Back in 2010, I wrote three articles for the Financial Post concerning pension reform in Canada. In the first two articles, (CPP isn’t broken and Pension myths), I argued against expansion of the Canada Pension Plan (CPP). In the third, Dial down the rhetoric on pensions, I suggested that the newly announced pooled registered pension plan (PRPP) concept appeared to have some promise to address the most significant pension issue of declining coverage for private sector workers.

Three years have passed and the anemic PRPP formulated by the federal government so far has generally been met with disdain and disinterest. I also wrote in this space about PRPP shortcomings in Feds miss the mark in PRPP Act and Is the PRPP dead?

There has been some forward movement on PRPPs in Quebec, Alberta and British Columbia primarily, but it’s at a snail’s pace, and Quebec is the only province that seems interested in the concept of mandatory private workplace pension coverage. There’s absolutely nothing that would concretely ensure low costs for PRPPs, though.

So I am now going to publicly flip-flop and add my voice to calls for CPP expansion, which I now believe to be an inevitable development, for the following reasons (in no particular order):

  • 75% of private sector workers don’t have a workplace pension (and the PRPP will not solve this);
  • private sector workplace pensions will continue their decline in coverage—I believe that small and medium-sized enterprises (and some large ones) would simply prefer to avoid the complicated burden of administering their own pension plans;
  • Canadians are not using personal savings vehicles (e.g., RRSPs) to prepare for retirement with an adequate income;
  • governments are taking action to curb public sector pensions to the point that I now believe public sector workers would realize little net gain in their total pensions from significant increases to the CPP (one of my primary objections to CPP expansion);
  • Canadian financial institutions are more interested in protecting their current share of the retirement savings pie in the shorter-term than in the longer-term financial welfare of their customers, which their lobbying efforts for the PRPP have demonstrated;
  • politicians have generally ignored the better ideas of independent pension experts such as the Alberta/B.C. Joint Expert Panel and Keith Ambachtsheer for improving pension coverage for Canadians;
  • the CPP already covers most working Canadians;
  • the labour movement and political left overwhelmingly support CPP expansion; and
  • CPP expansion is likely the simplest solution to implement.

In fact, as far as I can discern, there remains only one significant barrier to CPP expansion: the idea that the economy cannot afford an increase in the CPP payroll tax. Federal Finance Minister Jim Flaherty (who supported CPP expansion in June 2010) has been saying for the past couple of years—along with a succession of Alberta finance ministers—that the economic recovery currently remains too fragile for business to absorb additional CPP costs, which is the mantra of right-wing business organizations. As long as those right-wing business organizations have the ear of the federal and certain provincial governments, I suspect that it will never be the right time for CPP expansion.

The reality of pension reform is that the choice is to pay now or pay more later. If society doesn’t pay more now to ensure retirement income adequacy of retiring Canadians, future seniors with less money will be contributing less to the economy and be more reliant on government for other forms of support such as the guaranteed income supplement.

Let’s just get on with it.

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Greg Hurst is a Vancouver-based pension consultant with Greg Hurst & Associates Ltd.

These are the views of the author and not necessarily those of Benefits Canada.

Copyright © 2018 Transcontinental Media G.P. Originally published on benefitscanada.com

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See all comments Recent Comments

Neil Craig:

While it may be inevitable, it is still not a great thing, plus why would I want to contribute more to a program where if I was saving outside of it I would produce a better benefit. There is still time to improve the system but it needs to start with taking action on financial literacy and getting the savings rates increased. Having future generations pay for our indiscretions and bad planning is a mistake. Any increase may also give false hope to Canadians that they only need to save in an enhanced CPP to ensure a comfortable retirement. We both know the demographic trend will not support this and we will be back to another “pension crisis” sooner rather than later.

Wednesday, November 13 at 2:23 pm | Reply

JP Laporte:

Neil is bang on that we need more and better financial literacy. The mandatory doubling of the CPP is bad public policy, as it is way too blunt of an instrument:
-some people don’t need more CPP as part of their overall savings strategy.
-some people should be paying down debt or saving through their home rather than in the CPP
etc etc.

Friday, November 15 at 10:35 am

JP Laporte:

Greg,
I am so glad that you have finally come around to my way of thinking first expressed in 2004 before this whole CPP expansion bandwagon started to collect steam. I agree wholeheartedly with your new policy.

While many disagree with a voluntary expansion of the CPP on the grounds that it won’t help the pension coverage dynamic, I would venture a few thoughts:

(1) TFSA are voluntary and yet millions of Canadians signed up for them, saving billions.

(2) The CFIB doesn’t want a mandatory payroll tax, for good reason, since ultimately it drives up the labour costs. The Supplemental CPP deals with that real concern.

(3) Competition is good. There are a number of instances where the public sector competes with the private sector to the benefit of consumers. Beer store vs. LCBO, auto insurance, GIC vs Canada Savings Bonds etc.

Wednesday, November 13 at 6:52 pm | Reply

Greg Hurst:

Hi JP,

My flip flop goes beyond the concept of a voluntary supplement to CPP – I call for additional mandatory contributions from both employees and employers.

The economic argument of higher labour costs in the short term will, I think, be more than offset by the longer term drop in consumption attributable to insufficient retirement incomes. Businesses aborbed annual CPP contribution hikes ranging from 0.2% to 0.5% from 1987 through to 2003, spanning more than one recession and growth cycle. I suspect they could do so again.

Thursday, November 14 at 12:56 pm

Mike Murphy:

Great Article. All we need now is to get this issue before the populace and keep pressure on those groups opposed to making improvements to CPP. Especially the Banks and the Canadian Federation of Independent Businesses who are both putting short term profits ahead of long term solutions to one of the biggest problems facing future generations of seniors and our economy.

Thursday, November 14 at 8:33 am | Reply

Mike Bayer, CIM, CFP, FCSI:

The state has never and can never create wealth. The state can only function from the wealth it forcefully takes from individuals and the private sector. If you want real wealth creation, the answer is simple – free markets, free trade, the rule of law and a reduction in the size and scope of government.

Friday, November 15 at 11:50 am | Reply

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