Ottawa is wrong to block much-needed CPP reform

Posted on December 17, 2013 in Social Security Policy Context – Opinion/Editorials – Stephen Harper’s Conservatives still can’t bring themselves to expand the Canada Pension Plan to provide a reliable income for middle-income workers.
Dec 16 2013

According to Prime Minister Stephen Harper’s government, one in four Canadian workers isn’t saving enough for retirement. That’s a lot of people who face a harsh lifestyle adjustment when they leave the workforce. Millions of young workers who earn less than $100,000 a year could face a sharp 30 per cent drop in their standard of living on retirement, one recent study warned.

For many, those “golden years” are shaping up as anything but.

Yet the Conservatives, after eight years in office, still can’t bring themselves to cushion that impending shock in the simplest, most efficient way by agreeing to expand the time-tested Canada Pension Plan so that it provides a reliable income stream.

Instead, Finance Minister Jim Flaherty continues to nix reform by insisting that the economy is too fragile to even consider bumping up CPP contributions along the lines proposed by Ontario Premier Kathleen Wynne’s government and others. For the Tories, eager to court small business, the time is never right. Tellingly, Flaherty won’t even hazard a guess as to when CPP reform might be on the table.

That left Canada’s finance ministers wrapping up pension talks at Meech Lake with nothing to show, beyond punting the problem into the long grass. It was yet another sadly missed opportunity. And it left the Wynne government threatening to “move forward to implement a made-in-Ontario alternative” — raising the spectre of a costlier, balkanized system. This failure of federal leadership and prudent stewardship is leading us nowhere good.

Clearly, the CPP needs beefing up, insofar as it leaves millions at risk. Currently it covers earnings only up to about $50,000, providing up to $12,000 in annual pension. That’s little enough today. What will it be worth in 30 years’ time?

Sensible proposals from Ontario, other provinces and trade unions would double the maximum payout by gradually hiking mandatory payments by employers and workers. There have been calls as well to create a voluntary supplemental CPP into which employers and workers could pay, creating a solid group plan.

By comparison, the Harper government’s hobby horse Pooled Registered Pension Plan initiative is a high-risk option. Unlike the CPP, it is voluntary. Both employers and employees could choose to invest, or not. Many would not. Only one eligible Canadian in four currently contributes to a registered retirement savings plan. And employers face pressure to cut costs, not incur them.

The advantages of a broad, enhanced CPP should be obvious. The plan, with $193 billion in assets, has expert management, scale and a low cost structure. Unlike many investments it is easy to understand. It brings in contributions over a long horizon. And it’s locked in. All this assures a safe, predictable income on retirement.

CPP reform is the way to go. And it’s past time we got going.

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