Seize the day on the CPP
TheStar.com – opinion/commentary – An enhanced Canada Pension Plan is the best way to secure the future for today’s young workers.
May 26 2013. By: Ken Georgetti
When the federal and provincial finance ministers meet in Ottawa in June, enhancing the Canada Pension Plan will be on their agenda. They have been talking about it since 2010 and it is crucial to Canadians that they seize the day and do it now.
There is a growing urgency here because increasingly governments and companies have been shedding the risk and expense of workplace pension plans. The whole notion that employers have any obligation to help ensure a decent income after work — something taken for granted a generation ago — is now in question.
Most Canadians simply cannot save enough to live in dignity in retirement.
Wages for middle-income earners have been stagnant for 25 years. One third of family units have no workplace pensions or private pension assets such as RRSPs.
A variety of optional plans have been floated as solutions over the years and none of them has worked. Only 24 per cent of tax filers contributed to an RRSP in 2011, the most recent year for which we have tax data. When they do buy RRSPs, Canadians are gouged by a financial services industry that charges among the highest management expenses in the world.
Now we have Pooled Retirement Pension Plans (PRPPs) being touted by federal Finance Minister Jim Flaherty and special interest groups such as the Canadian Federation for Independent Business (CFIB). Setting up a PRPP is completely voluntary and a majority of employers will choose not to offer them to employees. Dan Kelly, president of the CFIB, told the Senate banking committee in June 2012 that two-thirds of his members would not consider offering a PRPP to their workers.
Kelly’s organization wants taxpayers to foot the bill for providing assistance to retirees who do not have adequate pensions. This is actually a tax subsidy to those businesses who refuse to provide pensions for their workers. Those companies are, in effect, asking people who pay taxes to give them a free lunch.
Most experts agree, in any event, that PRPPs are really only glorified RRSPs and that as a retirement savings vehicle they are vastly inferior to an enhanced CPP. Canadians already have a variety of retirement savings plans to choose from. PRPPs are just one more of these but they’re not a pension plan.
The Canadian Labour Congress advocates a gradual doubling of Canada Pension Plan benefits. We began this campaign several years ago because we were convinced that it is easily the best way to provide for retirement security. Virtually all employed and self-employed Canadians already contribute to the CPP. It is fully portable and provides an inflation-indexed lifetime retirement benefit. The CPP enjoys low costs on account of its large scale, efficient administration, and professional governance. The Canada Pension Plan Investment Board oversees a diversified and professionally managed fund on behalf of the plan.
A modest increase in CPP contributions will produce thousands of dollars a year in extra benefits for workers when they retire. If we phase in a small premium increase over seven years, it would result in a future doubling of maximum benefits. That would raise the maximum CPP benefit from the current level of $12,150 a year to a far more livable $24,300.
In fact, the CPP offers every Canadian worker $2 of savings for every $1 they put in. That’s quite a deal, and one you won’t get from PRPPs or even from private individual saving.
The CPP is recognized abroad as one of the best public pension plans in the world. Benefits are paid for by contributions by both workers and their employers. Departing from this principle would alter the founding purpose of the CPP and destroy the expectation that workers and employers should contribute equally toward decent retirement incomes.
The discussion around retirement security has spent far too much time asking whether another voluntary savings plan might be more attractive than the last. The assumption is that if we find the magic voluntary savings vehicle, perhaps with the right amount of financial literacy, people will finally begin to save adequately. This is a delusion and it legitimates the idea that employers bear no responsibility for workers’ incomes in retirement. We need an expanded CPP to which both employers and employees contribute.
Our message to the finance ministers: The time to expand the CPP is now. Our message to employers: Live up to your responsibilities to be a partner with your employees in providing for their retirement. Expanding the CPP is the only way to secure the future for today’s young workers.
Ken Georgetti is president of the Canadian Labour Congress.
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