THE BLOG

There's No Free Lunch, and There's No Free Retirement

05/28/2013 05:19 EDT | Updated 07/28/2013 05:12 EDT
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Canadian Federation of Independent Business (CFIB) President Dan Kelly recently wrote a blog post about the debate on the expansion of the Canada Pension Plan, in which he argues that "there's no free lunch in this world, and indeed, there's no free retirement." Indeed, Kelly says, "someone has to pay for it."

Someone will indeed pay for the retirements of current and future generations of Canadian workers. Who pays and how we pay are the decisions before all Canadians and policymakers today. The contributions we fail to make in dollars today will come to us as increased financial pressure and social costs when our loved ones and neighbours struggle to make ends meet in their later years.

The CFIB's preferred solution follows the pattern of recent decades as governments and employers step away from their traditional involvement in the retirement security of their citizens and their workers. Public retirement programs like the OAS-GIS are being cut, and employers are continuing their attacks on workplace pension plans that have reduced pension coverage to just one in three Canadian workers, according to labour force and pension data from Statscan. Unfortunately, individuals have not been able to pick up where their employers and governments have left off. Wages for most workers have stagnated or fallen below rate of inflation, causing a decrease in "real wages." This decrease means income has to stretch further to cover basic needs, and that saving for retirement is getting harder and harder for most workers.

Fewer than one in four Canadian tax filers contributed to an RRSP last year, and the average RRSP savings fall far short of providing a decent retirement. Those who are saving through RRSPs are seeing their retirement nest eggs depleted by high financial fees, which needlessly shifts retirement income to the financial sector. Significant numbers of soon-to-be retirees will be faced with substantial reductions in living standards in retirement, and that this problem is only going to get worse with successive generations. The individualizing of our retirement system is clearly not working.

Individualizing our retirement security has clearly not been a free lunch -- we are paying for these decisions in many difficult ways. We are paying with poverty. Too many seniors are living in poverty, deprived of dignity in retirement that they deserve and straining other social programs. We are paying by forcing workers to sacrifice their quality of life in retirement.

Almost one in three Canadian seniors access the Guaranteed Income Supplement, the public means-tested pension which flows exclusively to low-income seniors . This year, Canadian taxpayers will spend $10 billion on the Guaranteed Income Supplement (GIS), the GIS, and other provincial and municipal programs, lift seniors just above poverty lines, to levels that provide subsistence, but still require daily struggle.

There is a better and more efficient path towards retirement security for all Canadian workers. CUPE and the Canadian Labour Congress recommend that Canada double CPP benefits through a modest, phased-in increase to contributions has wide public, governmental and expert support. With the average CPP payment currently at around $500 per month, a modest increase of three per cent of earnings could boost the average CPP benefit to a secure, fully-indexed $1,000 per month, for life from retirement. Despite what the CFIB says, we have always been upfront about the necessary contribution rate increases required to fund CPP expansion. Our campaign materials have highlighted these figures, in both percentage of earnings and dollar figures. And what are Canadians saying? Polling, which uses explicit figures to ask Canadians if they are willing to pay more to receive more CPP, shows very strong support for expansion.

Because participation in the CPP is mandatory, all workers would benefit from expansion. Pooling of funds on this scale means efficiency and low expenses, which ensures that more of each contribution will fund retirement when compared to the high fees most individuals pay for private envelopes of investments. Experts unanimously agree that the CPP is entirely sustainable in the long-term, and when compared to rates in other OECD countries, CPP contribution rates are extremely modest. Prior to the last increase of CPP contributions in the late 1990s, many groups raised fears that increase in rates would destroy the economy but instead, the unemployment rate subsequently declined significantly. Even the finance ministers' own research demonstrates the economic benefits far outweigh any negative impact.

More seniors retiring with more secure income will lift future seniors further away from poverty, taking financial pressure off of programs like the GIS, which lowers tax bills. Most importantly, our communities are strongerwith each future senior we help to avoid financial struggle in retirement. A full doubling of CPP benefits would mean Canadian seniors retiring with adequate income, less fiscal pressure on federal and provincial programs for low-income seniors, more spending money and a stronger, fairer economy. That is something we can all benefit from.

Canadians don't want a free lunch. They want to retire in dignity and security and they are prepared to accept a modest increase to the CPP to do so. CPP expansion is the best solution and I urge Canadians to visit www.cupe.ca/pensions to make your voice heard during this crucial time.

OAS vs CPP