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The Straight Truth: A Pension Plan Hike Is A Terrible Idea

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When the country's finance ministers meet in Vancouver on June 20 to discuss expanding the Canada Pension Plan and Quebec Pension Plan (CPP/QPP), there will be a lot on the line for Canadian workers and business owners. But it's not too late to put the brakes on a proposal that will destroy jobs, hold back wages and even push some businesses over the edge in years to come.

Now, you may be saying to yourself, "Well, of course small businesses are against this idea. They will simply incur an additional payroll tax with no associated benefit."

All very true, yet this proposal goes well beyond our 109,000 member businesses. It affects employees just as much as it affects small- and medium-sized businesses. It's time to set the record straight once and for all, and to expose the weak and tired arguments being rolled out in support of CPP expansion.

First and foremost, this is not your mom and dad's CPP crisis. Not by a long shot.

Advocates of CPP expansion would have you believe there is a full-on retirement crisis unfolding. This is simply not the case.

When Paul Martin set out to increase CPP contributions back in the 1990s, it was because the fund had been mismanaged and depleted by political short-sightedness for a generation. Significant premium hikes were necessary to save a plan that was severely underfunded (I note that CFIB members supported increased premiums at that time).

The CPP fund is actually in relatively good shape today, with enough in the kitty to cover retirees for 75 years to come. But advocates of CPP expansion would have you believe there is a full-on retirement crisis unfolding as we speak, crossing any and every demographic.

This is simply not the case.

Federal Finance Minister Bill Morneau, prior to being elected as an MP, co-authored a book entitled The Real Retirement, in which he and fellow author Fred Vettese wrote that the retirement savings crisis was a myth. For those committed to evidence-based policy-making, I urge them to consider minister Morneau's finding:

"Canadians are actually doing better than they think in their retirement planning -- and are better off than many of the experts are telling us," Morneau noted.

So are current seniors living in poverty? The evidence suggests quite the opposite. In fact, Canada has one of the lowest senior poverty rates in the industrialized world. And even if there were a large population of Canadian seniors living poor, a CPP hike would not help -- it would put exactly zero dollars in their pockets.

Those who are close to retirement and have made contributions to CPP over their working life will see little gain from CPP expansion, and at the lowest end of the income spectrum, increased CPP benefits will be offset by reductions in other income supports, such as the Guaranteed Income Supplement.

The government giveth, and then promptly taketh away.

Simply put, it will take 40 years for increased CPP contributions to result in the full increase in benefits . None of the proposals would be of any help for those at or near retirement age today.

Aside from this uncomfortable truth, a CPP hike would eliminate any help and reductions middle-income earners have received under the new government. We have to remember that additional CPP benefits are not free or even coming out of general government revenue. Any proposal to hike CPP essentially boils down to forcing you to take some of your money today to set aside for your benefit 40 years from now.

While research suggests that 17 per cent of Canadians may not be saving enough for their own retirement, a CPP hike would require everyone to put more of their income into the CPP basket.

For young people already confronting increasing levels of student debt, an overcharged housing market and a high cost of living, this is simply a financial kick in the teeth.

For most, that would mean reducing the amount they are already saving in a registered retirement savings plan (RRSP) or tax-free savings account (TFSA), or perhaps setting aside for their mortgage or kid's education. Even some unions admit that requiring employers to increase their share of the CPP will result in lower wages or foregone employee raises. There truly is no free lunch.

This doesn't exactly sound like a great way to buoy the middle class. For young people already confronting increasing levels of student debt, an overcharged housing market and a high cost of living, this is simply a financial kick in the teeth.

Moreover, Ontario appears bent on ramming through its unpopular and controversial Ontario Retirement Pension Plan (ORPP), which represents a damaging and costly double-whammy to workers and employers in the province should it come alongside an expanded CPP.

There are many better ways to help Canadians save more for retirement, if that is really the goal. Optional savings vehicles (e.g., RRSPs, TFSAs) should be promoted, as polls show these are preferred means of retirement savings over an expanded CPP/QPP program. They offer benefits that are just not available through CPP/QPP: better rates of return; broader transferability after death, etc. For businesses that have the ability to offer retirement savings plans to employees, they need more flexible, low-cost options, such as Pooled Registered Pension Plans, which are already in place in Quebec.

For Canadian workers, what can you do to let governments know that taking more money out of your pocket is a terrible way to help you save for retirement?

Visit and check out the facts and figures, use the calculator to see exactly how much more money will be coming off your paycheque if this plan goes through and then sign the petition to voice your opposition to CPP/QPP expansion.

Finance ministers have given themselves until December to arrive at a decision on CPP/QPP expansion, one way or another.

We've studied the issue from every angle and the straight truth is this: there's no need to wait another minute to pull this bad idea off the table.

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