NEWS
12/16/2013 08:21 EST | Updated 02/15/2014 05:59 EST

Jim Flaherty hints at pension reform proposal

Finance Minister Jim Flaherty is hinting he may present his own proposal on pension reform when he meets with his provincial counterparts in Meech Lake today.

While several provincial finance ministers are pushing for an enhancement to the Canada Pension Plan, so there will be a richer benefit available to the generation retiring 30 years down the road, Flaherty has been criticized for dragging his feet on reform.

Ontario and Prince Edward Island have been leading the charge to boost CPP contribution rates.

P.E.I. Finance Minister Wes Sheridan has put a proposal on the table that would increase CPP contribution rates, by both employers and employees.

"Anyone earning under $50,000 at the top end would increase their contribution by 17 per cent. What this would do – someone earning $40,000 a year would pay about $465 extra – less than a cup of coffee a day. And that would return them about $2,250 more in their retirement years," he told CBC's The Current. ​

He said his plan has been "misconstrued" as doubling pension premiums. In fact, only people earning in the $100,000 range would see their premiums doubled.

The CPP enhancement is necessary because people earning between $35,000 and $100,000 are not saving for their own retirements, Sheridan said.

Younger workers would benefit

The younger generation is facing low incomes, high debt and no private pension plan and will not have enough to live on unless CPP is improved. Current benefits pay just over $12,000 a year and even with Old Age Security and the Guaranteed Income Supplement, the income is just $16,000.

All the finance ministers know there is a shortfall, Sheridan said.

"When we first met in 2010, we realized that Canadians were not saving and it’s the middle class that we have to point out as being the most guilty," he said. 

Nova Scotia, Newfoundland and Labrador, Manitoba and Quebec also appear to favour some kind of CPP enhancement measure.

Ontario Finance Minister Charles Sousa has suggested his province may move ahead on its own if there's no progress in reaching an agreement with Ottawa.

"Over 50 per cent of Ontarians do not have a pension plan. They're going to be fully reliant on CPP and OAS to provide for them and at $12,000 a year, that is insufficient," he told CBC News.

In fact, just 34 per cent of all Canadians have a private workplace pension and one third of Canadians have no savings at all.

"But we know that economically speaking, enhancement to CPP is a win-win because it will increase consumer spending, increase contributions to this plan which will in turn allow for even more investment in pension companies investing in Canada and in these projects," Sousa said.

Ontario ready to do it alone

Sousa says Ontario believes a change is urgently needed now, while most of the baby boom generation is still paying into CPP and there is time for that investment to grow.

"Ontario's made it very clear, we have the critical mass to enable a pension plan. We recognize how important this is to people who are vulnerable to have a plan that is suitable," he said ahead of the meeting.

"So Ontario will go alone with a made in Ontario solution, I've introduced a number of opportunities now, if we don't get consensus today, we can't wait for tomorrow so we'll start working."

The Harper government has, in the past, called CPP premiums a job-discouraging payroll tax.

And Flaherty has warned that with the economy still fragile, boosting premiums could do more harm than good.

The problem is really with a small percentage of the middle class with not enough money put away, Flaherty said, adding that he will suggest a more targeted solution.

"You don't want to use a bazooka to go after a specific issue," he said.

Flaherty prefers pooled savings plans

Flaherty has said he prefers pooled registered pension plans (PRPP), in which employees contribute to a pooled fund that is invested for long-term returns. He has said PRPPs would be a solution to encourage savings, as they would have lower fees than RRSPs.

​However, they would not be mandatory, nor would there be any mechanism to prevent employees who get into financial difficulty from removing their savings from a PRPP. 

There are provinces, including Saskatchewan, that agree with Flaherty that any change now could halt economic growth.

Sheridan sees the PRPP proposal as a good one, but says CPP reform is a better option. He suggests using several vehicles to improve pensions.

"I don't call it a tax on employers. It's an employee benefit. That's a very big difference," he said.

Bernard Dussault, former chief actuary of the CPP, also dismissed the idea that a CPP enhancement would kill jobs.

"The CPP, when it was implemented in 1966, it was subject to an immediate increase of 3.6 per cent deducted from payroll and salary. That did not affect the economy," he said.

"From 1987 to 2003, the contribution rate was gradually increased from 3.6 per cent to 9.9 per cent and there has been no slowdown in the economy. To the contrary the employment rate increased during those years."

'Ballot box issue' for seniors

Susan Eng, vice-president of advocacy for the Canadian Association of Retired Persons, said the 300,000 members of CARP see pension reform as an urgent issue and want the finance ministers to reach a consensus.

"They have to agree to increase the CPP, it’s that simple. It isn’t the only option to help people save for their retirement, but is the one that’s on the table and a very good one," she said.

“All of the arguments are in, we know what the details are. It’s now come down to a political choice. For our membership … it’s a ballot box issue.  It matters that much to them.”

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