Pension reform gains momentum

TheStar.com – Opinion/Comment – Pension reform gains momentum
Published On Wed Dec 09 2009.   By Thomas Walkom National Affairs Columnist

Now that the federal Liberals have belatedly discovered the virtues of pension reform, there is a chance – a chance – that something serious will happen on this front.

With his announcement Tuesday of a new Liberal scheme to help Canadians sock away money for their retirement, party leader Michael Ignatieff has joined a chorus that cuts across ideological lines.

In October, New Democratic Party Leader Jack Layton released his party’s blueprint for pension reform, based in part on ideas from the Canadian Labour Congress. Gordon Campbell’s Liberal government in British Columbia and Ed Stelmach’s Conservative government in Alberta say that they’ll go ahead with regional pension reform if they can’t get Ottawa to cooperate.

While differing in details, all of these new proposals have two things in common.

First, they recognize the sheer inadequacy of Canada’s current system for ensuring that those who have spent most of their lives working have enough income to retire in moderate comfort.

Second, all advocate a much increased role for government-run forced-savings schemes – either through the existing Canada Pension Plan or something like it.

Calls for pension reform are nothing new. Usually politicians ignore them. But the recession and the subsequent collapse of the stock market have added a new layer of urgency.

Falling stock prices savaged not only individual savings but company pension funds.

Moreover, corporate bankruptcies (and here the Nortel bankruptcy is the most infamous) have demonstrated the fragility of pensions. In the Nortel case, retirees stand to lose a third of their pension incomes.

In any case, only about 40 per cent of workers enjoy company pension plans of any sort.

As for private savings, forget it. Most Canadians don’t take advantage of the tax breaks offered to those who sink money into registered retirement savings plans. Even for those who do, RRSPs based on the vagaries of stock prices offer uncertain security.

The simplest way to deal with the pension problem is to supplement the Canada Pension Plan, a government scheme funded equally by employers and employees. Indeed, this is the mechanism preferred by the western premiers, the NDP, the CLC, many pension experts and now the Liberals.

The NDP wants the CPP payout doubled from the current maximum of $908 a month. That, in turn, would require a doubling of the employee and employer payroll taxes used to fund the scheme. The Liberals, following the lead of B.C. and Alberta, want a CPP supplement to which individuals could voluntarily contribute.

So far, the federal Conservative government is holding out against serious pension reform. It wants to tinker around the edges instead.

And the banks – who fear that a beefed up CPP will cut into their lucrative RRSP business – are notably hostile to the idea.

The Ontario government has been silent on the key issue of CPP expansion which, as my colleague Jim Daw points out, stems in large part from the clout of the financial industry in this province.

Still, my guess is that governments are going to be forced to do something real here. Pensions are very much a middle-class issue. That means that there is a large and powerful constituency in Canada that cares about them.

The NDP understands this. Alberta’s Ed Stelmach understands this. With Ignatieff’s Liberals joining in, we may be reaching the point of political critical mass.

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