Ken Georgetti Headshot

We Must Improve the Canada Pension Plan

Posted: Updated:

Canada's federal and provincial finance ministers will meet in Ottawa later this month and the Canada Pension Plan will be on their agenda, as it should be. The ministers have been talking since 2010 about enhancing the CPP and last summer the premiers and territorial leaders asked them to present options for "modest enhancements" to the plan.

There is a growing urgency about pensions. Canadians are not able to save enough for retirement. Fully 60 per cent of workers have no workplace pension, while one-third of Canadians between the ages of 24 and 64 have no personal retirement savings. And 1.7 million Canadian seniors today live in poverty or near-poverty, with incomes below $17,000 a year.

Given 25 years of stagnant wages for middle-income earners and real wage decreases for lower-income earners, it's not surprising how difficult it is for people to save. Canadians have a low, and declining rate of saving, with some people using their Registered Retirement Savings Plans (RRSPs) as unemployment insurance programs.

These facts should deeply concern the finance ministers. Fortunately, there is a solution at hand. The CPP is a pension plan that delivers secure, predictable retirement benefits to Canadians at low-cost. The problem is that when governments first created the plan in the 1960s they limited the CPP to replacing only 25 per cent of the average industrial wage. That is just not enough to deliver income security in retirement.

The Canadian Labour Congress has been advocating for a gradual doubling of Canada Pension Plan benefits as the best way to provide retirement security for everyone. Virtually all employed and self-employed Canadians already contribute to the CPP. It is fully portable and provides an inflation-indexed lifetime retirement benefit to millions of retirees. 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. Benefits are paid for by contributions and investment income and not out of government tax revenues.

A modest increase in 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 basic pension floor for all workers from the current level of $11,840 a year to a far more livable $23,680.

There is a growing consensus that improving the CPP is easily the best choice among the available pension options. The list of experts who recommend CPP enhancements includes (among others): Professor Jonathan Rhys Kesselman, Simon Fraser University; Dr. Keith Horner, a former senior federal Finance Department official; Bernard Dussault, a former Chief Actuary of Canada; Dr. Michael Wolfson of the University of Ottawa; Monica Townson, an independent economic consultant; and Bob Baldwin, a pension expert and consultant. Several of these experts took part in a recent discussion organized by the CLC to talk about how best to design enhancements to the CPP.

David Dodge, former governor of the Bank of Canada, also said in November that the CPP is a good plan and should be expanded.

Most finance ministers agreed back in June 2010 that the best way forward was to increase CPP benefits. Later that year federal Finance Minister Jim Flaherty changed his mind and pushed for an alternative option called Pooled Retirement Pension Plans (PRPPs) to be offered and administered by private sector financial institutions. Mr. Flaherty apparently prefers an idea that will provide more business to an industry that charges its clients the highest management fees in the world on RRSPs.

Experts agree 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. 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 Canadian Federation of Independent Business, told the Senate banking committee in June 2012 that two-thirds of his members would not consider offering a PRPP to their workers.

The best way to guarantee retirement security is to improve the CPP and build upon it. We are asking the finance ministers, who will meet in Ottawa this month to recommit to CPP reform. If they don't seize this opportunity, generations of Canadians, especially today's younger workers, will be much poorer in their retirement.