12/17/2013 01:49 EST | Updated 02/16/2014 05:59 EST

CPP reform needed to head off poverty, Charles Sousa says

Ontario considers pension reform to be critical to preventing widespread poverty among the elderly over the next 30 years and will go ahead with a wide-ranging package of reforms, says provincial Finance Minister Charles Sousa.

Sousa said other provinces are on the same page in seeing a need to boost pension income for middle-class Canadians and he plans to investigate whether they would like to join Ontario in finding a way to enhance the Canada Pension Plan.

A meeting of the federal and provincial finance ministers concluded Monday with no agreement on CPP reform, after federal Finance Minister Jim Flaherty said he believed the economy was too fragile to increase CPP premiums.

Flaherty said CPP contributions are a payroll tax that would kill jobs.

Sousa said Ottawa was the only standout in refusing to go ahead with CPP reform and it stalled the initiative when provincial and territorial ministers were willing to proceed.

“What we asked for and what we agreed to as provincial and territorial ministers was to put a framework in place now so we can assess the impact it would have on the economy, on the businesses — it would be done in tandem with their co-operation — so that we could, when times are good as Mr. Flaherty and others have said, that we would have the opportunity to implement a modest enhancement to CPP,” he said.

He said the pension issue requires a long-term view and Canada should not make “decisions based on election cycles.”

Retirement poverty

The current CPP annual benefit is $12,150 and most Canadians get less than $7,000, because of earlier retirement or time out of the workforce. Even with Old Age Security and Guaranteed Income Supplement (GIS), the pension adds up to just over $16,000.

That kind of income is a shock to middle-income earners who retire, Sousa says, and many will be turning to social services for support – putting a burden on the younger generation of taxpayers.

Right now only half of Ontario workers have a private pension and only a third contribute regularly to an RRSP.

Sousa said Ontario plans to look at all aspects of pension reform, including Pooled Registered Pension Plans – a pooled plan that would invest retirement savings for private sector employers.

“We are looking at PRPP – these are voluntary measures – other provinces have introduced it and Ontario’s doing the same,” Sousa said.

“We already have defined contribution plans with many businesses. We’re looking at the costs and the fees with that as well to protect the investor and protect the employee."

'No choice' but to consider CPP

He said Ontario also plans to look at the long-term health of other pensions, including public sector plans.

“We’re looking at the defined benefit and the public pension plans. We’ve asked [former Teachers Pension Plan head] Jim Leech to review that and introduce greater fairness to the system because many of them are undervalued,” Sousa said.

But CPP is a better, more stable and equitable plan and Ontario has no choice but to consider creating an enhancement to it, he added.

“Now our priority would be to enhance CPP as a complement to all of these initiatives. The fact that this is now not being proposed and not being considered, we have no choice but to look at it,” he said.

“And we have the critical mass in Ontario to provide our own so we will look at the options that are available to us. “

One of those options is to invite other provinces to look at similar enhancements, to improve portability of plans from province to province.

A missed opportunity

Susan Eng, vice-president of advocacy for Canadian Association of Retired Persons, said Ottawa’s decision not to do more on CPP reform at a time when all provinces are in agreement is a squandered opportunity.

“I’m really disappointed. It was a missed opportunity. I’m particularly disappointed in the kind of misinformation that is out there,” she said.

Flaherty is wrong to call CPP a payroll tax, she said.

“I’d like to point out that the money that is actually contributed to your own pension plan for your own retirement is not a payroll tax, not given to the government. It doesn’t leave the economy, it’s actually taken by the pension plan itself and invested in the economy,” Eng said.

“Then when benefits are paid out, they are immediately taxed, they are immediately spent in the economy and there is savings in not having to pay the OAS and GIS,” she said.

Eng was not happy at the idea of a single province creating a separate pensions system, saying she was worried about portability of pensions.

“Ontario is really the only province that has the critical mass of a working population to go it alone, but for all our other members in other provinces across the country, that will create a patchwork and that will be a problem,” she said.