A reasonable solution would be for Big-CPP to distinguish between current and increased benefits, with the former maintained at inflation-indexed levels. The individual could choose to have the increased benefit entitlement annuitized at fixed indexed levels (in a graduated way beginning at the age of 50) or paid as a variable annuity based on future investment returns. This approach would insulate future generations from bearing the investment risk for their elders.
Some observers object that a Big-CPP scheme would do nothing for current retirees or those close to retirement, since its increased benefits would be phased in very gradually. In fact, most Big-CPP advocates aim to fix the current system for future retirees, not to bail out those who have failed to save adequately up to now.
THE HEART OF THE PROBLEM
Similarly, proposals by Big-CPP opponents would do nothing for these groups; they are trying to improve workplace pensions only for future retirees. Their proposals, however, miss the heart of the policy problem, because they remain voluntary, patchwork systems. Few employers are likely to voluntarily institute new pension plans, enrich existing plans or shift their plans to defined benefits.
Moreover, few of the many workers who under-save are likely to change their habits under a "supplemental" CPP scheme, such as the Liberal Party proposes. Supplemental CPP would offer some of the benefits of Big-CPP - defined benefits, low-cost administration and protection against long life and inflation risks - but it would lack the mandatory coverage essential to overcoming savings myopia.
Like most conflicts, the battle between Big-CPP proponents and supporters of enhanced voluntary savings and workplace pensions may not yield a clear-cut victory for either side. But some expansion of the Canada Pension Plan or an alternative mandatory scheme for employers and workers who save inadequately will be an essential element in any lasting peace.
Jon Kesselman is the Canada Research Chair in Public Finance and a professor in the graduate public policy program at Simon Fraser University.
