The Conservative government is warning against an expansion of the Canada Pension Plan ahead of a key meeting with the provinces, raising the possibility that years of talks will not produce a decision to act.
Prince Edward Island and Ontario have rallied provincial support throughout the fall for a national agreement on what they call a “modest” enhancement to the CPP.
Ontario Premier Kathleen Wynne is expected to bring up the issue on Thursday when she meets with Prime Minister Stephen Harper on Parliament Hill.
But the federal minister responsible for pensions – Minister of State for Finance Kevin Sorenson – is rejecting the suggestions from PEI and Ontario.
“I’ve studied that plan. It is not a modest proposal,” he said in an interview with The Globe and Mail. “There would be a huge cost to Canadians.”
Mr. Sorenson and Finance Minister Jim Flaherty are scheduled to meet their provincial and territorial counterparts for a dinner on Dec. 15, followed by a day of meetings at Meech Lake, in Quebec’s Gatineau Park.
When the group met there last year, they asked officials to come up with a plan for a modest enhancement of the CPP for them to consider, a subject that had been on the agendas of previous sessions. But some provinces, including Alberta and New Brunswick, fear that forcing Canadian employees and employers to pay higher premiums now to receive higher benefits in retirement would be bad for the economy.
An analysis from Finance Canada concludes higher CPP premiums would have a negative impact on the economy because higher labour costs would mean less hiring by businesses.
Ottawa’s preference is to encourage more savings through voluntary pooled registered pension plans (PRPP), which involve payroll deductions towards an option similar to registered retirement savings plans (RRSP). That concept got a boost this week when Quebec’s National Assembly voted overwhelmingly in favour of a bill that would offer Canada’s first PRPPs next year.
Quebec’s plan goes beyond what Ottawa first proposed, because it would force companies with at least five employees to enroll their staff in a PRPP. Employees could opt out, but most are expected to stay in. The savings would be managed by private sector groups such as life insurance companies.
The plans would be a boost for firms that are approved to invest the funds.
Tom Reid, the senior vice-president of group retirement services for Sun Life, said the plans would make Canadians save more for retirement and all provinces should follow Quebec’s lead.
“Politics is the art of the doable,” he said, noting that while CPP enhancement is also a good idea, voluntary pooled plans have more support.
Wes Sheridan, the PEI finance minister, said his province will not bring in pooled pensions until Ottawa agrees to boost the CPP. He said Ottawa should make a counter-proposal if it thinks PEI’s plan is too expensive.
“There’s never going to be a perfect time, but we can’t kick this can down the road any further,” he said.
A CIBC Economics report warned this year that middle-income Canadians are not saving enough for retirement. The report said the situation “will be at its worst decades from now,” when people born in the 1970s and 1980s retire and face a drop of 20 per cent or more in living standards.
The household savings rate was in the 15-20 per cent range during the early 1980s, but since the late 1990s, it has hovered below 5 per cent.
The CIBC report said the reality is not as simple as saying today’s working Canadians are more irrational and irresponsible than their parents. Returns on fixed income and equity are down, and record low interest rates discourage saving and encourage consumption.
CIBC economist Benjamin Tal said enhancing the CPP and pooled pensions would help boost savings.
“The CPP is a good one,” he said. “The CPP has the scale to make big investments and get better returns with relatively low cost.”
With a report from Adrian Morrow in TorontoReport Typo/Error