There was a time when many Canadians resented being forced to participate in the Canada Pension Plan (CPP), believing they could do better on their own. Two stock market crashes later, that notion is as outdated as Freedom 55.
Since the financial meltdown began in 2007, an increasing number of seniors are living in poverty, underlining the urgency to expand the CPP. As Canadians watch their private savings dramatically fail, reforms to the CPP in the late ’90s have proven to work. The plan is well funded at $125 billion, well invested, reliable and sustainable.
The only problem is the payout of 25 per cent for top earners — up to a maximum of pensionable earnings of $47,200 per year — is inadequate. That means the most anyone can make on CPP is a little less than $1,000 a month or about $11,800 a year. It’s not a lot.
As the baby boomers retire, the stress on the system will only grow, and the discrepancy between those who have properly planned for retirement, and those who have not, will become more pronounced.
Increasing the CPP premiums and payouts is the fairest way of easing the burden on tax-funded subsidies for low-income retirees, such as the guaranteed income supplement. Make no mistake, the CPP is not a payroll tax. It is mandatory savings. You only get what you put into the plan. Any reforms to increase contributions and benefits would be phased in over 40 years, so that only those who have fully paid the increased premium would fully benefit from the payout.
Expanding the CPP is not a new idea, and was first recommended by a task force in 1979. It is now back on the table, after Federal Finance Minister Jim Flaherty and all provincial finance ministers except for Alberta’s Ted Morton, agreed in June to a “modest, phased-in and fully funded enhancement to defined benefits under the Canada Pension Plan.”
By contrast, a major increase in the benefit — up to 50 per cent — is being proposed by a number of people and organizations.
They include former CPP chief actuary Bernard Dussault, Simon Fraser public policy researcher Jon Kesselman, the author of Expanding Canada Pension Plan Retirement Benefits: Assessing Big CPP Proposals; and Gil McGowan, the president of the Alberta Federation of Labour.
The three met with the Herald editorial board recently and presented a compelling argument for doubling the CPP benefit, which we endorse. The CPP already covers almost all Canadian workers and thus spreads the risk and management fees. It is fully portable, offers guaranteed income to all retirees, and is the only risk-free investment broadly available to workers. Private RRSPs and employer pension plans have proven much riskier than initially billed. Those who are in company pension plans are likely in a defined contribution scheme, where the amount that goes in is predetermined, but the payout is based on how well the fund is invested and ultimately performs. Nortel workers know only too well how that worked.
Employers and employees would both be better served by paying more into CPP and less into a company plan. Employees could leave after a few years without losing their pension benefits, reflecting the more transient reality of today’s workforce, where it’s the exception instead of the norm that a career begins and ends at the same place.
Alberta’s opposition is a throwback to outdated thinking, with regards to individual choice and financial flexibility. Those Canadians who want to retire in comfort will still need more to live on than the CPP.
But by raising the standard of living for all retirees, today’s taxpayers are saved from shouldering the burden of tomorrow’s seniors living in poverty. In the long run, it ensures people pay their own way; a truly Conservative value that should be embraced by the Alberta government.
Calgary Herald, Sat Nov 27 2010