It seems the idea of expanding the Canada Pension Plan doesn’t die easily. The NDP hasn’t let it go, nor has the Ontario government who, with their March 27 budget, reiterated their preference for a “modest, phased-in expansion of CPP” over pooled registered pension plans (PRPPs).

Ontario’s fondness for “big CPP” is understandable: it doesn’t cost the government a penny, the initial burst of enthusiasm for PRPPs seems to have waned everywhere except in Quebec, and pension plan coverage in the private sector is down to just 22% of the workforce. Still, the CPP/QPP can’t change so long as Quebec and Alberta maintain their opposition to expansion—unless the Ontario government knows something we don’t.

Just in case the idea still has legs, here are some reasons to exercise caution. The rest of the developed world, including the U.S., has seen fit to raise the normal retirement age under their social security programs to 67 or 68. We are deluding ourselves if we think Canada will forever be the one holdout with a retirement age of 65. The fact that we are living longer is just one reason for raising the retirement age.

As I pointed out in my last column, Canada has an even more compelling reason to push for later retirement. With our changing demographics, unemployment is dropping quickly. We will have a labour shortage in about 10 years’ time and the only large pool of able-bodied Canadians who will be capable of working (at least on a part-time basis) will be 60-somethings. In fact, in recent years, employment rates among people age 55 and up have been rising steadily. The last thing we want to do is to expand the CPP now and then push back the CPP retirement age 10 years later. Every employer who has to implement a take-away knows the best time to do it is in conjunction with an improvement.

The other problem is that we are learning that DB plans, like the way CPP is currently constituted, don’t really exist. Every apparent DB plan is, in reality, a target benefit plan, in the sense that the sponsor can communicate the benefit they intend to pay but situations may arise—insolvency, financial crises, wars, deflation, oil price shocks—when even the sturdiest sponsor may have difficulty making good on its DB promise. Like target benefit plans, some DB plans may have to cut benefits if the promised benefit proves unaffordable. Unlike target benefit plans, trimming benefits under a DB plan is politically and legally difficult if there are no rules communicated in advance as to how it will be done.

Pension plans can be likened to trees. Traditional DB plans are like deciduous trees, which can thrive under the right conditions, but lack flexibility and can snap like twigs under hurricane conditions. Target benefit plans are like palm trees that will bend with the wind and not break.

If the CPP is to be expanded, we should decide first how our normal retirement age is evolving. The recent change pushing back retirement for OAS purposes to 67 provides a pretty good idea. We should also decide if the CPP benefit promise should be recast more formally as a target benefit promise rather than pure DB. The bigger the plan, the more important this will be.

Moving the normal retirement age under the CPP/QPP to 67 and turning the plan into a target benefit plan will no doubt be unpopular moves, but they will be easier to do if they are accompanied by an expansion of the benefit. Maybe the current hiatus—while we see whether PRPPs will work and while Quebec and Alberta figure out what they really want—may work in our favour, if it gives us time to reach a consensus on the long-term direction of big CPP.