The Canada Pension Plan and the Quebec Pension Plan do not need to be significantly strengthened, contrary to the views of some at the meeting of the federal and provincial finance ministers when they met at Meech Lake last month. Jim Flaherty, the Minister of Finance, was right to resist. Instead, the provinces are the ones that should be taking steps to co-operate with the federal government’s optional pooled pension plans.
The essential question is whether Canadians will be able to adequately “replace” their incomes when they retire – that is, to maintain the standard of living to which they are accustomed. A secondary but important consideration is the effect on the economy if larger payments by employers and employees into the CPP and QPP were required. At present, growth is quite slow. If the CPP takes a bigger bite out of people’s paycheques, consumer demand will be correspondingly lower. And larger employers’ contributions would add to the cost of employment, thus discouraging hiring. For these reasons, the finance ministers have at least agreed to put off any action until June.
Much of the evidence, unexpectedly, goes to show that the retiring Canadians who will have difficulty maintaining their standard of living are people in the top 40 per cent with respect to income – if, that is, they don’t have an employer-sponsored pension plan. Surely, members of these upper two “quintiles” are in a position to find competent investment advisers. Compulsory, government-imposed saving is not needed to rescue the affluent from themselves.
It would be much less expensive to vigorously publicize voluntary supplementary plans, and to make it easy to join them, such as by ticking off a box on the annual income-tax return – or by requiring employees to actively opt out, if they do not want to take part in a supplementary scheme.
The provinces’ constitutional power over “property and civil rights” means that a voluntary scheme will not really catch on unless provincial regulated firms (the large majority) are involved. The shoe should be on the other foot: the provincial governments’ feet, that is.