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After 50 Years of the Canada Pension Plan We've Run Off Course

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Rosemary Calvert via Getty Images
Rosemary Calvert via Getty Images

Lester Pearson was a remarkable Canadian. We first came to know him as a proficient global statesman, skilled in the diplomacy of multilateralism. He assisted at the birth of the United Nations, invented the concept of peace-keeping, and won the Nobel Peace Prize. In 1963, he became Prime Minister of Canada.

Five years in that job, Mr. Pearson never once had a majority in Parliament, but still he led one of the most productive governments in Canadian history.

This past February, we celebrated the 50th anniversary of Canada's Red Maple Leaf Flag -- one of Mr. Pearson's proudest accomplishments. Next year, we'll mark the 50th anniversary of national medicare, another Pearsonian legacy.

And this week, the legislation that originally created the Canada Pension Plan (CPP) will turn 50 years old. It passed the House of Commons on March 29, 1965, was approved in the Senate on April 1 and received Royal Assent on April 3. The CPP and its Quebec counterpart came into effect on January 1, 1966.

The stated purpose of the Canada Pension Plan was to ensure all working Canadians have an opportunity to retire in dignity. It builds on basic Old Age Security to achieve greater social justice linked to progress in the economy.

Established by federal-provincial agreement, the CPP is a mandatory contributory plan into which all employees and employers pay regular premiums. That money is invested to generate the returns necessary to cover the plan's benefits. As such, CPP contributions are essential long-term investments in portable retirement incomes for a large portion of Canadians, supporting their future living standards.

That sounds like common sense today, but 50 years ago it took extraordinary vision, diplomacy, negotiation and persistence to get it done. National Health and Welfare Minister, Judy LaMarsh, was a dynamo at the centre of the action. Quebec Premier Jean Lesage was pivotal, along with Ontario's John Robarts. Stanley Knowles and Paul Martin Sr. were constant Parliamentary advocates. And Lester Pearson provided the driving determination.

The CPP was an historic accomplishment!

But by the 1990s -- with longer life expectancies, aging demographics and escalating unfunded liabilities -- doubts had arisen about the future soundness of the Canada Pension Plan. Would it run out of money? Was the investment strategy getting adequate returns? Were the benefits supportable? Was the administration strong, efficient and independent? The plan clearly required major renovations to save it, and that would take federal-provincial consensus, which is always hard to get.

As part of a multi-pronged effort to restore fiscal integrity to the Government of Canada, then-federal Finance Minister Paul Martin Jr. decided to tackle the CPP challenge. He found a key ally in the Provincial Treasurer of Alberta, Jim Dinning. Ontario Finance Minister Ernie Eves was also helpful. Together, they built the business case, the social consensus and the national momentum to rejuvenate the CPP.

It's an interesting historical footnote that saving the plan earned strong support across Canada -- except for provincial NDP governments in British Columbia and Saskatchewan, and Stephen Harper and his Reform (now Conservative) Party.

Today, the CPP ranks as one of only a handful of successful public pension plans worldwide. Its administration is competent and cost-effective. It's a distinct fund, independently managed according to investment policies that are free from political interference. It has a proven track-record as an international leader in the pension industry, generating world-class rates of return. External actuaries have recently judged the CPP to be sound and secure for another 75 years (the maximum actuaries will go).

Because it's been neglected for the past nine years, the CPP is labouring under one major limitation. The maximum regular benefit a contributor can receive is just over $12,000 per year. The average is just more than half that. Those amounts are far from sufficient to ensure retirees can maintain their quality of life, without other significant savings.

But the typical 35-year-old today is saving less than half of what their parents did at that age. Three-quarters of those working in the private sector don't have access to an employer-sponsored pension plan. And of those who are within 10 years of retirement, fewer than one-third have $100,000 or more set aside to sustain themselves. Another third have no retirement savings at all.

While they have tinkered with various private sector pension adjustments, the Harper government has not been helpful in dealing with basic retirement income insecurity.

They eliminated previous investment tools like Income Trusts, destroying about $25-billion in value formerly in the savings accounts of some two-million Canadians. They are delaying eligibility for Old Age Security and the Guaranteed Income Supplement by two years, which will take nearly $30,000 from the lowest-income and most vulnerable seniors -- most often women living alone. And Mr. Harper has vetoed every suggestion to upgrade the CPP.

All of which is to say: Canada has big challenges to face in the immediate future if we're to honour Lester Pearson's ambition of a fair, efficient, adequate system of retirement income for all Canadians.


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