Development, communications of CPP changes inadequate: CLC

The proposed financial sustainability provisions of the enhanced Canada Pension Plan destabilize Canadians’ understanding and expectation of the CPP, and create challenges around communicating the benefit to contributors and beneficiaries, according to the Canadian Labour Congress.

“Given the significance of these changes, in our view, the manner in which the regulations have been developed and communicated to Canadians, has been inadequate,” wrote Hassan Yussuff, the organization’s president, in a letter to the Ministry of Finance.

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While the Canadian Labour Congress acknowledged that actuaries were consulted on different options for an automatic adjustment mechanism, and provincial governments were consulted in the development and refinement of the regulations, it stated the process was absent of any meaningful consultations with the rest of Canadians.

“The current 30-day public consultation, begun in October and concluding in November 2018, comes at the conclusion of a long process of consultation and regulatory development restricted to the actuarial community and provincial governments,” noted the letter. “The restricted and late-stage nature of this public consultation is woefully inadequate, given the magnitude of the decisions reflected in the proposed financial sustainability regulations. It is doubtful many Parliamentarians are even aware of what is being proposed here, much less members of the public.”

The Canadian Labour Congress also suggested that the Office of the Chief Actuary be required to conduct more extensive sensitivity analyses, referring to the stochastic modelling underpinning the probability analysis of a triggering action. It recommended the broadening of these scenarios to include differing economic and demographic environments, instead of just financial market assumptions.

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“Some emphasis on investment return assumptions in modelling the entirely pre-funded additional CPP benefit is warranted, but other variables are equally important,” stated the letter, referring to future wage growth, labour force participation and mortality rate trends. “A proper uncertainty for the enhanced CPP analysis would encompass variability in all these key actuarial assumptions, including possible correlations.”

As well, the Canadian Labour Congress suggested that the Public Pensions Reporting Act be amended to require the Office of the Chief Actuary to compile a detailed report showing not only the current costs and required contribution rates, but also the benefits of the CPP to Canadians, disaggregated by sex, income, cohort, region and other variables.

“Further, since the net value of CPP benefits depends on the extent to which they trigger reductions in guaranteed income supplement benefits and increases in income taxes, the report should also show the impacts of CPP benefits on recipients’ disposable incomes,” stated the letter, noting this report should be tabled in Parliament. “Contributors and beneficiaries would then be able to understand and assess the benefits of the CPP in an appropriate context, and not just the funding and cost of the program.”

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Finally, the Canadian Labour Congress noted those developing the enhanced CPP are adopting a more complex and value-laden approach to automatic adjustment, particularly in response to a triggering event resulting from a shortfall or funding excess. It suggests the ramifications of this decision could be profound.

“One of many consequences will be to deepen the government’s communications challenge of explaining to Canadians how their benefit is calculated and adjusted,” wrote Yussuff in the letter. “Additionally, the government will have to explain how and why what Canadians understand as a secure, predictable benefit may be affected by investment return volatility. Given the significance of the proposed financial sustainability approach, a wider public discussion is warranted. We believe that it is not too late to launch a properly broad consultation regarding these regulations.”