Canada’s finance ministers are reopening the debate on reforms to the Canada Pension Plan with an aim to increase benefits as governments come to grips with the reality that Canadians are not saving enough for retirement.
A calmer economy, continued concerns over lack of savings and new leadership in Alberta and Quebec appear to have changed the political dynamic that had pushed CPP reform onto the back burner of the national agenda.
Federal Finance Minister Jim Flaherty remains reluctant to approve CPP reforms, however, and is expected to try to focus the discussion on Ottawa’s preferred option, which is voluntary pooled registered pension plans (PRPPs) that would be privately managed. Other finance ministers, including Ontario’s Dwight Duncan and Manitoba’s Stan Struthers – plan on advocating for an expanded CPP.
The Globe and Mail has learned that a policy paper on CPP reform prepared by federal and provincial public servants will be presented to the ministers during their yearly December gathering for two days of meetings, which will be held this year at Meech Lake. Not enough Canadians are taking advantage of existing voluntary options such as RRSPs, say supporters of CPP expansion, including the seniors’ lobby group CARP.
They also stress that CPP has a proven track record as a low-cost, well-run and fully funded public program.
Officials will lay out several options, including one described as a “three 10” plan, sources say.
Under that scenario, the year’s maximum pensionable earnings for CPP would increase by $10,000 (it is currently at $50,100), the maximum benefit would increase by 10 percentage points – to 35 per cent from 25 per cent – of pensionable earnings and the changes would be phased in over 10 years. Increased benefits would require higher premiums, but the size of proposed increases is not clear. Similar options are also expected to be presented.
Public-sector unions had been calling for benefits to be increased to 50 per cent of pensionable earnings, but officials are attempting to craft a plan that would fit the expressed political desire for a “modest” increase to CPP.
Mr. Flaherty had initially supported some form of CPP increase, but he surprised and upset some provinces in December, 2010, by reversing that support. He argued at the time that not enough provinces were on board and it was a bad time economically to increase premiums. A federal source said Ottawa’s position has not changed.
Altering CPP requires the support of two-thirds of the provinces representing two-thirds of the population. In 2010, both Alberta and Quebec opposed CPP enhancements, and the two provinces are big enough to block any changes.
As a result, work focused on what Ottawa and the provinces could all agree on: pooled plans. These privately managed savings vehicles are aimed at providing a low-cost option for employers who do not currently offer a pension plan. Employees could contribute to a PRPP via automatic payroll deductions.
Several provinces are still studying whether to approve the plans. Only Quebec is clearly moving ahead with one.
But several influential voices have chimed in to say PRPPs are not enough on their own.
David Denison, who stepped down this year as chief executive of the Canada Pension Plan Investment Board, recently spoke of pooled plans’ limitations in an interview with The Globe.
“As they are designed right now, I don’t think they’ll make an impact,” said Mr. Denison, who is widely respected for his seven years managing CPP’s $170-billion in investments.
Ontario has said it will not approve PRPPs without a plan to enhance CPP.
The resistance to CPP changes appears to be weakening. Alberta remains opposed, but its rhetoric has softened under Premier Alison Redford. Quebec’s new Parti Québécois government says it now supports both PRPPs and work on CPP enhancements. Quebec has its own version of CPP called the Quebec Pension Plan.
In its November budget, Quebec’s Parti Québécois government said it would work with the other provinces and Ottawa “to assess the possibility of making a gradual and fully funded improvement to the Quebec Pension Plan and the Canada Pension Plan.”
Alberta Finance Minister Doug Horner told The Globe his government is focused on a potential PRPP, but said he’ll listen to what others have to say on CPP reform.
“I’m always open to the discussion,” he said.
Saskatchewan Finance Minister Ken Krawetz said he wants PRPPs to succeed.
“But at the same time we have to be open to what might changes to the CPP be on a modest basis,” he said.