Pension reform: It’s no time for cold feet
TheStar.com – opinion/editorials
Published On Sun Dec 19 2010
Canada’s finance ministers are meeting in Alberta Sunday and Monday to grapple again with pensions, an issue they have circled around since meeting in the Yukon darkness a year ago.
Back then, some argued that retirement incomes for Canadians were just fine. But by the time they met in Prince Edward Island in the summer, the ministers — including federal Finance Minister Jim Flaherty — had come to their senses and agreed to consider a “modest” expansion of the Canada Pension Plan for the first time since its inception 45 years ago.
Now Ottawa is singing a different tune. “Now is not the time for CPP premium increases,” says Prime Minister Stephen Harper, thus setting the stage for a confrontation with most of the provinces at the meeting in Kananaskis. The host province, Alberta, is the exception among the provinces. Like Ottawa, it remains deeply opposed to what it decries as a de facto payroll tax that will kill jobs.
In fact, previous hikes in CPP premiums to shore up its finances had minimal impact on employment. And public opinion surveys show broad support for an expanded CPP. Research from the Ontario government and pension experts across the country support the idea of building on the strengths of the CPP — its diversification, low fee structure, solid track record and strong actuarial footing.
The CPP is solid, but its benefits — capped at $934 monthly, or $11,200 a year — are still relatively low by world standards. Expansion is the obvious solution to a problem that won’t go away: the growing uncertainties and inequities in retirement incomes. Only one in five workers in the private sector can count on employer pension plans. RRSP contributions have never met expectations, either because Canadians are disinclined or unable to save for a rainy day or because they have been scared off by recurring market meltdowns.
While pushing the CPP to the back burner, Flaherty is talking up a new proposal to make it easier for small firms to offer private pensions to their employees. Not surprisingly, the financial services industry supports this idea. But it is a stop-gap measure.
The plan Flaherty is now selling amounts to a so-called “defined contribution plan” — where employees pay in but are not guaranteed a “defined” pension when it’s time to collect (the return on investment will depend entirely on market performance). Flaherty’s latest pitch only underscores the regrettable decline in traditional “defined benefit plans,” which pay out a promised amount rather than leaving workers vulnerable to the vagaries of the market.
Ontario Finance Minister Dwight Duncan told the Star he fears Ottawa is losing its nerve, under pressure from the financial sector and the Conservative bastion of Alberta. But so far, Alberta has been a lone voice. Quebec has signalled it will not stand in the way of prudent expansion of the CPP (which the Quebec Pension Plan broadly mirrors). Since unanimity is not a requirement for pension reform, why the sudden reluctance in Ottawa to be offside with Alberta?
At their last meeting in Charlottetown, Flaherty emerged to say, “We agreed to consider a modest, phased-in, and fully funded enhancement to defined benefits” under the CPP. That was over Alberta’s objections. Now Flaherty is saying that he must tread cautiously. “It’s a multi-jurisdictional challenge to get a consensus on the CPP,” he told reporters. “There are no quick or easy solutions.”
That’s no reason to proceed at a snail’s pace when a strong consensus exists for prudent action. Pension reform has serious long-term implications for Canadians that require politicians to keep their focus.
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