policies like pension plans with auto-enrollment paternalistic. On the other hand, one could easily argue that if we can’t behave like rational adults, maybe we do need a nanny state.
Excerpts:
Now, many of us have little to do with this picture-perfect rational saver: We don’t know how to figure out how much money is enough; we’ve had so many temp jobs before landing the steady gig that it was impossible to plan (or so we tell ourselves); we have an instinctive aversion to payroll withdrawals; and we forever postponed filling out the paperwork to enrol in our company’s pension plan.
That’s why the Harper government’s new pooled registered pension plans are set to include an auto-enrollment feature. We’re talking about bill C-25, which lays out the federal government’s vision of PRPPs and–unlike anything to do with Old Age Security–is the pension reform measure that’s actually before parliament right now. PRPPs are voluntary pension schemes aimed at the 34 per cent of Canadians–mostly self-employed and small business employees–who have no workplace pension. Under the government’s proposal, contributions would be pooled (allowing for lower administrative costs) and managed by private financial institutions. [More: Maybe it's the health-care house that's burning and not the pension house]
While employer participation in a PRPP is voluntary, the employees of a company that opts in are automatically enrolled. They may choose to opt out of the plan, but no one will ask permission to sign them up. That little trick, Ottawa believes, will be enough to boost the number of Canadians with a retirement savings account. There’s plenty of evidence to support this view. In the U.S., after Congress modified the rules around 401ks to favour automatic registration, the number of Americans saving through that type of retirement account grew dramatically, reaching almost 90 per cent in some companies. New Zealand and Australia have played around with auto-enrollment as well, with similarly staggering results. And the U.K. is currently in the process of rolling out similar automated schemes.
All of these pension reforms–and Ottawa’s own bill, the Department of Finance confirmed–are based on research from the increasingly popular field of behavioural economics, which recognizes that many people in many circumstance don’t act like rational actors. Behaviourists have been drawing up economic models that seek to incorporate factors that may muddle our rationality, such as instincts, myopia, inertia and laziness, and they’ve helped design a number of public policies that play off of those irrational tendencies to nudge us towards certain desired behaviors. Automatic enrollment for retirement accounts is just one example. The Obama administration, for instance, used behavioural economics to package its 2009 Making Work Pay tax credit in a way that was supposed to make Americans spend, rather than save, the extra money (judgment is still out on whether this one worked).
Needless to say, libertarians call policies like pension plans with auto-enrollment paternalistic. On the other hand, one could easily argue that if we can’t behave like rational adults, maybe we do need a nanny state.